When mining boom ends, the west will weaken: BIS Shrapnel

BIS-Shrapnel chief economist Frank Gelber says the eventual end of the resources boom will lead to a dramatic drop in house prices in Western Australia. 

His comments come on the back of a new report, Long Term Forecasts 2011 – 2026, which warns that the Australian economy is vulnerable once the boom ends. 

While Gelber says it is impossible to predict when this will happen, he says the market is starting to weaken. 

“We employ lot more people in the construction phase than in the operation phase [of mines],” he says.

“When the expansion phase end, people will leave, there will be an oversupply of houses and prices will drop dramatically.” 

SQM director Louis Christopher agrees with Gelber that prices will fall when the boom ends but says predicting this is impossible. 

“It could be five years, 10 years or 20 years. It’s like saying that everyone is going to die at some point,” he says. 

Christopher says the risk still remains of a global downturn, which would result in falling commodity prices and a drop in demand for Australian mineral resources. 

In such a scenario, Christopher says mining towns would be the ones most vulnerable to a housing correction. 

“Perth prices have been in a downturn since 2007, and could bottom out fairly shortly. 

“However, mining town like Karratha where a four-bedroom house costs a $1 million would be smashed.” 

In its Long Term Forecasts 2011 – 2026, BIS Shrapnel warns that the structural change to the Australian economy caused by the resources boom and the strength of the Australian dollar should be the real concerns for Australians – not financial shocks being felt around the globe. 

The research house is calling for an infrastructure investment-led productivity drive to bring balance to the economy and which will make Australian industry more efficient and cost-effective. 

“The current financial market ructions are serving as a distraction from something much more important: the impact of the resources boom on the rest of the Australian economy,” Gelber says. 

Gelber says a resources tax is also needed to prepare the economy for the end of the boom. 

“While the resources boom continues and the dollar stays high, investment in infrastructure will serve as a rear guard action against loss of industry,” he says. “But, equally importantly, it will serve as the underpinning of growth once the minerals boom ends.”

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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