Which property markets are winning from the mining boom?

While most housing markets around the country perform sluggishly at best, markets associated with the mining boom are showing some strong growth conditions.

With all the hype around the resources sector, anyone would be forgiven for wondering where the benefits are being seen. Housing markets are generally slow, consumer confidence is low and everyone is saving rather than spending. “What commodity boom?” I hear you say.

Well, the boom is real and housing markets around the resource-intensive regions of the country are benefitting from strong demand, which is driving up transaction numbers and home prices. According to the Reserve Bank Commodity Price Index, the price of non-rural commodities (which includes iron ore, both thermal and metallurgical coal, gold, LNG, crude oil and alumina) is up 106% since reaching a GFC-induced trough back in May 2009.

The mining industry is of course interested in taking advantage of the high prices by extracting as much from the ground as they can. Demand for workers is high while housing options are generally scarce in many of the most active regions. As can be seen from the following selection of sales cycle graphs, transaction activity and prices are typically trending upwards.

With such high demand and a scarcity of quality housing, some mining regions are now showing median house prices higher than many of the most prestigious suburbs in the capital cities. Western Australia’s Roebourne, Port Hedland and Broome Council areas have recorded the highest median house prices outside of a capital city at $950,000, $775,000 and $660,000 respectively over the year to June 2011.

In Queensland, the resource-intensive regions of Isaac ($445,000) and Gladstone ($415,000) are showing the highest median house prices of any council region in the state outside of South East Queensland.

While property prices are generally high in these regions, rental markets have more than kept pace. Rental yields in most of the healthy mining towns are well in excess of the capital city averages. The highest indicative gross rental yields of any council region around Australia are found in Port Hedland at 12.7%. Queensland’s Cloncurry and Isaac come a close second and third, returning an average gross yield of 11.4% and 11.1%.

With the non-rural commodities sector apparently gathering pace, it is likely resource-driven regions will continue to prosper. However, a word of warning for prospective investors and home owners in these locations; economies with a singular dependency on a given commodity can be an inherently risky investment. Any weakness in the resources sector is likely to be reflected within the housing market.

Tim Lawless is reserach director at RP Data