The housing markets of Australia’s mining towns are going in the opposite direction to those of Sydney and Melbourne.
The housing markets of Australia’s mining towns are going in the opposite direction to those of Sydney and Melbourne. MPA editor Sam Richardson asks three regional mortgage brokers what this means for their businesses.
Australia has a fixation on growth, and the housing market is right at the centre of it. Brokers in the capital cities have built their businesses – and in many cases entered the industry – on the promise of successive year-on-year house price growth. But far from the bright lights and inflated settlements of the east coast cities you’ll find another Australia, where all that growth began in the first place, and where broking now requires a different set of skills.
It’s no secret that mining is struggling; NAB’s June Business Index records mining as having the lowest confidence and conditions of all industries. We wanted to find out how the industry’s travails and tumbling commodity prices were affecting local housing markets and local brokers; to go beyond a simple ‘doom and gloom’ view of what is a complex set of local and international problems.
MPA talked to three brokers covering the areas around Karratha (WA), Mackay (QLD) and the Hunter Valley (NSW). These are three areas which saw particularly severe falls in house prices, of up to 23% in 2014. However whilst their economies are dominated by mining, these places are far from the worker camps of frontier legend; they’re established towns – and occasionally cities – with functioning, if struggling, housing markets.
Mackay
Mackay is the gateway to central Queensland’s coal mining industry and, for Mortgage Choice broker Graham Bowling, his base for almost 20 years. 2015 is proving one of his tougher years, and he explains: “The [RBA interest] rate cuts didn’t really have a huge impact on the region, the resources-reliant sort of spots, so business is probably down about 50% on the previous year, 2014-15, predominantly due to the downturn in the resources sector.” Seventy per cent of the Mackay’s economy was dependent on mining, directly or indirectly, Bowling estimates, as it was a hub for drive-in drive-out workers. Those workers were now leaving town, leaving empty properties behind: “mining companies started employing fly-in-fly-out people; they said we’ll only employ you if you fly in from Brisbane or Cairns so a lot of people left Mackay, and it left a huge surplus of houses.”
As well as reducing the number of new clients through the door, the downturn has put many of Bowling’s existing clients under pressure: “We have had a number of clients who’ve lost their jobs in the mining industry or are moving away from town, and it’s affecting their ability to borrow or repay.” For those seeking new loans, lenders’ postcode restrictions are making life harder as “there’s very few lenders now who will lend above 95%. A couple of the major banks don’t have postcode restrictions, but most do.”
Continued on next page
#pb#
Hunter Valley
Unemployment is also the main problem for LJ Hooker broker Ben Eick. The housing market in the Hunter is far from stagnant; it rose during the RBA’s rate cuts earlier in the year, but underlying local economic realities have dragged it back down: “It might have just been a knee-jerk reaction to the positivity around the rate cut. The problem around here is still employment; a lot of contractors are being laid off, so there’s a lot of uncertainty in the market.”
Eick deals with clients over a wide area, from mining-reliant towns in the upper Hunter to the Newcastle metropolitan area. However, the mining industry’s difficulties and decline is pulling down prices “even in Newcastle itself. The closer you go to downtown, the less reliant you are on the mining industry of course, it’s a lot more stable; the further out you go, the more reliant it gets; the vacancy rates out there are phenomenal – I think they were 20-25%, although that’s pulled back lately.”
As a broker, uncertainty is one of Eick’s biggest challenges, as “you’re talking to clients and they tell you ‘I’m finding out about my job next week, whether I’m going to be made redundant’. It’s a constant chase for me to find out what people are up to and whether we can do something or not”. It’s a stark contrast from the situation two years ago, he notes when “even your average labourer would be on $140,000 and still enjoy the country lifestyle and country prices… the more they earned the more they’d spend.”
Karratha
The Pilbara is perhaps the region which most epitomises Australian mining, and Karratha – alongside Port Hedland – functions as a hub for the local mining industry, as well as oil and gas extraction.
The region has been hard hit; local real estate agent John Briggs described the combination of lender restrictions and absence of buyers as ‘blood on the streets’, in an interview with news.com.au. It was therefore quite a surprise when local Smartline broker Cheryl Underwood told MPA that she remains positive about what she describes as a steady market.
Underwood argues that whilst commodity prices will continue to fluctuate, the current situation is part of a natural cycle: “Karratha is going through a phase where we’re no longer in construction but in the maintenance fields now. Business has slowed down but they’re diversifying a lot more so they’re less reliant on the mining and gas industries.”
For Underwood, affordability is the silver lining of the mining slump: “I have still been fairly busy because of the drop in the value of the properties. I’ve got a lot of people coming out of rentals into first homebuyer scenarios, so they’re able to purchase their own property.” Indeed, Karratha has been named one of just two affordable towns in Australia by Demographia and, combined with refinancers, there is still demand for Underwood’s services in the town.
The national perspective
MPA asked Cameron Kusher, senior research analyst at RP Data, if the trends our brokers described were commonly found in mining towns. “Even in these towns, the yields are still fairly strong; they’re still 8-9%,” Kusher explains. “There are still workers in these towns, and there’s still jobs, just not as many as there were.” However, two years ago yields were 15-20%, and the subsequent fall has scared some investors and made selling properties extremely difficult. Kusher is sceptical that improved affordability through low prices alone will tempt buyers back to these towns: “I think that’s quite a few years ahead, and I think it really depends on employment; the people who own the mines in these markets actually expanding them.”
Having acquired a bad reputation with property investors, what mining towns need is an organic recovery based primarily on employment, believes Kusher. “At the moment, I think the prospects for these towns are really not quite strong; they’re pretty high profile at the moment, and people are quite cautious about moving to them… you’re unlikely to see a significant increase in demand any time soon, I would think.”
Continued on next page
#pb#
The show must go on
Given there’s no miracle recovery around the corner for Mackay, the Hunter Valley, or Karratha, we wanted to know how those brokers still operating in these areas were adapting their businesses.
Reducing support staff might seem an obvious solution, but the only brokerage to do so of the three was Mortgage Choice Mackay, when the team went from six to four members. That option isn’t open to Cheryl Underwood, who’s already a sole operator, and Ben Eick’s office has in fact taken on more staff. What all of these brokerages have done, however, is concentrate on maximising efficiency.
Mackay broker Bowling believes he had a headstart when it comes to efficiency, as he’s been ‘tinkering away’ since the GFC cut commission levels. At the centre of his strategy is “technical efficiency, improving the way we submit applications electronically, through the use of efficient software. Instead of having loan processors, we’ve actually been able to deal with the process ourselves, so we’ve been able to let go of employees in that respect.”
Putting efficient procedures into practice does requires a shift in perception, believes Underwood, talking about her own experience in Karratha. For brokers under pressure, “minimising their costs would be the main thing. A lot of us think we have to earn more but you’ve got to look at both sides of it; obviously keeping up your income stream but also minimising where your costs are. When things get tighter it’s something I monitor more than my income.”
Both Hunter broker Eick and Bowling’s brokerage have diversified their businesses. For Eick, that means making the most out of the region’s diversity, concentrating on areas in Newcastle and around Lake Macquarie which are showing better performance. “Diversification is a necessary precaution,” he warns. “Don’t put all your eggs in one basket and rely on one area or region based around coal.” For Bowling, it means offering equipment finance, commercial finance and financial planning, “although the core business is still home loans”.
Green shoots
Ultimately for these brokers, working in a mining town means identifying the green shoots in the local economy, however small. After two years of falling, prices in some areas are beginning to stabilise, a necessary precondition for confidence to recover. “For us, it’s a case that there could be opportunity,” notes Bowling. “[The housing market] seems to have steadied off now in the property market up here in Mackay, and vendors are realising people aren’t prepared to pay the prices they were paying five or six years ago, so they’re adopting or accepting what people are willing to offer.”
In the Hunter Valley, Eick thinks the problems with unemployment and cautious lenders, combined with new regulation, could actually help: “People need brokers more than ever because the rules are so different.” Mining’s not going away, he notes, but the region is trying to move away from reliance upon it, with 15,000 new homes being built at Huntlee after years of delays.
For Underwood in Karratha, there’s no reason the good times can’t return to the city: “People seem to think the north-west is doneand- dusted, but it’s far from that. It’s just taking a deep breath in the short term.” A new international airport and planned port development will bring people back to the city, she reckons: “We’re just in a bit of a lull but we’re still steady business-wise, and when things start to pick up in the next 18 months or so, the whole cycle will start again.”
Australia has a fixation on growth, and the housing market is right at the centre of it. Brokers in the capital cities have built their businesses – and in many cases entered the industry – on the promise of successive year-on-year house price growth. But far from the bright lights and inflated settlements of the east coast cities you’ll find another Australia, where all that growth began in the first place, and where broking now requires a different set of skills.
It’s no secret that mining is struggling; NAB’s June Business Index records mining as having the lowest confidence and conditions of all industries. We wanted to find out how the industry’s travails and tumbling commodity prices were affecting local housing markets and local brokers; to go beyond a simple ‘doom and gloom’ view of what is a complex set of local and international problems.
MPA talked to three brokers covering the areas around Karratha (WA), Mackay (QLD) and the Hunter Valley (NSW). These are three areas which saw particularly severe falls in house prices, of up to 23% in 2014. However whilst their economies are dominated by mining, these places are far from the worker camps of frontier legend; they’re established towns – and occasionally cities – with functioning, if struggling, housing markets.
Mackay
Mackay is the gateway to central Queensland’s coal mining industry and, for Mortgage Choice broker Graham Bowling, his base for almost 20 years. 2015 is proving one of his tougher years, and he explains: “The [RBA interest] rate cuts didn’t really have a huge impact on the region, the resources-reliant sort of spots, so business is probably down about 50% on the previous year, 2014-15, predominantly due to the downturn in the resources sector.” Seventy per cent of the Mackay’s economy was dependent on mining, directly or indirectly, Bowling estimates, as it was a hub for drive-in drive-out workers. Those workers were now leaving town, leaving empty properties behind: “mining companies started employing fly-in-fly-out people; they said we’ll only employ you if you fly in from Brisbane or Cairns so a lot of people left Mackay, and it left a huge surplus of houses.”
As well as reducing the number of new clients through the door, the downturn has put many of Bowling’s existing clients under pressure: “We have had a number of clients who’ve lost their jobs in the mining industry or are moving away from town, and it’s affecting their ability to borrow or repay.” For those seeking new loans, lenders’ postcode restrictions are making life harder as “there’s very few lenders now who will lend above 95%. A couple of the major banks don’t have postcode restrictions, but most do.”
Continued on next page
#pb#
Hunter Valley
Unemployment is also the main problem for LJ Hooker broker Ben Eick. The housing market in the Hunter is far from stagnant; it rose during the RBA’s rate cuts earlier in the year, but underlying local economic realities have dragged it back down: “It might have just been a knee-jerk reaction to the positivity around the rate cut. The problem around here is still employment; a lot of contractors are being laid off, so there’s a lot of uncertainty in the market.”
Eick deals with clients over a wide area, from mining-reliant towns in the upper Hunter to the Newcastle metropolitan area. However, the mining industry’s difficulties and decline is pulling down prices “even in Newcastle itself. The closer you go to downtown, the less reliant you are on the mining industry of course, it’s a lot more stable; the further out you go, the more reliant it gets; the vacancy rates out there are phenomenal – I think they were 20-25%, although that’s pulled back lately.”
As a broker, uncertainty is one of Eick’s biggest challenges, as “you’re talking to clients and they tell you ‘I’m finding out about my job next week, whether I’m going to be made redundant’. It’s a constant chase for me to find out what people are up to and whether we can do something or not”. It’s a stark contrast from the situation two years ago, he notes when “even your average labourer would be on $140,000 and still enjoy the country lifestyle and country prices… the more they earned the more they’d spend.”
Karratha
The Pilbara is perhaps the region which most epitomises Australian mining, and Karratha – alongside Port Hedland – functions as a hub for the local mining industry, as well as oil and gas extraction.
The region has been hard hit; local real estate agent John Briggs described the combination of lender restrictions and absence of buyers as ‘blood on the streets’, in an interview with news.com.au. It was therefore quite a surprise when local Smartline broker Cheryl Underwood told MPA that she remains positive about what she describes as a steady market.
Underwood argues that whilst commodity prices will continue to fluctuate, the current situation is part of a natural cycle: “Karratha is going through a phase where we’re no longer in construction but in the maintenance fields now. Business has slowed down but they’re diversifying a lot more so they’re less reliant on the mining and gas industries.”
For Underwood, affordability is the silver lining of the mining slump: “I have still been fairly busy because of the drop in the value of the properties. I’ve got a lot of people coming out of rentals into first homebuyer scenarios, so they’re able to purchase their own property.” Indeed, Karratha has been named one of just two affordable towns in Australia by Demographia and, combined with refinancers, there is still demand for Underwood’s services in the town.
The national perspective
MPA asked Cameron Kusher, senior research analyst at RP Data, if the trends our brokers described were commonly found in mining towns. “Even in these towns, the yields are still fairly strong; they’re still 8-9%,” Kusher explains. “There are still workers in these towns, and there’s still jobs, just not as many as there were.” However, two years ago yields were 15-20%, and the subsequent fall has scared some investors and made selling properties extremely difficult. Kusher is sceptical that improved affordability through low prices alone will tempt buyers back to these towns: “I think that’s quite a few years ahead, and I think it really depends on employment; the people who own the mines in these markets actually expanding them.”
Having acquired a bad reputation with property investors, what mining towns need is an organic recovery based primarily on employment, believes Kusher. “At the moment, I think the prospects for these towns are really not quite strong; they’re pretty high profile at the moment, and people are quite cautious about moving to them… you’re unlikely to see a significant increase in demand any time soon, I would think.”
Continued on next page
#pb#
The show must go on
Given there’s no miracle recovery around the corner for Mackay, the Hunter Valley, or Karratha, we wanted to know how those brokers still operating in these areas were adapting their businesses.
Reducing support staff might seem an obvious solution, but the only brokerage to do so of the three was Mortgage Choice Mackay, when the team went from six to four members. That option isn’t open to Cheryl Underwood, who’s already a sole operator, and Ben Eick’s office has in fact taken on more staff. What all of these brokerages have done, however, is concentrate on maximising efficiency.
Mackay broker Bowling believes he had a headstart when it comes to efficiency, as he’s been ‘tinkering away’ since the GFC cut commission levels. At the centre of his strategy is “technical efficiency, improving the way we submit applications electronically, through the use of efficient software. Instead of having loan processors, we’ve actually been able to deal with the process ourselves, so we’ve been able to let go of employees in that respect.”
Putting efficient procedures into practice does requires a shift in perception, believes Underwood, talking about her own experience in Karratha. For brokers under pressure, “minimising their costs would be the main thing. A lot of us think we have to earn more but you’ve got to look at both sides of it; obviously keeping up your income stream but also minimising where your costs are. When things get tighter it’s something I monitor more than my income.”
Both Hunter broker Eick and Bowling’s brokerage have diversified their businesses. For Eick, that means making the most out of the region’s diversity, concentrating on areas in Newcastle and around Lake Macquarie which are showing better performance. “Diversification is a necessary precaution,” he warns. “Don’t put all your eggs in one basket and rely on one area or region based around coal.” For Bowling, it means offering equipment finance, commercial finance and financial planning, “although the core business is still home loans”.
Green shoots
Ultimately for these brokers, working in a mining town means identifying the green shoots in the local economy, however small. After two years of falling, prices in some areas are beginning to stabilise, a necessary precondition for confidence to recover. “For us, it’s a case that there could be opportunity,” notes Bowling. “[The housing market] seems to have steadied off now in the property market up here in Mackay, and vendors are realising people aren’t prepared to pay the prices they were paying five or six years ago, so they’re adopting or accepting what people are willing to offer.”
In the Hunter Valley, Eick thinks the problems with unemployment and cautious lenders, combined with new regulation, could actually help: “People need brokers more than ever because the rules are so different.” Mining’s not going away, he notes, but the region is trying to move away from reliance upon it, with 15,000 new homes being built at Huntlee after years of delays.
For Underwood in Karratha, there’s no reason the good times can’t return to the city: “People seem to think the north-west is doneand- dusted, but it’s far from that. It’s just taking a deep breath in the short term.” A new international airport and planned port development will bring people back to the city, she reckons: “We’re just in a bit of a lull but we’re still steady business-wise, and when things start to pick up in the next 18 months or so, the whole cycle will start again.”
