When a mining town is not just a mining town…

An interesting piece I filed for Property Observer.

In a nutshell, Westpac has taken Broken Hill and Kalgoorlie– to remote mining towns synonymous with mining – off a list of what the bank calls “single industry” towns and making it easier for investors to get a loan.

The bank is saying, these towns are no longer just mining towns, they offer more and are hence not reliant on mining to keep up the demand for accomodation and keep property prices and rents buoyant.

(All the policy details are in the story by the way).

At the same time the bank has added a number of other mining towns in WA and Queensland to its list of “single industry” towns effectively ruling that it is a far more risky to buy an investment property in places like the Pilbara, than somewhere like Geelong or Bendigo, where there multiple industries driving the local economy.

There are some mining towns were property prices are rising at something like 30% a year and with investment yields around 16% (the average is around 5%).

What you have to keep in mind is that most of these towns are heavily subsidised by mining companies, who pay most of the rent for their workers.

I had a search through the census 2011 data and found that in another mining town – Moranbah in Queensland – rents are around $80 per week – that’s because they mines are paying 90% of the rent.

We’re talking thousands of dollars a week to rent a plain, often ugly house in a non-descript, dusty town that would be lucky to get $200 a week on the outskirts of Melbourne or Sydney.

Here’s an example. $3,000 a week for this depressing little number, with no garden out front and as much charm a warm glass of beer.

$3,000 a week for this three bedroom house in the Pilbara mining region of WA

Of course were the mines to pull back their activities, there’s no way anyone would pay $3,000. It’s an entirely artificial price.

Now, the risks of the mining boom going bust are small, but not insignfiicant, given how reliant we are on China demanding our coal and other natural resources.

And remembering that the growth of Chinese economy has slowed down of late.

But this risk, albeit a smallish one, is being reflected in banks’ mortgage lending policies.

Westpac are not the only ones not keen to lend in these riskier locations, and property investors should be wary too!