In a new report BIS-Shrapnel chief economist Frank Gelber suggests the eventual end of the resources boom will lead to a dramatic drop in house prices in Western Australia.
The report, Long Term Forecasts 2011 – 2026, warns that the Australian economy and certain property markets are 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]….When the expansion phase end, people will leave, there will be an oversupply of houses and prices will drop dramatically.” he says.
As I’ve written in previous blogs, I would steer clear of mining towns – they are too volatile.
But what about the capital city property markets that will benefit from the resources boom – Perth, Brisbane and possibly Adelaide?
Clearly the billions of dollars being poured into infrastructure spending has not helped these markets yet – but in due course the flow on effect will help them. But as long as they are overly dependent on one sector or industry – the mining sector – these markets will be more volatile that Melbourne and Sydney which has a more diversified and wide spread economy.
Now I’m not suggesting the resources boom will end any time soon – it won’t. It’s likely to be with us for a generation, and of course the resources sector will experience its ups and downs.
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, and not the financial shocks being felt around the globe, should be the real concerns for Australians
They suggest 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 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.”
A good example of this is how Norway has taken advantage of it resources boom, having set up a Sovereign Fund to stash away the profits for the benefit of future generations.
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