Modelling the future economic, population and housing impacts of developments in Gladstone

and Central Queensland

John Rolfe

CQUniversity

Focus of talk

• Understand and model the key drivers for population growth in Gladstone

• Model the potential impacts on housing markets

• Extend the analysis to central Queensland

Population and housing models

• Modelling has followed six key steps– Identify all the key projects– Estimate the construction and operational

jobs based in Gladstone – Model the flow-on effects on employment in

Gladstone – Estimate the additional population growth – Estimate the housing requirements – Model potential house price changes

Challenge to estimate flow-on effects

• Use economic multipliers to predict flow-on effects of each new primary job

Construction employment - confirmed projects

• Strong takeup of local employment in construction jobs to date – Estimate more than 1,000 locals employed at

present

Construction employment: confirmed + likely

• Accounting for additional new projects will extend construction employment over time

Operational employment: confirmed projects

• Expect over 1200 new workers by 2016

Operational employment: confirmed + likely

• Addition of more projects continues employment growth past 2016

Economic Multipliers

• Two separate models used to predict possible flow-on effects in Gladstone

• Model of past economy in Gladstone LGA indicates that for each new primary job, another 3.7 jobs are created

• Model of future growth in region suggests multiplier will be lower from now on – for each new primary job, another 2.8 jobs are created

Results of modelling: Increases to 2018

Extra Workforce

Extra Households

PopulationIncrease

Base case - confirmed projects only, all construction FIFO, conservative multiplier 4,383 4,097 11,144

Case 2 - confirmed projects plus likely - all construction FIFO, conservative multiplier 6,034 5,639 14,999

Case 3 - confirmed projects plus likely + 10% of construction workforce, conservative multiplier 6,034 5,639 14,999

Case 4 - confirmed plus likely + 10% of construction workforce + 20% of other projects, Conservative multiplier 7,277 6,801 17,904

Results of modelling: Increases to 2018

Extra Workforce

Extra Households

PopulationIncrease

Base case - confirmed projects only, all construction FIFO, high multiplier 5,417 5,062 13,558

Case 2 - confirmed projects plus likely - all construction FIFO, high multiplier 7,456 6,968 18,323

Case 3 - confirmed projects plus likely + 10% of construction workforce, high multiplier 7,456 6,968 18,323

Case 4 - confirmed plus likely + 10% of construction workforce + 20% of other projects, high multiplier 8,992 8,404 21,912

All projections are for rapid growth to 2018

• Assumes lower multiplier for future growth

Projections with higher multiplier

• Assumes same multiplier for future growth

Predicting impacts on housing prices

• Looked at housing price changes in three main ways

• A. Extrapolated price trends over past decade into the future

• B. Related past price changes to population growth and extrapolated to future

• C. Related past price change to growth shock

A. Extrapolating previous trends

• Extrapolation of previous models indicates that median house prices will increase by $35,000 per annum to about $660,000 in 2018

B. Extrapolate past relationship to future population growth

• Regressed change in house prices against population growth over past decade

• Extrapolation to new population growth suggests price growth by 2018 to >$800,000 for Scenario C

Predictions from approach B: 2000 - 2018

C. Price impacts ratio approach: Short term spikes

• The Rio Tinto Yarwun Refinery located in Gladstone is identified as a similar project in terms of its nature and location

• The refinery was commissioned in late 2004, with the first full year of operation in 2006.

• The project employed 431 permanent operational staff with the majority housed in Gladstone during its first year of operation

• The impact the Yarwun refinery had on property values in Gladstone will be used in this analysis to estimate the likely impact on property values of the major projects

Impacts on median house prices from Yarwun

• Growth rate of median house price in 2006 was 33%

• 14% above longer run mean of price increases

• Change in Gladstone population from Yarwun estimated at 1,164 people

• 2.2% increase in population

Price impact ratioSource: KPGM (2009)

• Price impact ratio estimated at 6.4%

• Each 1% increase in population drives 6.4% increase in price

• Increase in population from major new projects for Scenario C is

• 2011 population = 62,982• Average annual increase over 5 years =

up to 8% per annum• Price impact ratio analysis suggests

annual price increases of 30% on top of existing market trends

• Price increases could be as high as 55% more in short term under major growth scenarios and little change in supply

Are predicted price increases modest or high?

• Models predict prices will double in 8 years – and there may be shorter term price spikes

• Consistent with pattern in past decade• Predicted increases are large enough to

cause pain and impacts • But are not at the scale that mining towns in

the Bowen Basin are experiencing • And trends consistent with growth in past

decade

Residential land prices in central Qld doubled in 8 years to 2010

Housing prices in central Queensland – up by 2.8 times in 8 years

Changes in housing prices partly explained by population growth

Rockhampton – housing price changes relate to population increase

Dwelling approvals driven by annual price increases

Mackay – housing price changes relate to population increase

Dwelling approvals driven by annual price increases

Growth forecasts for Central Queensland

• Qld Govt population growth forecasts are very strong

Currently more than 100 significant projects underway or planned in CQ

More than $114 billion in capital expenditure

Local Government Area

Project Type

Total ($M) No. of projects

Coal ($M) Energy ($M) Mineral ($M)

Banana $3,100 $888 $87 $4,075 8

Barcaldine $12,150 $1,250 - $13,400 5

Central Highlands $7,309 $1,325 - $8,634 22

Gladstone - $57,195 $1,800 $58,995 12

Isaac $23,148 $1,135 $961 $25,244 36

North Burnett $80 - $177 $257 4

Rockhampton - $475 $165 $640 4

Whitsunday $1,200 $1,500 $127 $2,827 9

CQ NRL BID Region $46,987 $63,768 $3,317 $114,072 100

More than $114 billion in capital expenditure

Local Government Area

Project Type

Total ($M) No. of projects

Coal ($M) Energy ($M) Mineral ($M)

Banana $3,100 $888 $87 $4,075 8

Barcaldine $12,150 $1,250 - $13,400 5

Central Highlands $7,309 $1,325 - $8,634 22

Gladstone - $57,195 $1,800 $58,995 12

Isaac $23,148 $1,135 $961 $25,244 36

North Burnett $80 - $177 $257 4

Rockhampton - $475 $165 $640 4

Whitsunday $1,200 $1,500 $127 $2,827 9

CQ Region $46,987 $63,768 $3,317 $114,072 100

Workforce requirements for new projects

Local Government Area

Project Type New Operational Jobs

Construction Jobs

Coal Energy Mineral

Op Constr Op Constr Op Constr

Banana 800 600 - - 600 - - - - 800 1,200

Barcaldine 6,380 7,535 60 1,000 - - - - 6,440 8,535

Central Highlands 4,020 3,000 48 1,000 - - - - 4,068 4,000

Gladstone - - - - 3,465 20,420 250 1,300 3,715 21,720

Isaac 11,765 12,430 45 600 130 550 11,940 13,580

North Burnett 200 - - - - - - 225 - - 425 - -

Rockhampton 110 140 - - 300 250 580 360 1,020

Whitsunday 800 850 10 650 150 150 960 1,650

CQ Region 24,075 24,555 3,628 24,570 1,005 2,580 28,708 51,705

Predicting population changes - optimistic

• Assumptions about workforce moving to local areas:

– Central Highlands: 50%– Barcaldine: 10%– Isaac: 30%– Gladstone: 80%

• Assumptions about location of FIFO workers

– Rockhampton: 25%– Mackay: 25%– Bundaberg: 10%– Outside CQ: 40%

Predicting population changes – conservative

• Assumptions about workforce moving to local areas:

– Central Highlands: 25%– Barcaldine: 5%– Isaac: 15%– Gladstone: 66%

• Assumptions about location of FIFO workers

– Rockhampton: 10%– Mackay: 15%– Bundaberg: 5%– Outside CQ: 70%

Summary of broad predictions

Annual Pop. increase

Annual change in median house prices

Gladstone 3,133 $34,922

Rockhampton 2,255 $31,738

Mackay 6,138 $60,883

• These predictions indicate that:

• Gladstone’s rate of population increase will be about double the previous decade (1,622 per year)

• Rockhampton’s population increase will be slightly higher than the previous decade (1,901 per year)

• Mackay’s population increase will be about double the previous decade (3,128 per year)

Conclusions

• Rapid growth in Central Qld is generating employment, with subsequent population and housing effects

• Simple models used to make broad forecasts – but will be inaccurate• Gladstone population predicted to increase

between 10,000 and 25,000 by 2018, depending on scale of industry development

• Gladstone median house prices predicted to increase to between $604,000 and $928,000

• Higher price increases predicted in Mackay, and lower increases in Rockhampton