Last week, we wrote how landlords in the Pilbara are taking an absolute hammering, with house prices and rents in both Karratha and Port Headland crashing as the mining bust intensifies.
Well, it appears it’s not just private landlords that are taking a bath, but the Western Australian Government too, with a 295-unit village for key workers in the Pilbara now worth at least $20 million less than it cost the State Government to acquire and running at a multi-million-dollar annual loss. From The West Australian:
Figures provided to Parliament show the Government spent $115.3 million acquiring Osprey Village in South Hedland.
The total includes the Government’s $53 million initial contribution to the $95 million “affordable” housing project, opened in July 2014, and $62.3 million it paid to buy out developer Fleetwood in July last year.
But the most recent valuation of Osprey Village, on June 30 last year, was $93.6 million — $21.7 million less than the Government spent acquiring it.
The figures also reveal the Government paid $12.28 million to Fleetwood in management costs between May 2014 and November 30 last year, but received only $4 million in rent in the 2014-15 financial year — a period when the village had an average occupancy rate of 55 per cent…
Shadow housing minister Fran Logan said it would take the Government about 50 years to get a return on its “dud investment” at the 2014-15 rate of rental return of $4 million a year.
Here lies another example of the Western Australian Government being caught completely unawares by the commodity crash. It made the decision to purchase Osprey Village in 2012 at around the peak in the commodity price cycle. And like many analysts at the time, it believed that the once-in-a-century commodity boom was permanent, as reflected in its delusional Budget forecasts at the time (and subsequently).
The rest is history. Both commodity prices and mining investment around the Pilbara are crashing, with more still to come as the large LNG projects move towards completion. And with the big job losses comes rising vacancy rates, along with falling home prices and rents, which will continue to impact both private landlords and the Government’s Osprey Village investment.
