Perth : A City with a 2-Tier Economy
Posted: Sun Jan 08, 2012 1:05 am
An excellent article from the business section of The Sydney Morning Herald (07-01-12) discussing the impact of the mining boom on wages and house afforability in Perth.
Boomtime Perth isn't El Dorado for everyone January 7, 2012
As the mining sector thrives, the haves are doing very well - but the have-nots are struggling to pay for rental housing and consumer goods that cost more than in Sydney and Melbourne, writes Ruth Williams.
When Ian Blevin needs to buy a new truck for his business, he no longer bothers shopping around at Perth car yards. Instead, he boards a plane to Melbourne, buys a truck on the east coast and drives it 3500 kilometres home across the Nullarbor.
''It's cheaper than to buy a truck here,'' says Blevin, the managing director of Perth company WOMA, which makes and sells high-pressure water cleaners so strong they can cut through metal and concrete.
Keeping costs down is crucial at WOMA, a company that operates in what may appear to be the sweet spot of the Australian economy - mining services.
Advertisement: Story continues below Based in boomtown Perth, WOMA's cleaning instruments are used in mining and resources operations throughout Australia, from the Gladstone alumina refineries in Queensland to the liquefied natural gas plants of Western Australia's North-West Shelf.
But WOMA, like many other Perth businesses, is not coasting on the mining boom; far from it.
Like any other Perth business, it faces a constant fight to hire and keep staff, amid the ever-present threat of workers leaving for the big-paying mines. And as a manufacturer and fabricator, WOMA faces the fierce competition from Asian imports that has killed off widget-makers nationwide.
Add in the high cost of living, working and running a business in Perth, where a coffee costs $5.50, a truck is 15 per cent more expensive than in Melbourne, and average male earnings are more than $270 a week higher than the national benchmark. It's easy to see why margins at WOMA are tight.
''I think one of the perceptions from the east is that we're all living in a well-buttered world at the moment,'' Blevin says. ''That's not the case.''
Still, WOMA remains a success story, unlike the hundreds of Perth companies that called in the administrators last year. In the year to the end of October, 755 WA companies entered administration, a figure almost 30 per cent higher than for the previous year.
According to Cameron Belyea, a partner in Clayton Utz's Perth office, companies linked to mining - especially small and mid-sized mining services operators - make up a large proportion of those going under. Often they have borrowed to gear up for the boom, only to be felled by the long lead times in the resources industry and acute staff shortages.
''The labour shortage here is intense and it's taking people away from alternate careers as fabricators, plumbers, painters,'' Belyea says. ''A lot of people are voluntarily liquidating their small businesses because they don't have the labour and see the opportunities for themselves on the mines. They'll get paid more, they'll get better conditions.
''As mining is cyclical, those jobs will go when demand for minerals and energy eases. That is when we will see the worst of mining services-related failures.''
As the mining boom kicks on in the west, with WA's economic growth at nation-beating numbers and billions of dollars of investment streaming into the state, Perth is basking in its new-found status as the capital city of the top-gear state. It has never been so big and so important, or its voice on the national stage so loud and confident.
But while the boom has brought unprecedented opportunities to the city, it has also created its share of problems, and not all Perth citizens are convinced the city has changed for the better. Many fear the boom's spoils are passing them by.
About 104,000 West Australians work in the mining and resources sector, just under 10 per cent of the state's 1.2 million-strong workforce. But the state's retail, construction and health services all employ more people and manufacturing almost as many. Most West Australians are not on mining wages.
While the two-speed economy may seem to be a national problem, the truth is that Perth itself has a two-speed, or patchwork, economy - a painful experience for those stuck in the slow lane.
And despite the much talked-about skill shortage, there are deep-seated fears that WA businesses and workers are missing out to foreigners when it comes to mining industry tenders and jobs - especially fabricators (such as WOMA) and other manufacturers.
In March, at a union-organised rally outside WA Parliament House, 5000 protesters demanded government action to boost the local content of major resource projects.
WOMA's Ian Blevin is convinced he has lost out to Asian firms on some contracts. ''Absolutely,'' he says. ''We follow up and we know, from looking at the type of equipment they buy, where it's come from.''
It's just one way in which the boom has proved to be a double-edged sword for the country's most isolated capital city. Traffic congestion, income inequality and housing stress were once problems for other cities. Now, they are Perth's problems too.
With the city set to grow to 2.2 million by 2031, tough questions are being asked about what sort of city Perth is becoming, and about what sort of city will be left once the mining boom ends.
''If you live in WA you can see ghost towns in the goldfields which in the late 19th century had 40 per cent of the state's population living in them - now there's nobody there,'' says Tim Mazzarol, a professor at the University of Western Australia's business school. ''That is what we will look like if the mining and resources runs out … the only way to avoid that is to start thinking about how we build a more viable future.''
More than a century ago, C.Y. O'Connor's much-maligned pipeline started pumping water from a weir in the Perth hills to the booming goldfields near Kalgoorlie, 600 kilometres away. O'Connor, famously, never saw the pipeline working; stung by criticism that the scheme would fail, he killed himself before the project was finished. It is still supplying the goldfields today.
With WA reaping $5 billion a year in royalties from the resources boom, Mazzarol points to a lack of ''big-picture thinking'' about WA, and Perth's future.
He believes the state's economy needs to be diversified, its population decentralised, and more planning done around the impact of the boom in the years to come. Ensuring WA businesses win more work from the mining boom is one way in which its benefits could be more widely and sustainably spread, he says.
''When the mining runs out, which it inevitably will, will there be something left for future generations?'' he asked.
Despite WA's vast size, 75 per cent of the population lives in its capital city - a greater concentration than in any other state. This has not changed despite the massive projects under way in the north, and has arguably made the city's growing pains worse.
The Committee for Perth - a five-year-old think tank modelled on the Committee for Melbourne - is advocating several ''big picture'' projects, including a massive remodelling of the city's riverfront, which the state government is pushing ahead with, and the construction of a light rail system through the city centre.
But what Perth really needs, says Marion Fulker, the chief executive of the Committee for Perth, is a plan. ''We don't know where we're heading,'' she says. ''If Perth was a business we'd have a plan.''
Not long ago, the committee asked residents what kind of city they wanted to live in. One woman replied: ''I want to live in a city where the east gazes jealously west.''
This is closer to reality than it ever has been before.''We've always been treated as this cowboy, frontier kind of place,'' Fulker says. ''But now we are hard to ignore.''
As Australia's fastest growing capital city, Perth's population has surged from 1.44 million in 2006 to 1.69 million. Its ''corporate power'' has also increased in that time: between 2005 and 2009, the number of ASX300 companies based in Perth rose by 19 to 63, as the numbers based in Sydney and Melbourne dropped following the global financial crisis and a series of mergers and acquisitions. In recent years, Perth's city centre has rarely been without cranes, with at least four office skyscrapers and several big apartment complexes helping to reshape its skyline. Another two office towers are under way, including the 44-storey City Square, the new home of BHP Billiton.
Since 2006, luxury retailers Prada, Gucci, Bally and Burberry have opened lavish boutiques in the city, and Burswood Casino gained a Nobu and a Rockpool. Perth has a ''revitalised'' cultural area and a soon-to-be-opened new arena (dramatically over budget and behind schedule). Even a fledgling small bar scene has gained a toehold - a revolution in a city where, not long ago, strict liquor laws barred revellers from buying a drink without a meal in many establishments.
But becoming a big city brings with it big-city problems. Traffic congestion was once almost unknown in Perth, which has the highest rate of cars per capita in the country. Now, it is a growing problem that threatens to cost the state $2.1 billion a year by 2020, the federal Bureau for Infrastructure, Transport and Regional Economics predicts.
And although salaries are higher in Perth, almost everything - drinks, a restaurant meal, a new truck - seems to cost more than in an east coast city.
While The Economist magazine recently ranked Perth as the world's 13th most expensive city, behind Sydney and Melbourne, the independent website Numbeo, which tracks the cost of living in cities around the world, places the city well ahead of its east coast rivals in terms of consumer prices. On that measure, it rates Perth as the world's most expensive city outside Scandinavia.
But the biggest stress is housing. Perth is still recovering from a boom-fuelled real estate craze that saw the median house price double between 2001 and 2006 to more than $400,000. Even last year, the Perth median house price surged to $505,000, but has since dropped to $460,000.
It has led to a dearth of affordable properties, especially rentals. An Anglicare study in April of 2629 WA online and print rental ads uncovered just 12 that could be considered affordable and suitable.
Australian Bureau of Statistics figures show that, on average, West Australians still spend less on housing than people in Victoria and NSW, but this trend reverses for those at the lower levels of the income spectrum, who pay between $17 and $25 a week more than those in Melbourne.
And there are signs that Perth mortgage holders are also struggling. Figures from the National Centre for Social and Economic Modelling point to a negative equity problem in WA that is worse than in any other state, with 4.5 per cent of WA home loans, and 3.9 per cent of those in Perth, standing at 100 per cent or more of the value of the house.
A Moody's report released in September revealed that boomtown Perth also has the postcode with the nation's highest mortgage delinquency rate. The area, which takes in the southern satellite suburb of Rockingham, has a delinquency rate of 5.31 per cent, more than three times the national average of 1.67 per cent.
Little wonder that Anglicare WA is experiencing unprecedented demand for its financial counselling services. And the WA Council of Social Service says record numbers of people are seeking financial help to pay bills, while the number of home repossession applications in the courts is also at a record high.
''If you're on $100,000 a year and have worked your budget out and haven't over-committed, you're probably OK,'' Anglicare's chief executive, Ian Carter, says.
''If you are on any kind of welfare payment in this state wherever you live, and if you are on a low and fixed income in some of the lower paid industries often occupied by women, you struggle.''
It points to another emerging problem in Perth: a growing gap between those earning mining industry wages and those not.
''In a resources boom, people who don't have access to the resources incomes can simply see their cost of living substantially increase,'' says Eric Ripper, the leader of the opposition and state treasurer in the previous Labor government.
''[In terms of] average incomes, WA is better off, but the average hides a huge divide between those in the resources sector and those not.''
This is another sign of the times for Perth, which - as research from the Committee for Perth shows - has long been a relatively egalitarian city, with a smaller wealth gap between the highest and lowest income earners than Sydney and Melbourne.
But this changed during the boom years, when Perth's inequality ''significantly'' rose, the committee found. The trend reversed again during the global financial crisis, with risks rising again.
''Not only do we have people on welfare as you would expect - that's the case in every city - we're seeing this greater sense of working poor,'' Fulker says.
The state government is tackling the congestion by widening the freeways and buying more carriages for the crowded rail system. A big new hospital is being built, and a new stadium near Burswood Casino will replace the 43,000-capacity Subiaco Oval, which has grown too small for the Australian rules-mad city.
But it is also pouring billions of dollars into projects in the north, to support the source of the state's wealth. Its budget is under pressure; one reason why the WA government has loudly complained about its declining dividend of national GST revenues.
''It's fair to say that Perth is experiencing growing pains,'' the state Treasurer, Christian Porter, says. ''Our population is growing faster than anywhere else in Australia. The needs of the industry which are generating wealth in WA - their needs for infrastructure - are voracious.''
Porter acknowledges the ''cost pressures'' faced by Perth residents, in particular the pressure on rents and, for businesses, wages.
But he points to Bureau of Statistics figures that show that low-, middle- and high-income earners all make more money in WA than elsewhere in the country - an effect he says that is not cancelled out by the higher costs. ''Low, high or middle incomes, the best place is WA,'' he says.
But the Council of Social Service says that for low-income working families in WA, the cost of living rose faster last year than their incomes.
Thanks to the development booms of the 1960s and the notorious WA Inc era of the 1980s, Perth has few heritage buildings left to protect. Instead, residents passionately defend less tangible aspects of the city's character: its open spaces, its family-friendly feel and above all, its much-cherished lifestyle.
This lifestyle, part reality, part nostalgic ideal, involves a melange of sand and sun, barbecues and Sunday sessions, big backyards and cars, beach cricket with the kids after work and a job that ends at 5pm.
Four times in 34 years, WA voters rejected daylight savings, and in 2005 said ''no'' to deregulated shopping hours.
Perth's famous beaches remain largely unshaded by high-rise development, due to determined public opposition - one exception being Scarborough Beach with its Alan Bond-era cement behemoth, the Observation City hotel.
Perth's vast suburbs have resisted infill;its population density, at 310 people per square kilometre, is the lowest of any Australian capital city other than Darwin and Hobart.
This, coupled with the lure of the beach, means that the city edges further north and south along the coast each year. From Mandurah in the south to Butler in the north, Perth stretches 110 kilometres.
The Committee for Perth argues that greater housing density is part of the solution to traffic congestion. As for its strictly regulated shopping hours, ''let's just get over ourselves'', Fulker says.
Some fear that, as the city expands and changes, its character is irrevocably changing - that the Perth lifestyle is slipping away.
The problem, Fulker says, is that the thousands of interstate and international workers arriving in Perth to work and live don't necessarily want that lifestyle.
''The people who were raised here are feeling the sense that Perth is changing, and they are trying to get a handle on [what] that means,'' she says.
''The people who come are frustrated that it is not changing enough. They are saying, 'what do you mean I can't shop when I want to? What do you mean I can't have daylight savings? Even though I live in the city I have to buy a car because everything I want to do is in the burbs.' It's really messing with their heads - they've come to a city that behaves like a town.''
How should Perth change? Must it change? Will the mining boom be the city's making, or its undoing?
''There's a fork in the road for Perth at the moment, and you'll either make some really good decisions or some really bad ones,'' Fulker says. ''Some you'll be able to recover from and some of them maybe not … if you compromise the outcome it's there for 50 years. So we'd better get that right.''
Read more: http://www.smh.com.au/business/boomtime ... z1imZVviGI