When he’s not abusing Sydney’s nouvelles riches ladies of leisure and snapping photos of Sydney’s sartorial disasters, The New Australian is fond of pointing out two things:
1. Like Brits, Australians have bought into the idea that property is a guaranteed, one-way bet to wealth; and
2. Australia has not experienced a recession in the last two generations, and is therefore going to get a colossal shock when the reality of the current downturn starts to bite.
In support of these positions is a telling article from the BBC:
After 23 years of growth, including one of the biggest mining booms in the nation’s history, tumbling iron ore and coal prices have put a brake on Australia’s economy – and mining towns are paying the price.
Peter Windle is a casualty of the mining slowdown. The New South Wales mining employee has lost a well-paid job, a company car and an annual bonus that in some years was as high as A$60,000 ($48,800; £31,300).
A termination package from the mining company he used to work for has helped soften the blow. But Mr Windle still had to sell his investment property to keep his head above water.
It’s not difficult to see what’s happened here. Mr Windle failed to recognise that the recent period of high salaries and plenty of work was an anomaly and would not last forever, and so leveraged himself to the hilt buying a property which, in ordinary times, he couldn’t afford. You can, well, put your house on the “investment property” that he bought was wildly overpriced and unlikely to break even unless the resource boom continued for another decade. A quote from the article hints at this:
“It’s the worst I’ve seen it in 28 years in the mining industry,” says Mr Windle. “Everyone is getting out. Three hundred houses are for sale in my town, three in my street, and rental prices have collapsed on older weatherboard houses from A$1,000 a week to A$200,” he says.
Ah. So what’s the betting Mr Windle has bought an “older weatherboard house” for a staggering sum of money and was relying on A$1,000 per week in rent for the next 10 years in order to pay if off?
If he’s been 28 years in the mining industry, he should have known better. I am incredibly fortunate to have hit mid-career in the oil and gas industry in a period of unprecedented oil prices and salaries. Several of the industry’s old hands have told me of the lean periods in the 1990s when there was no work, and one of them told me he worked a job for a year which paid less than he was spending: but at least it slowed the debt accumulation. I remember in Sakhalin some of these same old hands telling us young pups that we should count our lucky stars and invest the money wisely, and know that this might not continue forever. Few of my generation (and younger) missed this lesson.
Most of us knew that the good times would come to an end, which they did in 2008-9 but thankfully picked up again fairly quickly. Everyone used the cash to buy property, which makes a sound investment if geographically diverse, a future permanent home, and/or is part of a portfolio of other investments. But other than perhaps a few weeks after the initial purchase, few were daft enough to mortgage themselves to the point they’d be forced to sell if the prevailing boom came to an end. For a short time I was a day-rate contractor, and the lesson dinned into me then was always have 6-12 months of salary stashed away in cash. So if you lose your job, you have a cushion. It’s a habit I still haven’t gotten out of even as a staff employee, keeping at least one, preferably two, year’s mortgage payments and living expenses in cash should the worst happen.
Obviously this isn’t feasible for most people working PAYE in civilisation in normal jobs, but for those of us who rode the oil and gas wave over the last 5 years or so, we were making hay while the sun shone. I considered myself (and still do) extraordinarily lucky and privileged to have been able to benefit from it, but not a day goes by without having an eye on the oil price and the appreciation that in 3 months time I could be out of a job with a mortgage to pay, a wife to feed, and no home back in the UK. I am grateful to those old hands I met in Sakhalin and Nigeria who told me not to squander the money made in the good times and be very aware that someday it will end: I learned to treat it as a bonus, not business as usual.
It appears there were not so many wise heads in the Australian mining sector:
It is poor consolation for Mr Windle, who is now contemplating looking for a job in another state.
“I’m 54 now, and I’ve had a hip replacement. I might get a job at an outback mine in the far north of Queensland but I’d hate to spend another year working away from home. And suppose they lay off workers too?” he asks.
It’s a shame for Mr Windle and others like him, but he should have factored all of this in when he bought his “investment property” and worked out his monthly cashflow. Tough times, and it’s going to get worse.