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How does real estate market react to the iron ore boom in Australian capital cities?

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Abstract

This study concentrates on the dynamic response of housing markets to the changes in iron ore price by using the quantile-on-quantile regression method. Because iron ore production is highly geographically concentrated, we provide a more precise empirical analysis at the regional level. The results indicate that the iron ore price in most quantiles has a positive effect on the housing price in Perth because it benefits from the mining boom. However, once iron ore is exhausted, the real estate market will fail to drive the whole economy. The negative relationships between iron ore price in low quantiles and housing price are found in Adelaide and Hobart. In other regions, such as Sydney, Melbourne, Canberra and Darwin, housing prices are positively affected by iron ore prices in low quantiles and turn to negative in relative higher quantiles. This difference is attributed to resource endowment and labor mobility, as well as local policy orientation. Furthermore, the robustness test proves the credibility of the results when considering the endogeneity issue. The findings may deliver the reference that better management of real estate markets throughout a resource cycle, particularly in light of the mining industry with greater geopolitical shocks, could result in better socioeconomic outcomes for Australia.

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Notes

  1. Sourced from the Geoscience Australia. Available at: https://www.ga.gov.au/digital-publication/aimr2020/value-of-australian-mineral-exports.

  2. Sourced from the Geoscience Australia. Available at: https://www.ga.gov.au/data-pubs/data-and-publications-search/publications/australian-minerals-resource-assessment/iron-ore.

  3. Sourced from International housing affordability survey. Available at: http://www.demographia.com/dhi.pdf

  4. Following Kilian and Park (2009), information on global real activity is constructed using an index related to a panel of cargo ocean shipping freight rates, based on the argument global aggregate demand is well reflected by strong global demand for industrial commodities, which in turn affects the demand for shipping and thus shipping rates. These data are sourced from https://www.dallasfed.org/research/igrea.

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Funding

National Social Science Fund of China, 20BJY021, Chi Wei Su.

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  1. School of Economics, Qingdao University, 62, Kedazhi Rd., Qingdao, Shandong, China

    Zheng Zheng Li & Chi-Wei Su

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  1. Zheng Zheng Li
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Li, Z.Z., Su, CW. How does real estate market react to the iron ore boom in Australian capital cities?. Ann Reg Sci 71, 517–537 (2023). https://doi.org/10.1007/s00168-022-01179-x

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