Mining boom: a blessing or curse?

The impact of the Australian mining boom on remote communities, and how policymakers can tackle the downsides

Boyd Hunter, Matthew C Gray, Monica Howlett

Environment & energy, Trade and industry | Australia

4 September 2015

The mining boom generated great wealth, but has that wealth flowed to Indigenous Australians living in mining areas? Boyd Hunter, Monica Howlett and Matthew Gray look at the social costs of boom and bust cycles.

The Australian mining boom at the beginning of the 21st century generated great wealth and resulted in a large number of new jobs, including in some of the most remote areas of Australia.

There is debate whether the benefits have flowed to the Indigenous Australians living on and, in many cases owning, the land where many of the major mines are located, or whether they instead experienced negative consequences in terms of employment and business opportunities and royalty payments.

A resource curse is by definition a paradox of plenty because, all else being equal, one would expect that having an abundance of resources would lead to prosperity. So the fundamental question is whether a substantial endowment of resources is a curse or a blessing?

Many mining operations in Australia are on or near Indigenous land, and the strong level of investment during the recent mining boom may have disproportionately affected Indigenous communities. In a localised version of the resource curse, Marcia Langton has argued that anyone who is not in paid employment is disadvantaged because their income is lower, yet they must pay the same prices for housing, food and services that are inflated as a result of large-scale mining activities. Historically, the mining sector has employed only small numbers of Indigenous workers, but by 2011 this had increased to more than 7,000 across Australia, with much of the employment gains being in remote areas.

Has this increased participation in the mining sector enhanced socioeconomic outcomes for both Indigenous and non-Indigenous Australians? Census data reveals that the mining boom improved employment and income outcomes in mining regions, but it also increased housing costs. While the average increase in income has generally offset the increase in costs, housing stress for low-income households has increased as a result of the mining boom in remote areas. Higher rates of housing stress are particularly pronounced among low-income Indigenous households in the rental market. In non-remote areas, the effect of mining on housing costs is smaller because the local economy is relatively diverse. Clearly, resource booms provide mixed blessings for remote residents on fixed incomes.

How can policy best address the inflationary effects of a mining boom on housing costs for low-income households? It is possible that private investors in remote mining areas may not see the value of building extra housing in response to price increases. For example, investors may be concerned that the increases in prices may be short-lived, given that mines have finite lives either due to exhaustion of the resource, or declines in demand for the minerals being extracted. Most houses are long-term assets that are likely to last longer than the average mining boom, and market mechanisms may not lead to the housing stock adjusting to meet short-term housing shortages.

One policy option is to increase the housing stock by increasing either private or public investment.

Mining companies could be encouraged to minimise the demands on local housing stock by ensuring sufficient housing is available for their fly-in, fly-out (FIFO) workforce and the workers who move to the area to work for the company, without driving up prices for existing housing. There are a range of ways for governments to encourage mining companies to invest in local housing, including through the tax system or by linking approval for mining to the company having a strategy for dealing with impacts on the local housing market. Additionally, governments could choose to directly provide funding for public and community housing, or local governments could facilitate the release of land suitable for residential development in such communities.

Of course, the ultimate judgement as to whether a substantial local resource endowment is a curse or a blessing depends on the nature of the mining operation.

If environmental and social externalities are not adequately managed or internalised, then it could well be judged as a resource curse. Indigenous Australians have a deep and abiding spiritual connection with country and if mining developments fail to take into account the perspectives of traditional owners of the land, then resource endowment will be assessed to be a curse from an Indigenous perspective.

The ongoing challenge for policymakers and businesses is to ensure that the social costs of the boom and bust cycles are managed equitably, and the benefits of the mining boom are shared throughout the local community.

This article is based on the authors’ paper in Asia & the Pacific Policy Studies, ‘The economic impact of the mining boom on Indigenous and non-Indigenous Australians’. Read and download the paper for free at http://onlinelibrary.wiley.com/enhanced/doi/10.1002/app5.99

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