All entirely predictable, and entirely predictably stupid.

From the FT:

In a dusty industrial estate next to the world’s biggest iron ore port in Western Australia’s remote Pilbara region, business has never been so bad.

“The rents got so high in the town that when the boom ended, businesses began to die off everywhere,” says Jo Woodward, owner of Jems, a ramshackle building with an eviction notice stuck to its padlocked gate...

Western Australia’s “Pilbara Cities” plan was launched in 2010, at the height of a boom driven by iron ore and the discovery of natural gas off the coast. Several billion dollars have been spent on hospitals, roads and housing to transform the dusty mining towns of about 15,000 people each into living spaces that attract families.

But fears are growing that the drop in mining construction and a recent slide in iron ore prices threaten the future of the flagship project...

“We are focusing our efforts on the type of ‘city-building’ amenities and services such as parks and cafés, which will ensure families want to come and live here,” says Kelly Howlett, mayor of Port Hedland.

“A population of 50,000 is a realistic target. About 1,000 people make Western Australia their home every week and they can’t all go to Perth,” she says.

But locals warn a cooling economy is putting this at risk. Rents have halved in Karratha, record numbers of properties are listed for sale in both towns and some new housing developments lie empty.

Giant Sinkhole Of The Month

Spotted by JuliaM and Pub Curmudgeon in The Daily Mail and at the BBC respectively:

Real life thought experiment

Via The Daily Mail, from The Wall Street Journal:

IRUNA, Sweden–It is a tough slog trying to relocate an entire city—just ask the people of this Swedish mining town dozens of miles above the Arctic Circle.

For the Kiruna municipality, the process started in 2004 when it received an unassuming one-page letter from the state-controlled mining company Luossavaara-Kiirunavaara AB, or LKAB... fissures in the ground are creeping ever closer to the center of Kiruna, and some residents of this city of 18,000 may soon start packing their bags.

In March, Stockholm-based architectural firm White arkitekter AB won a competition with its proposal of a master plan for a new city shifted about two miles to the east, dubbed "Kiruna 4-ever."

We know what will happen to land values. They will fall back to zero in the area now occupied by the old city and will rise by an equal and opposite amount in the area occupied by the new city.

LKAB, which has agreed to pay the bulk of the tab, says it is impossible to estimate the full cost of the project. But it has dished out 3.5 billion kronor ($532 million) to date and set aside an additional SEK7.5 billion for the remaining transformation.

That works out at about £50,000 per resident, which seems about right for the cost of new roads, new buildings, new utility connections etc.

The biggest cost uncertainty relates to property values. Under the current plan, owners of real estate that needs to be demolished will have the value of their properties assessed independently. LKAB will pay them with a 25% premium added.

Woah!

That's money down the Homey toilet, isn't it? If the proposed new site is privately owned, then no doubt he will extort a huge price for that land, so landowners will end up collecting twice.

The only reason why land values are going to fall is because of de-population. If 99% of the population spontaneously decided to move away, then land values would plummet as well (as has now happened in Detroit), and who would the local land owners claim their money from? Would they sue people for having left?

For sure, in this instance there is an identifiable third party, LKAB, who has caused physical damage to buildings (which are the owner's capital and for which LKAB ought to rightly pay compensation), and that is what triggered the de-population, but if LKAB had instead promised to maintain and repair all buildings in the old city instead, there would be no de-population and little impact on land values.

The simple answer to this is to build an identical new town and to give each landowner from the old town the keys to the new version of his building in exchange for his old building. The entire population moves across and the land values go with them.

(Or just have Land Value Tax, of course).

Oh, the iron-y.

From the BBC profile of the Australian mining heiress who is rich enough to topple governments if they threaten her with LVT:

When her father, Lang Hancock, discovered one of the world's biggest reserves in the early 1950s, the export of iron ore was banned in Australia because it was deemed such a scarce and finite resource. Tens of thousands of iron ore shipments later, royalty payments from that Pilbara mining field in Western Australia continue to swell her coffers.

The Hancocks were not the sole beneficiaries. The multi-billionaire fervently believes that her father's discovery also made Australia prosperous, which partly drives her recent quest for influence, gratitude and respect... She hates being called a mining heiress because she considers herself a self-made businesswoman who turned her company around after her father's death in 1992.

I trust that the inherent contradictions in all that are blindingly obvious.

Outbreak of commonsense in South Africa

From BusinessDay:

... the ANC has responded [to calls to nationalise all mines] with a thoughtful report that considers ways for SA to use its mineral wealth to drive development. The report sensibly rules out the policy of resource nationalism endorsed by Malema...

Instead, the report considers ways in which mining profits can be redistributed more fairly. It advocates a resource rent tax of 50%. This would hit any profits providing a return on investment in excess of the long-term Treasury bond rate plus 7% — about 15%.

While the precise numbers would be subject to negotiations, the principle seems sound. It is right that a government should claim a share of the profits associated with extracting the resources discovered in its territory. A super-profit tax is a better mechanism than royalties based on gross production. This is because it helps to bring more marginal mines into production.

It is important, however, that this additional revenue should not be wasted. The government should use it to address S A ’s significant infrastructure deficit, ranging from an inadequate railway network to unreliable electricity distribution. These constraints are the main reasons SA’s economy has not been growing to its true potential.

The mining industry has been a political football for too long. If SA wants to flourish, it must make the most of the treasures beneath its soil.

The former PM of Australia suggested something similar, the result was that the monopolists toppled his government and he was replaced with the more compliant Julia Gillard, who shelved the plans, or at least watered them down. So best of luck with that one, South Africa!