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Potential Economic Impacts of the Townsville Floods

February 24, 2019

 

Townsville was recently hit by the worst flooding event in the city’s history, the one in five-hundred year event inundated thousands of homes and businesses with the impact extended across Northern and North West Queensland.

 

More than a year’s worth of rainfall in a few days caused the Ross River Dam levels to a peak at 250%, leading to an emergency automated opening of the spillway gates and the worst of the flooding impacts.

 

Although the long-term economic toll is not yet known, there are fears that Townsville’s recent economic improvement may be severely set back with a 1 to 2 year clean up and recovery period projected. The city has already endured a severe economic downturn in recent years, following the closure of the Yabulu Nickel Refinery in early 2016, with the loss of 800 direct jobs. The city has endured significant social impacts associated with the downturn, including financial and family stress, increased property crime rates and a general strain on people’s mental health.

 

Only in recent months has Townsville’s unemployment rate and broader economy begun to show signs of recovery, on the back of significant infrastructure projects including the $250 million North Queensland Stadium, $225 million Haughton Pipeline duplication (somewhat ironically established to secure Townsville long term water supply), and recent private sector investments such as the $300 million Sun Metals Zinc refinery expansion. 

 

The human cost of the flooding has been extensive, with more than 3,000 homes damaged[1], thousands of people displaced, many businesses lost, and over 20,000 homes left for significant periods without power. The loss of housing stock has seen a major tightening in the previously soft property market, with an acute shortage of rental properties currently being experienced across the city. 

 

Three deaths have occurred during the flooding and post due to melioidosis arising from soil-based bacteria.

 

However, the resilience of the Townsville community should not be underestimated, with numerous examples of mateship and heroism throughout and post the event, with the rescue and recovery efforts of Townsville’s emergency services and particularly our armed forces a source of immense pride for Australia’s largest garrison city.

 

It is known from previous disaster recovery efforts across Australia and internationally that tragic circumstances such as experienced in Townsville can become significant drivers of economic activity. There has been a complete change in Townsville’s economic positioning, with a surge in demand for trade labour, including plumbers, builders, carpenters, painters and plasterers, electricians, and even mechanics with many vehicles damaged and destroyed.  Townsville’s building industry has gone from multi-year lows in activity to fully booked for at least the next 6-12 months.

 

Hotels and restaurants are now full due to the influx of southern trade labour, and retail businesses which have been able to reopen are very busy with residents seeking to repair, rebuild and restock.

 

To help understand the scale of reconstruction efforts, AEC has applied Input-Output (IO) modelling to estimate the direct and flow on effects felt throughout the Townsville region. The Insurance Council of Australia’s (ICA) currently estimates the insurance claims at $606 million, with 90% of claims residential and 10% commercial. These impacts were modelled through AEC’s IO model as follows:

  • 50% of insurance costs ($303 million) represents residential building construction (for repair and rebuilding of homes).

  • 30% of costs ($182 million) represents retail trade (for replacement of damaged household and business items etc.).

  • 10% of costs ($61 million) represents non-residential building construction (for replacement and repairs of commercial premises etc.).

  • 5% of costs ($30 million) represents construction services (for associated trade services and minor earthworks/landscaping etc.).

  • 5% of costs ($30 million) represents professional, scientific and technical services (for design works, legal works and associated services).

 

Only the construction activity expected to be undertaken within Townsville has been included in the assessment, and for the purposes of modelling, 70% local content has been assumed[2].

 

Based on these modelling assumptions, recovery efforts are estimated to generate the following economic impacts within the Townsville economy (in total during the recovery period):

  • $1.0 billion in output (including $424 million in direct output).

  • $450 million contribution to Gross Regional Product (including $146 million directly).

  • $271 million generated in wages (including $116 million in direct incomes).

  • 3,535 FTE jobs (1,548 direct FTE jobs).

 

Table: 1. Insurance Reconstruction Economic Impact Estimates (Townsville Local Government Area)

 

 

It is clear that reconstruction efforts will provide a large one-off economic stimulus to the Townsville economy. However, the longer-term impacts are more challenging to quantify. Many businesses have expressed difficulties in realising their insurance claims due to a lack of flood cover, fine print definitions of storm vs. floodwater and some policies limiting business flood cover to 20% or insured amounts[1].

 

Even where insurance claims are obtained, years of weak economic conditions and declining home values mean many businesses and families will have to make tough decisions about whether to stay and rebuild/reopen or to relocate elsewhere. Ongoing implications for insurance availability and costs will be another key factor in Townsville’s recovery. Many inundated areas were identified as being outside of 1 in 100 year flood zones in the city’s flood mapping, and many landholders now face at least a temporary drop in property values and a potential further rise in insurance premiums.         

 

The challenge for Townsville will be to ensure the broader economic momentum is maintained throughout the recovery efforts, with key industries such as tourism at risk of a drop in demand due to the perceived risks of travelling to the city during the rebuild.

 

Maintaining momentum regarding the city’s large economic development opportunities will also be critical to underpin confidence and ensure that families stay in the region and businesses reopen. Current opportunities include a renewal of minerals processing and manufacturing (the potential reopening of the Yabulu Nickel Refinery, a proposed new adjacent nickel-cobalt refinery proposed by ASX listed Pure Minerals, a $2 billion lithium-ion battery plant proposed to be located at Woodstock), and the controversial Adani Carmichael coal mine for which Townsville is the regional headquarters and a key proposed centre for Fly In/Fly Out (FIFO) labour.

 

It is also hoped that the current State Government’s review into the disaster will identify ways to better protect the community in any future events and that reconstruction efforts will not only rebuild but work to improve the city as it recovers. 

 

Matthew Kelly has been an Economist with the AEC Group based in Townsville since 2011 and has led AEC’s Townsville office since 2014. 

 

[1] Smee, B (2019). We're not insured': Townsville Flood Leaves Policyholders Stranded. Available from: https://www.theguardian.com/australia-news/2019/feb/14/were-not-insured-townsville-flood-leaves-policyholders-stranded.

 

[2] It has also been assumed that construction companies and sub-contractors working that will work on site but are sourced from outside the catchment will contribute approximately one quarter (25%) of the level of Type I (production induced) and 5% of Type II (consumption induced) flow-on activity within the economy that a locally sourced company does. This reflects that construction companies working on site but sourced from outside the catchment region will contribute to local supply chains in terms of sourcing some goods and services they require locally.

 

[3] Raggat, T. (2019). Townsville Business Shocked to find 20% Limit to Flood Cover. Available from: https://www.townsvillebulletin.com.au/business/townsville-business-shocked-to-find-20-limit-to-flood-cover/news-story/b767fcfdc1b56a0fc941173f3608b127.

 

 

 

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