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One of the only Australian towns that has a smaller population now than it did 50 years ago. Looking at houses for $150,000 with 10% yield might feel like a bargain. But I'm here to explain the data behind the town of Broken Hill, helping you understand why this area is one that you should look at with extreme caution. And in my opinion, you should avoid it at all costs. My name is Yong Ma, Senior Research Analyst at InvestorKit.
Now let's break down the data behind Broken Hill. Broken Hill is getting some attention for its affordability and high yields. Now the median price is just $220,000 and its median rental yield is 8. 8%. On paper, these two figures are looking really attractive, especially when our interest rates are so high.
And almost all property markets across the country are becoming unaffordable. But at InvestorKit, we wouldn't be considering Broken Hill no matter how affordable it might seem or how high the yields may seem. And here are three reasons why we wouldn't consider it. Reason number one, unresilient and shrinking economy leading to unstable housing demand. First thing first, unresilient.
The economy is heavily reliant on one single industry, which is mining. Mining contributes to 31% of the local economy's output and around 20% of the local employment opportunities. At first glance, these numbers may not look really high, but a lot of other industries such as construction, healthcare, electricity services, education, retail trade, transport, all these industries are actually also servicing the mining industry. So if the mining industry is not doing well, not only the output of this one industry or the employment of this one industry, but also all the supporting industries' outputs and job opportunities would be affected. We have seen this in the early 2010s.
In 2014, unemployment rate surged from 5%, a very healthy level, to 11%. And it took years for that to recover. And at the same time, population loss also accelerated. For Broken Hill, population growth has always been negative, but when economic shocks happen, the population loss would be even faster. The economy is not just unresilient, it's also not improving.
Some cities traditionally reliant on mining are trying their best to develop other industries to make the whole economy more resilient and healthier. But for Broken Hill, we're not seeing that improvement. One proof is that the economy is actually shrinking instead of actively growing. And I'm saying it's not improving because the GDP is actually declining over time, and that's definitely not a sign of a strengthening economy. Over the past 25 years, New South Wales' overall GSP has increased by 60% or so.
But in Broken Hill, the GRP actually declined by almost 30%. So the economy being unresilient plus shrinking is leading to one, unstable housing demand over time, and two, shrinking housing demand over time. Reason number two, a fragile economy is leading to inconsistent house price growth. I'm not saying that in the long term, the total growth of Broken Hills would be bad, because over time, all locations' property growth would converge to the national long-term average. But what we don't want is inconsistency.
In terms of total growth, Broken Hill has done just right. Broken Hill's figure is 5. 9%. That is just in line with the national average of 5. 8%.
But the problem is the price was essentially stagnant from 2008 to 2018. For a whole decade, prices didn't move much. So if you had a Broken Hill property in your portfolio during that time, it could be seriously slowing your overall portfolio growth. And reason number three, cash flow could be a trap when demand isn't stable. While yield is looking good in Broken Hill, vacancy rate hasn't been really stable over years.
That means in years when the economy is not doing really well and housing demand is low, your investment property could be facing long periods of vacancy, and that would be seriously affecting your overall cash flow. If we look at the vacancy rate trend line of Broken Hills over the past 20 years, we'll see large swings from 0% to 3% or 4% over different periods in time. For example, 2016 vacancy rate surged to 4. 4%, 4. 5%.
And in 2019, it surged again to similar levels of 4. 4%, 4. 5%. Even now, while the yield is looking really good at 8. 8%, vacancy rate is surging again.
We're looking at close to 3% vacancy rate when the rest of the country is experiencing a rental crisis. So while an affordable price point is definitely attractive, and everyone would want a stronger yield in their portfolio, when it comes at a cost of a wildly unstable vacancy rate and continuously shrinking population, and one of the few Australian economies that are consistently going backwards, the lack of investment fundamentals means that it's not a smart place to invest in. I'm Junge Ma, the Senior Research Analyst here at InvestorKit. I'll see you next time.
