In 2005 Dean Baker and David Rosnick forecast the collapse of the US residential market. They have every right to hold their heads high, unlike most financial analysts who still can’t get it right. They show the following factors were elementary in their identifying the US real estate bubble:-
1) a sharp divergence between house sale prices and rents – yields became incredibly low (as in Australia at the moment – under 2% in many cases!)
2) an extraordinary rate of housing construction (so where exactly was the purported “shortage”?)
3) a sharp decline in the rate of savings (If you’re paying off incredibly high mortgages, you’re unlikely to have much, if anything, left to save.)
These mainstream and banking explanations for high land prices were found to be well short of the mark:-
1) a shortage of land (The poor old neo-classical economist always says: “Prices must be high because of a shortage of supply”, but not so. Land prices are high because the government isn’t capturing enough of the annual rent of land, therefore more and more land rent is available to be privately capitalised into high prices! Basic stuff!)
2) environmental restrictions on buildings (C’mon!)
3) growing incomes (Not borne out by the facts – see Point 3 above. Maybe for the 0.1%?)
4) a growing population (Then why does my chart which puts Australia’s total land price over GDP–which thereby accounts for the growing population–still show an incredibly rapid escalation in land prices?)
There are facts explaining our high “housing” (rarely land) prices, and then there is the nonsense put forward by banking apologists.
You’ve just made the big league – along with the US, Ireland, the UK, Spain, Greece …
Advance Australia Fair – our national anthem – sing it out!
Australians all let us rejoice,
For we are young and free;
We’ve golden soil and wealth from taking advantage of insane tax laws that favour land speculation;
Our home is girt by sea;
Our land abounds in nature’s gifts
Of beauty rich and rare;
In history’s page, let every stage
Advance Australia Fair.
In joyful strains then let us sing,
Advance Australia Fair.
Hat-tip to Ozquoll for the correction.
Find out to what extent are you in the grip of the BIG rent-seekers – the 0.1%.
Does the tax system penalise doers and reward rent-seeking drones? YES/NO
Do you see that rapidly escalating land prices come at the expense of productive activity? YES/NO
Are you concerned that the super-rich are getting richer and everyone else is becoming poorer? YES/NO
Do you see that rent-seeking in land and other natural resources is the means by which the super-rich get rich at everyone else’s expense? YES/NO
Do you see that banking and real estate actually encourage bubble-inflated prices, and this is not in the nation’s best interests? YES/NO
Do you see governments don’t want to remedy this situation because it might curb escalating real estate prices and bank profits? YES/NO
Do you see revenues from land and other natural resources would capture economic rents owed equally to ALL citizens and help keep a lid on escalating land prices? YES/NO
Do you see that governments are quite happy to continue allowing economic rents owed equally to ALL citizens to be taken by the 0.1%? YES/NO
Do you see it follows that governments represent the 0.1%? YES/NO
Are we living in a false “democracy”? YES/NO
Is this why the world is in serious trouble? YES/NO
Are you prepared to do anything about it? YES/NO
“Australians once led the world in political and social innovation (OK, you might add New Zealanders): the vote, building dams, highways and other infrastructure out of the uplift they gave to our land values, via municipal rates and land taxes, including a federal land tax until 1953. We didn’t really have a federal income tax until post WWII, but we now think it’s been there forever, and aren’t income taxes fair anyway? [Nup!]
Ken Henry’s tax review recommended scrapping most of our taxes on productivity and zeroing in particularly on those economic rents (land and mineral rents) the community as a whole has created, but it fell on deaf ears. The casino rent-seeking economy is now too entrenched in Australia as in most of the western world: you don’t have to work because there’s something you can get for nothing – and that’s OK with the 0.1% who steal by far the greater part of our economic rents. [Let the little people think they can do it too, because it certainly won't affect us!]
We could turn the economy around overnight:
1) The RBA could sell down the AUD.
2) We should institute the original Henry Tax Review recommendations, but nup, we’re too far gone. Rent-seeking has got Australia by the short and curlies, and the politically powerful want no real change.”
When, oh when, are we going to be able to display the same smarts as monkeys?
By exposing how the big rent-seekers have ripped Australians off, Gittens is rapidly moving himself upscale, away from the neoclassical dross, towards economists of the ilk of Mason Gaffney, Michael Hudson and Joseph Stiglitz.
So, which party is promoting The Henry Tax Review recommendations about an all-in land tax and getting a proper return for Australians–not just Gina–on our mining licences?
The Reserve Bank of Australia is worried about (a) exacerbating the property bubble by lowering interest rates any further, and (b) the Aussie dollar being too high. So it seems there’s no room to move – except maybe the RBA selling down the AUD, aided by Joe Hockey’s $8 billion injection? This would help Australian exporters.
Meanwhile, some commentators are astounded at the big four banks’ record profits given such ‘low’ interest rates and the sorry state of business in general. To which I’d pose two just questions:
- Are Australian real interest rates all that low after inflation? Not yet. Inflation’s low because we’re in the deflationary half of a Kondratieff cycle – towards the end stage. When we had 18% interest rates, inflation wasn’t too far behind. I think we make far too much of low nominal interest rates; and these ‘low’ interest rates entrap people into buying grossly overpriced housing at times like these.
- Could it be that banks are making record profits on the back of bubble-inflated residential land prices? I mean, it’s not only via interest that banks make their super-profits. Their greatest rip offs are made from capital repayments.