More US (and NZ) housing market news from patrick.net
(Landlords who think they’ll be able to ratchet rents up as the Australian real estate market bursts might want to read the last two items.)
The Housing Slump Continues And The South Is Where It’s Worst (businessinsider.com) Discuss
Bay Area houses you can buy for the national median price of $157,000 (contracostatimes.com) Discuss
US Housebuilder Confidence Fell in April on Sales Outlook (bloomberg.com) Discuss
Will 20% Down Require Waiting 14 Years to Buy a House? (theatlantic.com) Discuss
Fed Aims at Mortgage Fraud, Shoots Housing Market in the Gut (Charles Hugh Smith) Discuss
Goldman Sachs and Executive Charged With Fraud (At Last!) (truth-out.org) Discuss
Developer bets people will buy tiny ‘micro-houses’ (southeastportland.katu.com) Discuss
LAND AND RESOURCE RENTS – OUR BLIND SPOT?
For years I’ve argued that we ensure the phenomenon of recurrent financial and social collapses once we come to believe that taxes are essential to the running of government, that is, once we lose sight of the truism that taxation destroys.
Australia has an incredibly vast bureaucracy (and much of its citizenry) wedded to the gross stupidity that there is some sort of social responsibility to pay taxes, and slowly but surely over the years we have progressed this manner of organised public theft into law.
The periods of social instability and financial collapse we experience every eighteen years or so are neither the fault of capitalism nor of socialism per se, but of a sorely misguided revenue system.
A proper blend of capitalism and socialism is necessary if society is to be resilient and to flourish, but, of course, this observation would be vehemently denied by the Ayn Randian right in the grand polarization that has fractured America and begun to turn up on the political shores of Australia.
Where the right might say “We’re with you about taxes, bro!”, it fails completely to observe that social and financial collapse has been the direct result of the extensive private rent-seeking of publicly generated economic rent by a tiny minority that obscenely enriches itself at enormous cost to the wider community – and the feverish but doomed-to-fail attempts of a far greater part of the population to do likewise – something that should offend both capitalist and socialist alike.
“Economic rent?”, do I hear the left and right inquire? Or maybe, in attempted put-down, “That’s just the late nineteenth century mumbo jumbo of Henry George!” Not so. Classical economists from Adam Smith to John Stuart Mill understood that as land rent is the surplus arising in the production process, it is eminently suited to be the revenue base.
However, those on the right, claiming to be godchildren and inheritors of the wisdom of Smith and Mill, selectively eschew that part of their ideas that as land and resource rents are community-generated they lend themselves admirably to this purpose if we are to shake off the incredibly pathological effects of taxation.
In failing to realise that everyone in the community is entitled to share equally in the economic rent of Australia’s land and resources, we’ve left it available to be monopolised and plundered by the finance, insurance and real estate (FIRE) sector, nominally a service provider to the more productive side of the economy, but rather parasitically pillaging it.
Other resource monopolisers, such as mining companies, are equally pleased that land and natural resource rents are in most Australians’ blind spot. That’s how our mining billionaires, armed with $22 million dollars in advertising, were able to convince us we had no right to Kevin Rudd’s proposed 40% partnership rental on their net profits.
A rampant FIRE sector has rapidly turned western capitalism into a caricature. As the private capture of land and resource rents has been elevated to the position of an end in itself, tax levels have increased, land prices have inflated into impossible bubbles, and production has begun to wilt, or forced to go offshore. Unemployment will follow, now that the real estate bubble is bursting.
It’s not just the right that’s misguided in allowing the private capture of land and resource rent. The left has little or no idea of its sufficiency, not only to replace all taxation, but additionally to provide such a substantial dividend to all Australians that pensions of every description could be readily abolished, along with a second bureaucracy that could easily re-employ itself in a healed and proactive economy.
In fact, it seems that Russian and Chinese communism graduated from Marx without having ever having read him thoroughly, because Karl Marx did finally espy the singular nature of the rent surplus in Book 3.
So, with both the right and left in political denial about land and resource rents, and the communist system having disintegrated, let me put the proposition that capitalism urgently needs to rediscover it, or we will otherwise be consigned to languish in the same deep torpor and economic malaise that has characterised Japan over the last twenty years.
Worse, when they can’t exit the economic depression, western leaders will no doubt look to manufacture a war with China. Whilst the precise nature of the heroic cause that will send us to war is unknown, let’s remember that when we were called to WWs I and II to liberate nations, in the end both were born of the absolute frustration with the stagnation that followed on the heels of economic depressions. And of course a ‘good’ war is always a solution, isn’t it?
So, here’s an idea. What if we allow enterprise to be truly free, free from all arbitrarily imposed taxation, and to socialise only society’s surplus, the people’s rent?
THE STUMBLING BLOCK – THE POLITICAL PARTIES
However, it is insufficient to achieve change simply by educating Australians to the manner in which the FIRE sector and mining industry have been ripping us off for years per medium of a tax regime that fines productivity, effort and thrift and rewards parasitic rent-seekers.
Like the USA, Australia is riven by a party political system. Once divided in this manner, it becomes a cinch for rentier plutocrats to quietly run the show from the shadows. They’ll give generously to the parties, provided they don’t interfere with their free ride.
Thus was Barack Obama castrated by a generous Wall Street. Thus was Kevin Rudd set aside as Prime Minister of Australia for daring to challenge billionaire mining magnates.
So, even if Julia Gillard and Tony Abbott were educated to see the people’s rent is 50% of the Australian economy, both are likely to keep pumping up land price bubbles and kow-towing to billionaire holders of mining licences. The plutocracy is now too powerful for our politicians; they are no longer in control, no longer our representatives.
Change is unlikely to come from baby boomers, stuck in their ways, and clinging to one or other of the parties. It’s also probably too late for it to come from many Generation Xers.
No, the hope of the side is Gen Y. It has been cynically locked out of affordable access to housing by governments feeding the land price escalation with first home buyers’ (sic) grants, and a tax system that fosters real estate rorts.
Where the oldies say Gen Y want what they haven’t earned, I see things quite differently. I’ve seen their high mindedness, enthusiasm and reasoned comments regarding Prosper Australia’s call for a residential buyers’ strike. They’ve seen and understood a perverse tax system’s complicity, and the shrug of shoulders from their political ‘representatives’. They want change.
Many of them have the indelible imprint on their minds of a system that completely sidelined them as young adults or condemned their brothers and sisters to decades of servicing impossible mortgages.
It is they who will bring about this most necessary of all political reforms.
In the Herald Sun today Scott Pape stares down the heat from irate landlords.
Stick to your guns, Scott, because you’re right – and they’re self-interestedly wrong.
BTW, you’ve actually put your finger on the cause of world economies collapsing, Scott. It’s all happening because the tax regime perversely encourages the finance, insurance and real estate (FIRE) sector, which is meant to be the SERVICE sector of the economy, but slaughters the DOERS, to whom the service sector is meant to be providing services but is instead running amok. It’s incredible.
Of course, the proper policy response would be to reverse the source of revenue, but don’t hold your breath on that one because politicians are in bed with the plutocracy’s lobbyocracy, and many are extensive property owners, too. Remember head of Treasury Ken Henry’s proposed mining resource rental at 40% of net profits? Remember his recommendation for an all-in land tax so that other taxes can be abolished? In the US Joseph Stiglitz and James K Galbraith have said the same action is required if the USA it to exit its economic morass.
Watch, however, as world economies do everything except what’s needed; watch as they do a Japan.
ROBERT MUGABE – A ‘DEATH BED’ CONVERSION?
Speaking of mineral resources, I heard on BBC radio last night that dictator Robert Mugabe wants Zimbabwean miners who’ve been ripping off the country for years to pay 51% of their profits by way of rent. When, as in Australia, his miners replied they’d simply walk away, he said “That’s OK, China’s got companies prepared to pay the rent.” [!]
There’s a deep irony in Mugabe’s position at this late stage of his life.
Thirty years ago Mugabe, an ardent Marxist, double-crossed his non-Marxist partner Joshua Nkomo. Nkomo had advocated the newly-freed nation fund itself from land and mineral rents. But with the assistance of Britain’s Lord Carrington, Robert Mugabe won out, slaughtering 20,000 Nkomo supporters in Matabeleland in the process.
So, now that you’ve completely stuffed Zimbabwe, Robert, you’re about to adopt Joshua Nkomo’s ideas – 30 years too late – is that right?
LIKE BANK ECONOMISTS AND FINANCIAL ANALYSTS?
I, too, have experienced your feeling of frustration at the “There is no bubble” crowd, David McWilliams.
I note your bank economist opponent in this 2003 debate cited low interest rates to help justify “This time it’s different in Ireland.”
Low interest rates were indeed the line fed to unsuspecting buyers to make their big mortgages appear to be more manageable here, too.
However, in the days when interest rates touched 20%, inflation was running at not much less. I invite bankers and others who used ‘low interest rates’ (sic) to sweeten impossible deals to provide their clients with real interest rate comparisons, that is, to adjust comparative interest rates for inflation if they wish to give the true situation. Then they’ll have to admit that in the low inflation environment of the last ten years or so, real interest rates have, in fact, been quite high.
But when economists and analysts’ salaries depend on mouthing platitudes and spouting lies to earn their salaries, they’ll do just that. They’ll continue to defend the indefensible.
Hullo, Chris Joye; hullo Rory Robinson.
MY FRIEND PATRICK KILLILEA IN THE US SENDS THE FOLLOWING – IT INCLUDES SEVERAL AUSTRALIAN ITEMS
|Why the Housing Market is Three Times Worse Than You Think||moneywatch.bnet.com|
|Forbes: San Francisco’s Economic Outlook among the Worst||baycitizen.org|
|Manhattan Apartment Prices Drop||bloomberg.com|
|Demographer sees surge of interest in renting rather than buying||latimes.com|
|New Rule: Banks Exempt from New Mortgage Rules||globaleconomicanalysis.blogspot.com|
|Housing Will Remain a Government Program||ibtimes.com|
|Lower house prices good for the economy||mybudget360.com|
|Mortgage paperwork mess: the next housing shock?||bloomberg.com|
|Federal Reserve lent Huge Sums to Foreign Banks||bloomberg.com|
|In Fed Documents, a Bank Run We Knew So Little About||nytimes.com|
|Abolish the Federal Reserve||abolishthefederalreserve.org|
|The Causes of The Mess We’re In||gonzalolira.blogspot.com|
|How Inflation Might Have Looked With House Prices Counted||nytimes.com|
|The Difference Ten Years Makes||deptofnumbers.com|
|Aussie Banks Refuse To Acknowledge The Housing Bubble||businessinsider.com|
|China’s Ghost Cities and Malls||youtube.com|
|Cuba’s Weird Economy||permaculture.com.au|
|Cheerleaders promoting Real Estate (2007)||youtube.com|
|Keep the housing crash news alive! $22,828 raised so far, 22.828% of goal||patrick.net|
I’m a baby-boomer myself, but I reckon the planet’s going to make it through OK if Gen Y’s excellent response to the homebuyers’ strike is any indication.
Comments on “GetUp”‘s site, at Prosper Australia , and on Facebook shows Gen Y has the ability to navigate itself safely through all the hype, dross and lies fed to them about the residential property market by mainstream media. Taking on incredibly excessive debt for 30 years doesn’t appeal to them.
In what way is it a real “market”, by the way? Can the fruit and veggie market keep produce off the market until we are starving and have to pay blackmail prices? No, the fruit and tomatoes would rot. Can manufacturers hold cars, computer equipment, etc., off the market? Wouldn’t they become obsolete and rust?
But what happens with real estate ……? Yes, that’s right!
Using the novel approach of researching those properties having no water usage, EarthSharing‘s Andrew Sadauskas found one in every 15 properties in his Melbourne study area were vacant, held off the market without a tenant, the owners apparently pinning their trust in making a capital gain rather than running the risk of a tenant damaging their properties (for a 3% return, or less).
Sadauskas’ 2009 report I Want to Live Here concludes “The most astounding results, however, came from the 11.05% vacancy rate in Carlton, the 16.56% Genuine Vacancy Rate in West Melbourne, and the 28.96% Genuine Vacancy Rate in Carlton South”. [!]
As an article in The Herald Sun today continued to give all the wrong reasons for “the supersonic property boom that has us reeling”, I just had to leave the following comment:-
Apparently Planning Minister Matthew Guy sees no connection between these fantasyland house prices and the winding back of rates and land taxes over the last 40 years, or the fact that the Income Tax Assessment Act slaughters salary earners and promotes property speculation with negative gearing? No, it’s just supply and demand. [Sigh!] They don’t improve, do they?
Keep on challenging all the real estate institutions’ crud, people! They’re not working for you!
I wouldn’t be at all surprised if GetUp’s spectacular new top-rated suggestion for a home buyers’ strike is not taken up by GetUp – because it carries deeper implications.
You see it works like this. The economy is a mystery to many people, apparently including our political leaders and the vast majority of economists who don’t understand the often destructive part real estate plays within economies.
And reform movements are currently more committed to remedying the secondary effects of failing economies, such as pollution, money and credit, any of which I can easily imagine GetUp supporting as a campaign.
It seems politics and causes must be about things other than why we reward real estate monopoly and speculation with negative gearing and 50% concessions on capital gains; about things other than why we fine workers and companies for daring to work and being productive; about things other than allowing the few really big rent-seekers to claw back every red cent, and then some, of what they’ve paid in taxes over the years via the uplift in the prices of the properties over which they hold claim.
We’ve managed to avoid tackling the fundamental stupidity of a rigged taxation regime for so long that it makes us feel silly, a little self-conscious, to address it now. Why have we accepted such an obviously corrupt revenue regime for so many years, yet want to say it’s wrong now?
So, it’s much more comfortable and much easier to campaign about other things.
So, let’s forget that the current tax system delivers billions of unearned dollars – owed equally to all Australians – into the hands of billionaires whilst the other ninety-nine per cent of us struggle to meet payments for food, clothing, health care, education and the mortgage and we sink deeper and deeper into debt.
Australia’s GDP should be $2 trillion, instead of $1 trillion, our land prices and debt levels should be far lower, and our wages and salaries much higher – without being at all inflationary. We should all be sharing in this wealth, but we’re wedded to a tax system designed by rentiers that consigns most Australians into debt – and many into penury.
Ken Henry’s panel inquiring into Australia’s Future Tax System has recommended a federal land tax should be used to abolish the wretched array of state land taxes, payroll taxes and stamp duties, and also argued for a 40% resource rent on mining profits.
What an incredibly enlightened development!
But these recommendations have hit a political brick wall because they offend the rentier class. With a few notable exceptions, Australian politicians are unduly in the thrall of these kleptocrats, simply because of their money and their corrupting influence. Unfortunately, at this point in Australia’s history, the question might fairly be asked, just who are our politicians really representing?
I suggest the Prosper Australia campaign may likewise hit a brick wall at GetUp, not because GetUp represent rentiers, of course, but because the campaign would get right to the heart of our systemic economic flaw. Coming to that understanding can almost become too much for some people – it’s so stunningly mind-blowing – and can leave them like stunned mullets. And you don’t get too much action from a stunned mullet!