Well, it certainly looked like a market today: all those people assembled at the auction, wanting to see what that four bedroom, two bathroom brick veneer house with a double garage was worth. Near new; attractive and efficient layout; sitting nicely on a well presented site. Must’ve been at least fifty people attending, with Chinese Australians well represented. It looked like there were five genuine bidders. Sold eventually for $1.825 m, and people clapped the result. (Why? Entertaining I suppose?)
But if you’re selling new cars or tomatoes, you can’t hold them off the market for three or four years: they’ll be out of date, or go rotten. Not so with real estate. You can hold it off the market as long as you please. You can even hold it vacant, knowing its price will go up more than the rent you’d receive: and no tenants to possibly damage it. That’s a ‘market’?
There’s no real stimulus to make you compete like other important markets. And what’s a more important market than housing: getting a roof over your head?
So, in the absence of a stimulus, like an all-in land tax, is the $1.825 m for which the house sold really it’s ‘market value’ or is it something else – it’s ‘speculative value’ to potential buyers perhaps?
How do I figure that? Well, wouldn’t a potential purchaser discount the price of the property significantly if it had an annual land tax of say $10,000 a year? They certainly would: they’d reduce the price they’d offer by something like the present value of $10,000 pa in perpetuity @ 3%, which is by some $333,333. (So, now we’re down to about $1.5 m.)
Then, the ‘market’ is also currently inflated and distorted by government “come-ons”, such as having taxpayers subsidise investors’ house purchases via the ‘negative gearing’ of their properties (where any interest paid in excess of the rental received is deductible against the investor’s other income), and the 50% capital gain discount, to the same investors, whenever they sell their properties. Not bad, eh?
Where is the first home buyer in this ‘market’? Left out in the cold, trying to compete against these outlandish taxpayer-funded advantages given to ‘investors’ in this concocted, so-called housing ‘market’.
Real estate aint no ‘market’. A decent land tax would bring a rash of properties onto a real market.