Leith Van Onselen had a great piece in MacroBusiness about Saul Eslake’s speech at the Henry George Dinner. The comments were also extensive and interesting (with one exception), and the fact that Saul himself dipped into the conversation made it a thoroughly enjoyable discussion.

Maybe my thoughts on Tuesday about the possibilities for reform on housing affordability were too glum.  If the politicians aren’t receptive, there’s still much thoughtful argument within the Australian community.

And with Victorian David Collyer standing for the Australian Democrats on a land tax platform for the Senate tomorrow, who knows?

Maybe we might even dream the Abbott government will have to tackle housing affordability properly?

________________________________

Another reason to be heartened: this from the Lowy Institute on the Australian mining tax debacle.

“By a sarcasm of law and phrase they were freemen. Seven-tenths of the free population of the country were of just their class and degree: small “independent” farmers, artisans, etc.; which is to say, they were the nation, the actual Nation; they were about all of it that was useful, or worth saving, or really respectworthy; and to subtract them would have been to subtract the Nation and leave behind some dregs, some refuse, in the shape of a king, nobility and gentry, idle, unproductive, acquainted mainly with the arts of wasting and destroying, and of no sort of use or value in any rationally constructed world.

And yet, by ingenious contrivance, this gilded minority, instead of being in the tail of the procession where it belonged, was marching head up and banners flying, at the other end of it; had elected itself to be the Nation, and these innumerable clams had permitted it so long that they had come at last to accept it as a truth; and not only that, but to believe it right and as it should be.  The priests had told their fathers and themselves that this ironical state of things was ordained of God; and so, not reflecting upon how unlike God it would be to amuse himself with sarcasms, and especially such poor transparent ones as this, they had dropped the matter there and become respectfully quiet.

…when the harvest was at last gathered, then came the procession of robbers to levy their blackmail upon it: first the Church carted off its fat tenth, then the king’s commissioner took his twentieth, then my lord’s people made a mighty inroad upon the remainder; after which, the skinned freeman had liberty to bestow the remnant in his barn, in case it was worth the trouble; there were taxes, and taxes, and taxes, and more taxes, and taxes again, and yet other taxes – upon this free and independent pauper, but none upon his lord the baron or the bishop, none upon the wasteful nobility or the all-devouring Church.”

I think it was at the October 1996 ACOSS-ACCI Tax Summit in Canberra chaired by Michael Schildberger that I found myself seated behind a bloke with an outstanding shock of black hair.

I’ve just seen him interviewed on Channel 24 this morning concerning the Reserve Bank’s likely thoughts on the cash rate, his hair now a little grey.

It was the same man, economist Saul Eslake, who presented the 122^nd Annual Henry George Commemoration Dinner last night at the Royal Society in Melbourne, on the anniversary of Henry George’s birthday.

Even by 1996 Eslake had established himself as a well-respected economist, having worked at McIntosh Securities and National Mutual Funds Management as chief economist before taking on the chief economist job at the ANZ Bank in 1995.

Commencing with the usual disclaimer that he was speaking in a personal capacity, not representing his current employer, Eslake’s professionally-delivered presentation provided both chapter and verse on the Australian economy in respect of population and housing and a decided nod to Henry George’s case for a land tax.

He showed first home buyers’ grants in actuality to be home vendors’ grants, and pointed to the damage negative gearing had inflicted upon the economy and to housing affordability.

It was all there.

But then came the crunch.  If you’ve only got 100,000 young Australians buying a home each year and taking on the pain of affordability, as against all those Australians with a home who are quite happy to see where their house prices lie, “As the Americans say: ‘Do the math!’”

Isn’t that the nub of the issue for those who see the need for a switch from taxes on labour and capital to the economic rent of land to set the economy aright – those such as Prosper Australia who hosted the commemoration dinner?

It’s a numbers game on which the dice are loaded against necessary reform.

_______________________________

After the event, I had a brief opportunity to ask Saul Eslake whether the numbers were quite so bleak: whether the cohort who had bought a home during the bubble and were finding it difficult to service the mortgage might also be latent land tax supporters.

“No, Bryan. They only look as far as interest rates for relief.”

So, if residential land price bubbles have delivered financial collapse to the world, but nobody wants to keep a lid on the price of their homes despite the thoroughly researched conclusions of fearless economists, it must be acknowledged the world economic outlook remains incredibly bleak.

Depression bleak?

Henry George’s remedy for economic depression is neither known about nor wanted.

In Unlocking the Riches of Oz I noted the trend since the 1970s of winding back property-based revenues in the US and Australia and replacing them by increasing taxes on labour and capital.

This reversed the manner in which infrastructure such as the provision of water, gas, electricity, highways, etc., had historically been funded out of the uplift in land values generated by these capital works, in favour of private-public partnerships (PPP) which can be seen as rent-seeking arrangements.

As the privatisation of publicly-generated income from land and natural monopolies has continued apace, the returns to labour and capital have declined concomitantly (except, of course, in those industries invested in land and natural resources, such as banking, real estate and PPPs).

That we’ve witnessed a remarkable decline in real average earnings and record levels of private debt since the 1970s is therefore no coincidence.

The need to end the private capture of publicly-generated economic rents should be obvious now to all but the dullest of minds.

Dr Gavin Putland’s ‘Financial Stability Contour Map’ provides proof of this argument for the economics technicians.

Julie Novak is an IPA Fellow. She would “emancipate” Australians by cutting back on central government spending – which I think is good.  If she were Prime Minister, she told Geraldine Doogue’s “Saturday Extra” on Radio National this morning, she’d let the local community look after the needs of those who were in difficulties of one sort or another, as once the local community used to. It’s not the role of a central government to do this, she said.

However, I can only give you  a maximum mark of 50% on that one, Julie, because you’ve only covered half the ground.

If you want to relieve us of unnecessary government and taxes, Julie, you’ve got to educate yourself to the more than one-third of the economy that is our natural resource rents. IPA member and former Victorian Liberal Party politician, the late Morris Williams, understood this well, but it now looks as though knowledge of publicly-generated economic rent completely eludes current members of the IPA.  In fact, it looks like the Institute has become sympathetic to rent-seekers.  [!]

You could do worse than pay heed to one of Africa’s real leaders, Julie. Former President of Botswana Festus Mogae, mentioned to Geraldine Doogue on the same program as you this morning: “Mineral rights should vest in the State …. for the benefit of all.” I think this may have gone over Geraldine’s head, as it does over the IPA’s.

Botswana has done pretty well out of diamonds on the basis of acknowledging the people as owners, but when Botswana transitions out of mining it needs to see the rent of land–under private title–offers just as secure an income as the rent that flowed so readily from diamonds.

You see, Julie, Australia once built dams, reticulated water and sewerage, constructed roads and highways, supplied gas and electricity from the uplift in rent that the provision of this infrastructure gave to the community–through local government rates, State and Federal land taxes and natural resource rents–but now we think we know better, so we’ve wound these back or abolished them and began to tax labour and capital more highly instead.

We’ve privatised our natural monopolies so the likes of Gina Rinehart and other resource plutocrats–the 0.1%–can rip us all off.

So, Julie, you can earn up to another 50% in your marks if you show you understand how we might un-tax labour and capital.

Meanwhile, under the existing tax regime, Julie, federal government excess is pretty much price we pay if we are to stave off revolution.

THE AGE 30 AUGUST 2013
 

RENTERS ON RISE AS HOME DREAM FADES

THE AGE 29 August

by Matt Wade

The share of Australian families that rent has drawn level with those who own their homes outright, as a growing number of young people appear to be giving up on the dream of buying a house.

The proportion of households that are outright home owners has fallen from almost 42 per cent in the mid-1990s to 30.9 per cent in 2011-12, new Bureau of Statistics figures show. That is the lowest proportion collected by the bureau’s survey of housing occupancy and costs, which started in 1995.

The share of renters has risen nearly 5 percentage points to 30.3 per cent in the same period. The proportion of households paying off a mortgage has risen from 30 per cent to 37 per cent.

Sydney University housing expert Judy Yates attributed the decline in total home ownership – from 71 per cent to 67 per cent since the mid 1990s – to the spiralling cost of housing. ”This is all about affordability,” she said.

But Associate Professor Yates said the decline in the share of outright home owners was also being driven by well-established families using their mortgages to fund other purchases, especially investment properties.

CommSec chief economist Craig James said Generation Y – now aged in their 20s – seemed to have a different outlook on home ownership to previous generations: ”There has been a major change in attitudes concerning home ownership, with renting continuing to be preferred – either because Generation Y is choosing a different lifestyle or because the cost of purchasing a home continues to lift.”

Associate Professor Yates said the rising proportion of renters would exacerbate wealth disparities. Figures released by the Bureau of Statistics last week showed 90 per cent of families in the least wealthy fifth of Australian households were renters. In Sydney, the proportion of renters (34.6 per cent) is now higher than the share of households that own their home outright (26.8 per cent).

The average number of bedrooms in Australian households has grown from 2.9 to 3.1 since the mid 1990s. More than three-quarters of Australian households had at least one spare bedroom.

The survey of nearly 15,000 Australian households found one in five were spending more than 30 per cent of their income on housing costs, a proportion experts describe as financial ”housing stress”. Average housing costs in capital cities were 44 per cent higher than in regional areas.

I became increasingly concerned as the Australian banks eschewed any semblance of proper risk management when they continued their aggressive lending against bubble-inflated land values over the last sixteen years. (Don’t bubbles burst?)

Australia’s bubble is amongst the world’s largest and it’s certainly primed to burst, despite the vacuous arguments of bubble denialists. The Rudd government merely delayed the pricking of the bubble, and Tony Abbott now has few options available to keep it inflated. One can only hope the Liberal government can satisfactorily manage its deflation, but there’s little reason to believe Tony Abbott even understands the problem.

So, the US having led the world with its bubble experience, I’m not at all surprised to see yesterday’s Bloomberg headline US bank legal bills exceed $100 billion as a result of their financial crisis.  Running to the law won’t deal with the intrinsic problem, but it may help banks brazen it out.

In recent years, as all the action hasn’t been residential, I’ve also watched the excellent work Denise Brailey’s BFCSA has been doing trying to rectify the misfortunes of investors who’ve been ripped off by the banks and property-based investment schemes.

Throughout all this, I hear people argue the banks are only doing their job by providing credit, and that people have to take responsibility for their own purchases and investments. That’s true, but most people don’t understand a thing about real estate bubbles, whereas the banks are experienced in cynically playing them for all they are worth – then seek to be bailed out when they burst.  Absolutely incredible corruption!

That’s why I can’t vote for either major party in the upcoming election. They’ve both presided over part of the period of Australia’s greatest banking scandal without intervention. I’ll be looking for a smaller party in the Lower House and voting for Denise Brailey’s Australian Voice Party in the Senate.

SCENE: ARIZONIA LATE 20th CENTURY

When NASA was preparing for the Apollo Project, astronauts were taken for training to a Navajo reservation in Arizona.

A Navajo grand elder and his son happened to come across some of the space crew.

The elder spoke only Navajo, and got his son to ask: “What are these men in the big suits doing?” One of the astronauts replied that they were practicing for a trip to the moon.

When his son relayed this comment, the Navajo elder seemed to become animated and asked if it would be possible to give to the astronauts a message to carry with them to the moon.

Recognizing a promotional opportunity when he saw one, a senior NASA official accompanying the astronauts said, “Why certainly!” and got one of the men to bring a tape recorder.

The Navajo elder made some brief comments into the microphone. The intrigued NASA official asked the son who was chuckling to translate what his father had said, but he refused, and they went their on way.

The NASA people took the tape to a nearby Navajo village and played it for members of the tribe. Though it provided much merriment to the villagers they, too, refused to translate the elder’s moon message.

Eventually an official government translator was summoned. After much laughter, the translator relayed the message:  “It says watch out for these people. They have come to steal your land.”

Dr Kate Shaw provided lively moderation at last night’s public meeting on the Problems with Property – to a packed house at Melbourne’s Loop Bar.

The three speakers were:

(1)        Marcus Westbury from Renew Australia who recounted taking novel steps to assist in resurrecting the high number of vacant commercial properties in Newcastle. Although speaking primarily about commercial property, Marcus highlighted a difference between investment and speculation and believed Australia’s superheated residential market was facing a major correction.

(2)        Karl Fitzgerald from Prosper Australia saw tax reform as essential to freeing up the residential market, including the 90,000 properties currently held vacant in Melbourne. Land taxes, and an end to negative gearing, would help put an end to the artificial scarcity developed by those simply investing for capital gains.

(3)        Joel Pringle from Australians for Affordable Housing spoke of the blight of an inadequate housing supply, whether for owner occupation or rental in Australia. He touched on the coalition he represented and noted the first home buyers’ grant was simply capitalised into higher prices.

Each speaker and a number of questioners bemoaned the low priority given to housing affordability during the current federal election campaign.

One thing that came through was Australia’s split personality on the issue of housing affordability: older people are quite happy with their escalating house prices, even though they have the effect either of locking their kids into impossible mortgages or locking them out of home ownership altogether.

Perhaps this generational tension is why the major political parties can’t confront the problem of Australia’s hopelessly unaffordable housing?

It was great to see three different groups coalesce to discuss the Problems with Property. The concern of participants at the Loop Bar that housing affordability had to be addressed and taken further was palpable.

Then, on the way home, my MYKI* ticket got rejected at Parliament Station. The MYKI system hadn’t been able to credit the $10.00 I had deposited into my MYKI account on 27 June yet. That’s correct; back in June. [!]  The credit’s in there today though. Oh! That’s right! MYKI tells me it goes in to your account the day after you get rejected for having insufficient funds if you don’t travel by train often enough – unless, of course, I were to go to a 7/11 store to recharge my card, instead of having tried to do it much more conveniently on-line.  [??!]

Impossibly-priced housing, plus *a hopelessly expensive public transport ticketing system which doesn’t work.  Welcome to “Marvellous Melbourne” 2013, folks!