Especially that final line. Good on you, boyo!
http://www.theage.com.au/business/grants-do-not-help-first-home-buyers-20130327-2gtas.html
You say we need more funds to tackle poverty, homelessness, health, the environment, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
I’m constantly told Australia’s land prices are astronomically high because of our high rate of immigration and the shortage of supply of residential allotments. So, it seems the price of a block of land has simply been reduced to an issue of supply and demand.
However, in over 40 years as a real estate valuer, I’ve seen there’s much more at play than supply and demand in determining the price of land.
Don’t get me wrong. The rate of immigration and the amount of available residentially-zoned land certainly do bear upon the cost of a site, but these are basically third-level issues.
There is an abundant supply of suitable land, but residential developers’ drip-feeding of allotments onto the market can create an exaggerated impression of shortage, a shortage in which we’ve seen potential purchasers willing to camp out overnight on a subdivision rather than miss out on the opportunity to buy a lot in the release of the next stage of the estate on such-and-such a date. Creating this impression of scarcity is a marketing function which should not be confused with the price of a block of land, however.
Statutory development costs, once repaid over a period in rates or taxes by the purchaser of a site, are now required by authorities to be paid upfront by the developer, and this has also added more than supply and demand considerations to the cost of allotments.
The most important factor in the price of a block of land, by far, is the extent to which governments capture the economic rent of sites via municipal rates or state land taxes.
From a valuer’s point of view, it’s arguable that if state governments were to introduce an all-in land tax struck at sufficiently high level, the price of land could actually drop towards zero, as little would remain of its annual rent to be privately capitalised into a price. One is left to wonder why this point is rarely taken into account in addressing the increasing problem of housing affordability. In whose interests but banks are constantly-inflating land prices?
It stands to reason that increasing land values should not accrue to land owners only. The whole community has an interest in recapturing part of the uplift in value generated by public infrastructure, but this seems to have escaped the notice of those policymakers who believe privatisation of our public highways is a valid way to fund them. John Goldberg has long been an opponent of the PPP model, and recent failures are proving him to have been correct. Maybe old ideas about public capture of land values for infrastructure aren’t necessarily bad ideas? May this not be the manner in which capital works projects could be made self-funding?
Land is different from commodities which become obsolete, decay or rust. We all need access to land to live and work, yet it is often held out of the market for the purpose of capital gain, the cumulative process adding to claims of shortage of supply.
Our skyrocketing land prices are exacerbated by the extent to which investment in real estate has been given favourable tax treatment – and by the banking industry’s readiness to advance any amount of credit against the “market” value of a piece of land. I put the word market between inverted commas because land price has proven to be ephemeral, especially when the multi-facets which create land price conspire to generate a bubble, such as has been allowed to develop in Australia under the Howard, Rudd and Gillard governments since 1996. Was it also “undersupply” which created the 1973 real estate bubble? The 1981 bubble? The 1988/89 bubble? No, rather a tax system which gives the green light to investors/speculators–at the expense of our youngsters–such as to generate an over-enthusiasm for real estate which then elicits a repetitive cycle of boom and bust.
It’s entirely arguable there’s no genuine market in land unless local government rates or state land taxes are set sufficiently high to make the owners of vacant or underused land use it or else sell it. Short of this stimulus, where is the meeting of market players when such land can simply continue to be held out of supply?
In “Unlocking the Riches of Oz: a case study of the social and economic costs of real estate bubbles 1972 to 2006” I put the proposition that the current Australian real estate bubble acts as a proxy to suggest the western world was about to experience financial collapse as national land price bubbles would begin to puncture. Seven years later, it’s good that Australians haven’t been panicked by the GFC, but it’s quite wrong to assume it’s all behind us simply because Wayne Swan pumped billions into the economy to obviate a sharp economic decline. Our land prices still require substantial (hopefully gradual) deflation before the Australian economy can repair.
That Southern Californians were lulled into a false sense of security by accepting the ‘undersupply’ argument for their exaggerated land prices as late as 2006 should serve as a salutary warning for Australians whose land prices have so far barely begun to contract.
This would seem to be a good time not to be a buyer.
_________
This article was also published on 26 March in Graham Young’s excellent Online Opinion.
You say we need more funds to tackle poverty, homelessness, health, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
Short of a miracle, the minority Labor government has finally passed the baton to the opposition.
In THE AGE today Chris Burgess of Port Melbourne reminds us Confucius had something to say on issues such as the Gillard-Rudd contretemps:
“Before you embark on a journey of revenge, dig two graves.”
So, if Kevin Rudd were to throw his hat in the ring to lead the party when Labor is decimated at the September 14 election, he is now almost certain to be defeated.
You say we need more funds to tackle poverty, homelessness, health, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
Former Victorian Premier, Jeff Kennett, who has a regular spot on Neil Mitchell’s 3AW radio show displayed this morning that he’s a sad case – a very shallow fellow.
Though premier of a state, Kennett apparently didn’t discover, or doesn’t want to own up to discovering, the treasure trove the economic rent of our natural resources represents.
Callers rang in complaining about the privatising of our roads, the level of taxation and our rapidly escalating gas, electricity and water charges.
Kennett was left floundering to the effect that if people want more and better services, they had to be prepared to pay for them.
Sure, Jeff, but it’s all about FROM WHERE you draw your revenues! You don’t understand this?
I think you know the 1% is free-riding on OUR land and natural resource rents–you do understand resource rents, don’t you, Jeff?–but I’ve only ever heard you agree with the 1% that their state land tax is too high.
So the community doesn’t have any interest in capturing more of the rent from skyrocketing land prices that arise simply from existence of community and community infrastructure, Jeff – NOT from anything the 1% does?
C’mon! You’re a sad case, either ignorant of economic rents, or in the thrall of the 1% who control the greater part of them. Just like Neil Mitchell.
You say we need more funds to tackle poverty, homelessness, health, education and infrastructure? I say instituting the Henry Tax Review is a BIG step towards solving those problems.
… MUCH HARDER THAN GETTING PEOPLE TO BELIEVE IN POLITICAL PARTIES AND CHARITY
Maybe Georgists’ lack of success is because activities such as films about Henry George simply won’t cut it, unless balanced against the life of a powerful counter-party, such as Edward Gibbon Wakefield, whose story included abducting three heiresses. Wakefield represents both the 1% and the perfect foil for Henry George, managing to roll Wakefield’s own sociopathic misdeeds into the dictum that land must be sold at “sufficient price” if people are to be kept subservient and in their place.
The 99% might well be able to identify with that one!
Hey, Downton Abbey people!: Edward Gibbon Wakefield, Sir George Grey, Henry George – there’s a series in it!
So we were conned about the “trickle down” effect. In the name of “creating employment”, the movers and shakers and their financial hacks, especially the financial hacks, took it all and laid waste to world economies.
They don’t accept this responsibility, of course, but we’ve been well and truly rorted, or scammed as the Yanks say.
The one-third of the economy that is the economic rent of our natural resources–owed equally to each and every one of us–was permitted to filter up to the 1%, such that they now own 40% of the wealth of the USA, and probably something similar in Australia.
President Obama scratches his head over it and endeavours to get Democrats and Republicans together in Washington to put things together again. Fat chance unless someone is prepared to suggest public capture of the unmentionable: natural resource rents!
The Henry Tax Review tried to educate us to this fact in Australia, but when the Rudd government endeavoured to institute one aspect of it, the mining tax, the 1% had Kevin Rudd sacked.
It’s time the 1% paid their fair share.
UNEARNED INCREMENTS AND REALITY IN CALIFORNIA’S RECALL ELECTION
Mason Gaffney, 24 August 2003
Published in “Insights”, a regular column in GROUNDSWELL, September 2003
California homeowners are wallowing in unearned increments beyond the dreams of avarice, while its governments are courting bankruptcy. Warren Buffett dared point this out, and overnight changed from the Oracle of Omaha into the Numbskull of Nebraska because he does not understand the “reality of California politics,” the oxymoron du jour.
Most candidates for Governor fled like startled deer. Buffett’s sponsor, well-tailored Mr. Muscles, recalled meeting a tearful widow who said she would have been taxed out of her home were it not for Prop 13. Poor thing, her home had risen in value. No one asked her name, or whether she knew what she was talking about, or had her claims audited – being a tearful widow “on a fixed income” insulates one from reality checks. The press chimed in with pix of poster oldsters, gazing from their multi-million dollar perches over the blue Pacific, fretting about Buffett’s solecism and its possible effect on them, never mind anyone else.
Fact is, unearned increments ARE income, at the time they accrue. Illiquid? They are better than cash income because you can turn them into cash by borrowing on them, and pay no income tax on the cash. If you have trouble with that, the tax man himself will arrange it for you by placing a tax lien on your appreciated home, rather than foreclose and evict you. This helps explain why we never actually see one of these evicted widows suffering from unearned increments – they are maudlin figments for mythmakers. The evictees we do see are renters who couldn’t pay, and had no equity to mortgage. Who cries for them?
Several rich candidates would pay more under a revived property tax than they pay in income taxes. Mr. Muscles, like previous Hollywood idols, gets most of his income as land appreciation. This income is not taxable unless he sells, and not then if he hires good lawyers, which of course he does, to play his cards right. Arianna Huffington lives in a $7 million home, but reports little net taxable income. Warren Buffett himself, like the owners of so much California land, resides and reports his income out of state. These facts should tell us something about who pays most of the property tax, but no candidate is inferring principles from mere facts.
Governor Gray Davis, supposedly fighting to close a deficit, chimed in endorsing Prop 13, citing the mythical widow again to explain why non-residential property, about 2/3 of the tax base, should enjoy low rates. Faced with a negative poll, he backed right down from his “land tax on wheels,” the higher vehicle registration fee. No one has said a word about a severance tax on oil and gas, although California is the only major producing state without one. No one has crusaded for a severance tax on water withdrawals, although it would solve both our revenue and water crises in one stroke. No one has said word one about taxing the taboo lands used for golfing, timber, or farming.
Only Cruz Bustamante has proposed any specifics. He would begin dismantling Prop 13 – still not menacing the mythical widow – by raising assessments on industrial/commercial property. A whispering campaign right off has it that Bustamante is leading an Hispanic conspiracy to take over the southwest and turn “white, European” Americans into a minority to kick around. We observe mixed marriages on every hand, and Spain is still European, but this is California, where “reality” means mythology. May Warren Buffett continue to get in our faces with facts.
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Things are seldom what they seem; skim milk masquerades as cream … – Buttercup and Captain Corcoran, HMS Pinafore.
Dear Pope Francis,
Congrats on getting the big gig.
You will have seen that, more than ever, these savagely greedy times call for the BIG ONE.
I trust you have the intestinal fortitude.
In Cura Pastoralis Pope Gregory the Great (540-604) was prepared to put it boldly and succinctly:-
Those who make private property of the gift of God pretend in vain to be innocent. For, in thus retaining the subsistence of the poor, they are the murderers of those who die every day for the want of it.
But Pope Leo XIII’s Rerum Novarum tried to obfuscate. Of course land can be bought and sold, it declared: it’s quite OK to buy and sell anything with honestly-earned money. Henry George politely reminded Leo this argument also re-justifies chattel slavery.
Hoping you can do better, Francis. It would provide necessary assistance to one of your Jesuitical colleagues who tries in vain to assist Australia’s indigenous people.
Yours faithfully,
