The consequences of our monopoly housing market

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By Catherine Cashmore, a market analyst, journalist, and policy thinker, with extensive industry experience in all aspects relating to property. Follow Catherine on Twitter or via her Blog.

As we approach the Federal budget, once again we have to endure another round of economic nonsense, as the Treasurer tries to convince ‘ordinary’ Australian’s that the country is ‘running out of money’ – facing a ‘budget crisis.’

So ingrained is this message, that few question it.

Instead, Talk Radio is flooded with callers; outraged at the ‘debt burden’ they imagine will be passed onto their children. A lifetime of work and servitude lay ahead – not only charged with the responsibility of paying down their own debt – but the government’s debt as well!

For an administration that wants to retain leadership through blaming the last government for the ‘mess’ they’ve reputedly left us in, it’s a convenient message to sell.

“Fiscal responsibility” is the catch term of the day, cuts to health services, education, welfare, job seekers allowance, wages, and proposed ‘back to work’ assistance for those ‘laid off ‘ from the car industry – you name it, it’s on the table.

Everything that is, except the ‘golden egg’ of speculative windfall gains that can be gleaned from the game of ‘Monopoly’ – or to be more accurate – the increasing value of land.

Unlike countries such as Germany, which have historically managed to divert speculation away from residential real estate, with the focus being on productivity instead. Here, we’re all subject to an economy, built on the retirement ‘wealth egg’ of land – our personal economic leverage for all lifestyle and business needs.

It used to be called ‘Monopoly.’ Today its termed – ‘Getting onto the Property Ladder.’

The rules of the game are simple. The player uses as much debt as they can borrow – to ‘buy and hold’ as much as they can – and those who ‘got in’ at the beginning of the lending boom, securing the ‘best’ plots available, win the game.

In relative terms, the ordinary homeowner doesn’t advantage much, but what else can they do? Retire still renting? Or become a contestant and hope their house yields enough ‘appreciation’ to support them when they retire. (But not so much that their children can’t get a foot onto the first ‘rung’ of course, and leave home before the age of 40.)

Our lives are therefore spent working to pay off a mortgage – or two. (That is, unless you’re an unlucky tenant, in which case you play a game called ‘The Rental Trap.”)

The question we ask however is; ‘At what expense?’ – or perhaps “At whose expense?”

As demonstrated by a recent HIA report – land values continue to skyrocket – with the weighted median across all capitals during the final quarter of December 2013, rising to the:

“Highest level on record… a 22.3% increase on the final quarter of 2012.”

Or perhaps it can be better illustrated on a graph Wendell Cox (author of the “Annual Demographica Housing Affordability Survey”) constructed which cuts through the usual measures used to convince readers that ‘housing has never been more affordable,” with overwhelming focus on mortgage serviceability rates alone.
Instead, it demonstrates the speculative nature shaping the property cycle, which affects not only established house prices, but building activity as lot sizes reduce, whilst land price per square meter, outpaces income growth considerably.

ScreenHunter_2348 May. 08 17.08

As I said in my last column, whilst citing the political motivation behind housing policy; “The smoke screen debates on affordability and scrapping negative gearing, are just that” smoke screens. Something that was subsequently confirmed upon release of the Government’s Commission of Audit, which ruled out any consideration of a change to housing policy – better to tax income instead – easier for the top 10% to avoid it, whilst low to middle income earners suffer the shortfall.

We ‘all’ have to shoulder the burden, tighten belts, work harder – pensioners included!

‘All’ that is, except those imposing the ‘rules’ – whose ‘entitlements’ are immune from any ‘fiscal responsibility.’

Yes – the Members of our Federal Government – the ‘issuers’ of our monetary supply, offset through taxing those who do have to ‘earn’ dollars before they can ‘spend’ it – whilst our Government ‘earns’ nothing – but is rather elected, and charged, to manage the budget in the best interests of its working population to promote economic growth – for which education, health, ‘back to work’ initiatives and so forth, are vital pillars.

There is no evidence and no economic wisdom, that indicates running a surplus is good for the economy.

Something, Steve Keen does an excellent job of demonstrating in a recent lecture given in Sydney, in which he shows the inevitable consequence to GDP should our Government attempt to do so!

Economic orthodoxy, which stubbornly insists austerity measures to pay down government debt, should take precedence whilst imposing onerous taxes on its working population, are lessons that should have been learnt following the Great Depression in the 1930s.

There is nothing ‘new’ about this – indeed, Australia’s oldest PhD at 93 – Dr Elisabeth Kirkby – has just written a 100,000 word thesis on it. And whilst valuable lessons reaped from the grains of history are ignored, the patterns that led to our greatest economic disasters are repeated.

What all demonstrate is, when the government tightens its belt, for no other reason than a vein attempt to ‘spruik’ a surplus, it has the unwonted effect of withdrawing money from the economy – leaving the private sector (the working class population) to pick up the slack.

Therefore “repairing the [government] budget” with the claim it’s putting Australia “on the right track” – is not putting the fate of ‘Australian’s’ on the ‘right track.’

It is the Government’s responsibility to make sure our monetary system works for the population, by spending enough money into the economy to keep employment and productivity thriving.

What however, is economically irresponsible, is to have a growing deficit offset by tax receipts, that reward speculation and by consequence, widen the wealth gap between rich and poor. Ironically, the very gap the tax and transfer system is supposed to narrow.

In other words, we are not burdening our children with debt – we are burdening them poor economic management.

As austerity measures bite and the retirement age increases, the majority of Australian’s will be working longer and harder – and whilst the Government pays down its reputed ‘debt burden’ – private debt levels will continue to increase as families borrow to ‘afford’ the basic necessities they need, most likely leveraged against their own homes.

For those that need a reminder – as demonstrated in the latest ABS social trends report – total household debt was $1.8 trillion as at the end of 2013 – higher than it has been at any other time over the past 25 years.

ScreenHunter_2349 May. 08 17.13

Low interest rates aside – $1.8 trillion is a hefty figure.

To put it in some kind of context – a trillion, is a thousand billion.

The sun is set to burn out in approximately 500 billion years. A trillion is so large; it’s almost meaningless in real terms.

Total Government debt securities on issue are around $542 billion (as at March 2014 – RBA) – that’s around 35% of our GDP.

In contrast, our household debt to GDP ratio is estimated to be 97% (as at December 2013 - RBA) – assisted by low interest rates and an array of financial products to ‘woo’ new borrowers into the property market (such as shared equity schemes, interest only loans, redraw facilities, offset accounts and so forth.)

Therefore instead of our current leaders asking Australian’s what they can do to assist Government debt. We should be asking the Government, what it will do to assist private debt? Particularly as we move forward over the next 12 months or so, and the lending cycle turns.

Capitalism?

Of course, this problem is not unique to Australia. Thomas Piketty’s book “Capital in the 21st Century” has just come out to great acclaim, choc full of statistics to demonstrate how income earners – the vast body of productive workers, who prop up the local economy through the taxes they pay and products they produce – are the losers, compared to those who hold stores of unproductive wealth.

The book focuses on the ‘1%ters’– advanced through gifts of inheritance – those who hold the vast majority of ‘assets.’ Controllers of the stock and bond markets – collecting their ‘economic rent’ by way of hording property, and effectively, ‘buying’ protection through lobbying seats of power.

It’s an age old game, and in a world where gaining political leadership is only possible with vast sums of ‘advertising’ dollars, lobbying is crystallised into the system.

We’re currently seeing this with the ICAC investigation, as it uncovers a web of alleged political corruption, with illegal donations from property developers and other sources, funnelled into a Liberal Party slush fund.

Meanwhile, Clive Palmer has been accused of “spending money like a drunken sailor” to secure a third seat in Senate for his PUP party.

Palmer reportedly entered the leadership battle due to “poor policy decisions” by the Gillard Government – the ‘carbon tax’ in particular being highlighted, which promised to negatively impact his core business.

However, his other policy evaluations leave much to be desired.

For example, Palmer’s ‘housing affordability’ plan, is to make home loans tax deductable for the first $10,000 – a move which will unquestionably push land prices higher, as future buyers factor the savings into their budget and adjust price expectations accordingly.

But then, considering Mr Palmer’s significant land holdings, which are said to include:

  • “A six bedroom, 11 bathroom, 22 car garage property in Queensland – along with;
  • An array of golf courses. As well as;
  • “Family and associates” owning a total of “11 homes in the Sovereign Islands” on the banks of the Southport Broadwater – as well as;
  • “Other known properties at Broadbeach Waters on the Gold Coast, Fig Tree Pocket in Brisbane, Jandowae on the Darling Downs, Queensland, and Port Douglas” and notwithstanding;
  • “An undisclosed number of properties held in trust for their daughter.”

I suspect lowering land values, may not be top of mind.

The wealth tax ‘solutions’ Piketty proposes to stop the ‘gap’ widening; fail not only by the confused definition of what one would consider ‘wealth.’ (A Rembrandt painting, or luxury Yacht for example?) But also that of ‘capital.’

In modern terminology, capital is used for anything that yields a profit – which under our current system includes land. However, in classical terms, capital is a factor of production – a depreciating asset and one, which can be reproduced.

In a society built on the foundation of ‘free markets,’ factors of production flourish under competition. If one widget costs too much, an entrepreneur will find an innovative way to produce the same widget at a cheaper price.

It’s called capitalism.

Land however is not a factor of production. It can’t be moved or reproduced and it’s limited in supply. Therefore the revenue stream generated from the unimproved portion alone is due to its locational advantage, and little else.

The free market activities in a capitalist society, cause land values to increase – and considering this is through no act of individual exertion on the vendor’s side, but rather the collective efforts of the community, it makes sense that most consider owning a well located plot of land, better than both money in the bank and the wages they have to ‘earn.’

This is why increasing charges on the revenue stream ensuing from the locational value of land, and recycling it back into the community – (which is where it came from, and where it belongs) – by way of a tax shift off productivity (wages) and onto our valuable and limited natural resources – was termed the ‘least bad tax’ by the capitalists Milton Friedman and Winston Churchill – to name but a few.

Rising land values harm capitalism, they increase the rent for small business owners, always benefiting the landlord but never benefiting the wage earner. Furthermore, rising land values force young people out of the market, whilst making those ‘in’ the market wealthy – and widening the gap between ‘rich and poor.’

When land prices inflate, jobs are lost as more revenue is taken away from productivity and soaked into the ground.

It’s not called capitalism; it’s called capitalizing -‘taking advantage of’ community created revenue – the total of which is pocketed by the landowner.

This is why land prices are so high – and ‘vested’ interests of policy makers always act to push them higher.

The great man Buckminster Fuller – architect, systems theorist, author, designer, inventor, and futurist – once said;

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” (H/T author of soon to be published book “Land” Martin Adams)

We live in a democracy, therefore any change to the status quo needs to come from the ground up – we will never get it from the top down.

The Henry Tax Review set out recommendations for transitioning our economy based on the ideas penned above.

How we get there is worthy of debate – however thankfully, due to the internet and a new age of enlightened ‘priced out’ folk, we can start that debate in 2016/17, by using our own preference and economic wisdom to vote a government which acts to widen the rich/poor divide out. By which time there ‘may’ (?) be better options to vote in.

87 Responses to “ “The consequences of our monopoly housing market”

  1. Chester says:

    Your better to categorise things as currently having particular amounts of attributes and thus we can place those into a particular category.

    For example, the attributes of land, the capacity to found structure upon, the capacity to be located etc (is land utility.

    That’s its economic contribution.

    Flats stacked one upon the other in high rise buildings “manufactures” some of that utility.

    However there are no current commercial alternatives to other parts of the utility of land that can economically compete with the stuff under the foundations.

    It’s an extent of capacity to substitute in a particular set of circumstances that sets the assumptions for your further analysis.

  2. flawse says:

    “There is no evidence and no economic wisdom, that indicates running a surplus is good for the economy.

    Something, Steve Keen does an excellent job of demonstrating in a recent lecture given in Sydney, in which he shows the inevitable consequence to GDP should our Government attempt to do so!”

    Sorry Catherine I like your stuff but that is total bunkum. Keen rails about the level of private debt but then seems to ignore it in terms of the overall indebtedness of the nation and seems to think that the government can now go into permanent deficit and unlimited debt.
    Despite the point being made to him many times Keen just simply, like pretty much all other academic economists these days, simply ignores the external account where the results of all these deficits and debt shows up.
    As I and quite a few others others have pointed in these pages over time (without any cogent contra argumnent from anybody) the result of the stupidity and profligacy, about which you otherwise write, is a massive external debt and worse still the sale of most of our natural resource assets, what is left of our manufacturing including pretty much the whole food chain, and now our houses to foreign interests.

    Government deficits do matter. They have to be financed and the ONLY way they can be financed in the mess that is now our economy is through the external account one way or another in either more debt or further sales of mines, farms, factories and houses. THAT DOES MATTER!

    P.S. For the money printing promoters there is no way around this. You can print money but it will simply end up in the external account as more debt and asset sales. There is no fantasy magical fairyland at the end of the garden, where everything turns out joyfully without any cost or bad things happening. This is despite modern academic attempts to imbue that there is.

    • Peter Fraser says:

      What Keen failed to do was mention that it depends on how the economy is performing. At times it may be appropriate to run a deficit, and at other times it may be appropriate to run a surplus.

      I think that he was just concentrating on the one point.

    • glissom says:

      In Keen’s model he particuarly studies endogenous money creation, i.e money created within the system by banks.
      Bank debt expands the money supply, paying off debt reduces it.
      A simple three sector balance equation usually misses the fact that if money is being created / destroyed in the private sector that changes the balances.

      So while the US style printing is a beautiful example of your point about it just going to the external account, it doesn’t have to do that. Money spent reducing debt doesn’t all end up in the external sector, it reduces the supply of bank money.

      You could reduce the debt without deficit spending or a recession but a debt jubilee is really unpopular with the owners of the debt.

    • RickW-MB says:

      I agree – Steve did not include external debt in his simplified model. The situation changes when the debt is denominated in a currency other than Australian currency. Would be interesting to see how his model responds when trade and current account is included – much more complicated and I do not think can be ignored in Australia’s case. The foreign denominated debt is around 50% of GDP.

      Australia is a long way from the situation in Japan where the government had to spend to use private savings otherwise Japan would own more assets worldwide than they have already.

      US is also different because the external debt is denominated in US dollars – their own currency which they can print as fast as they like.

    • PeteG says:

      If foreigners want to accumulate AUD and buy mines, farms, houses etc then what should Australia do about it?

      If the government / domestic sector doesn’t run a deficit and foreigners keep accumulating AUD then the effect is going to be continual deflation in the domestic economy. The problems that go with deflation (unemployment etc) are probably going to be just as harmful as losing ownership of farms, mines etc.

      Should there be punitive taxes on foreigners to discourage them from holding AUD or buying domestic assets? Or is there some other solution?

    • Catherine Cashmore says:

      Thanks Flawse I don’t entirely disagree – however as Steve Keen has pointed out elsewhere, even with foreign debt and the ownership of our companies and resources, it’s the private banks that are the major source of that debt, not government debt – something that was evident and growing even during our years of surplus. The point of the article (simplistic as it is in design) is to move the debate onto how the economy is managed – returning to surplus through cuts to welfare and jobs – whilst promoting speculation etc. I think those points are at least clear enough for most to grasp.

      • Opinion8red says:

        What concerns many — including myself — is the more or less overt implication that is being made by all those striving to downplay the public debt/deficit problem. Whether they themselves realise it, or not.

        That implication is, essentially, this: Now that the debt-at-usury driven/dependent “growth” economy has run / is running out of puff — due to a debt-soaked private sector — the government should “take up the slack” by … doing more of the same. Borrow and spend. From foreign lenders (70%).

        The only thing achieved is a worsening of the Big Picture problem … a nation whose assets have been sold out and whose workers have been sold into multi-generational servitude to foreign usurers.

        As an aside, for mine one of the worst things about Keen’s lecture was the ridiculously simplistic implication that any “growth” in “GDP” must be good growth, and so worth the downsides of ever increasing indebtedness. No sectoral analysis. No assessment of whether the “growth” boost achieved via government borrow-and-spend actually adds to the nation’s real wealth (assets) or productive capacity, and if so, in what percentages. Just a simplistic “Hey presto! Look folks! The GDP keeps rising if we borrow more!”

      • Catherine Cashmore says:

        I agree Opinion8red, how we fund debt is important – when I say we need to keep employment and productivity boosted – is because by design, it reduces pressure on the welfare state. Yet we choose instead, to battle for a surplus by penalising productivity and ignoring tax expenditures such as the capital gains exemption on owner occupied housing or scaling back negative gearing for example.

        If I’m correct – tax expenditures are around 8% of GDP ($120 billion?) – just plugging the above holes would go a long way to addressing growing government debt.

        Notwithstanding – when the government was running a surplus – the increase in bank created debt more than offset the decline in government debt… (therefore, current account deficit still growing) – However, short of writing an article that goes into the detail – what I’m trying to do is point out where the concerns should be focused. I maybe didn’t make that clear – the debates on MB are an important framework for at least getting the discussion going on a deeper level.

      • Escobar says:

        Catherine
        @1.49am

        You wrote

        “If I’m correct – tax expenditures are around 8% of GDP ($120 billion?) – just plugging the above holes would go a long way to addressing growing government debt.”

        Is that $120b fix to the deficit been determined after all reduced spending (GDP) effects have been considered?

        I would have thought the tax expenditures were introduced to be stimulatory and removing them would prove the opposite.

      • Catherine Cashmore says:

        Thanks Escobar – The Commission of Audit’s terms of reference was to look at direct government expenditure, such as grants and transfer payments, there was no express reference to tax expenditures. The expenditures I mention act to further inflate house prices (or to be exact, land prices) – driving small business to pay higher rents/land values to access the facilities they need to run/produce the products they create, which over the longer term impedes productivity and produces more dependency on the welfare state as companies are driven off shore.

      • Opinion8red says:

        Catherine,

        “…. when I say we need to keep employment and productivity boosted – is because by design, it reduces pressure on the welfare state.”

        Indeed. You’ll find few greater supporters than I for viable, well-considered policies to maximise employment. However, what is rarely considered — and certainly was not by Keen in his lecture, or by others similarly driving the “deficits are fine” mantra — is the full picture of consequences of doing so.

        “GDP” growth, for its own sake, does not necessarily equate to higher sustainable employment.

        Nor, as amply evidenced by the growth of the FIRE sector, does higher “GDP” necessarily equate to increased “productivity” — a word that, typically, for centuries indeed, has been an economic theorists’ article-of-faith, and one that is frankly little more than a euphemism for “lower/capped wages and/or longer hours, in order that the capital-ist can continue to bleed off the same/more economic rent/usury, irrespective of weak economic conditions impacting everyone else”.

        The evidence is rather clear that, by design, simply borrowing even more from abroad (via govt-issued IOUs, rather than commercial bank-issued IOU’s) — always at interest — only adds to the long term productivity and employment problems.

        Simply adding to the nation’s total debt-at-usury load / dependency on / sellout to foreign lenders — whether through the public or private sector — only reinforces the systemic apathy, inefficiencies, dependencies, entitlement- and rent-seeking that gave rise to the excessive private debt problem in the first place. Government borrowing is the classic “easy fix” — one that suits the usurer class to a T — that is no fix at all.

        I think we are largely on the same page; like most here, I enthusiastically applaud your superb critiques of the key underlying issues viz housing. I do very strongly feel, however, that it is vital that no one be left under any illusion — whether deliberately, or inadvertently — that government’s borrowing even more from foreign lenders is any kind of panacea. On the contrary, IMHO it is nothing less than reckless endangerment of an already precarious economic situation, and this should be pointed out in the strongest terms at every possible opportunity.

        So long as we continue to give intellectual licence to government to make the underlying situation worse, under the false and temporary guise of making things better … they will.

      • Catherine Cashmore says:

        Excellent comment Opinion8Red – and I agree. Steve’s video is simplistic in nature because of the audience and time frame he’s presenting to. However, I do think it is important to point out private banks that are the major source of foreign debt – not Gov. This is arguably a far greater issue – adding volatility to the property cycle.

        The Henry Tax review set out a framework that would move us to good model of economic management – a well managed deficit in order to achieve this is better than a running for a surplus at any cost – harming productivity in the process – as well as exacerbating private debt – which is high by any measure.

        The point of the article was to move the focus to the political motivation behind housing policy. Anything can be touched but land prices. It’s a very clever model – the Gov has moved the concentration of public opinion to a ‘Government debt crisis’ – done nothing for housing affordability where those with vested interests make their ‘windfall gains’ – which will further inflate our private debt levels to afford the average home. Therefore, as I pointed out – we end up responsible for paying down their debt through poor economic management as well as our own.

        The feudal system is alive and well.

        It is important we recognise this – important for reading the market and assessing policies of future/new political parties. In this respect we are on the same page. I want people to take care of their own back pockets – not be ‘fined’ for the profits they create through their productive labour – and not be subject to our current high land prices.

      • Opinion8red says:

        Excellent comment likewise Catherine.

        Thank you. For all that you do.

        #aussieheroine

      • Opinion8red says:

        Catherine,

        Just quickly, re your comment that “The point of the article was to move the focus to the political motivation behind housing policy”, you may wish to consider that particular matter, viz. the power of the banks when it comes to influencing public policy, in this context –

        “To understand the pivotal role of Australian banks in the funding of political parties requires a deep knowledge of how the system works.

        For the most part, in the vicinity of three quarters of a major party’s funding in most elections comes from the public purse. The ‘public purse’ amounts are allocated to parties after the election in accordance with the proportion of the votes that are achieved.

        But there is no forward allocation of money. The distribution of ‘public purse’ money is strictly governed by the proportion of the votes actually achieved.

        ALP organisers are not looking forward to meeting with their bankers as the election nears. They are deeply apprehensive that as a result of current opinion polls, their bankers will slash the amount of election funding available to the ALP and lock it into a low vote.

        Conversely, Liberal and National Party organisers believe that as a result of their opinion polling they will receive a huge increase in support from their bankers to fund unprecedented amounts of advertising and promotion.”

        – Robert Gottliebsen, Business Spectator

        http://www.businessspectator.com.au/bs.nsf/Article/Liberal-Labor-polls-banks-funding-unions-election–pd20110721-JXTSN?OpenDocument&emcontent_Gottliebsen

      • Catherine Cashmore says:

        Yes – this point is very important. I’m glad you posted the quote.

        It was a matter covered in Thomas Piketty’s book – which is good in the main, aside from the points I try and clarify at the end of the article.

        Arguably – if we can sort the land market out, we take a lot of wind out of the financial sector who monopolise on its influence.

      • Opinion8red says:

        Catherine,

        I highly recommend Michael Hudson to you. Some pertinent quotes from his recent “The Bubble and Beyond”, here:

        http://www.macrobusiness.com.au/2014/03/weekend-links-29th-30th-march-2014/#comment-342625

        FWIW, Hudson has been ripping into Piketty. See (eg) here:

        http://michael-hudson.com/2014/04/pikettys-wealth-gap-wake-up/

        If you don’t love Hudson already, you will ;-)

      • Catherine Cashmore says:

        Yes – already read his books/comments Opinion8Red. I recommend listening to his interviews on the community radio station 3CR’s Renegade Economist show. Excellent stuff.

        He is also an advocate of deficits – in line with our comments. Good economic management – capturing economic rental values etc.

        Top economist.

  3. meltfund says:

    Economic Bubbles – It only takes 5 years

    … for the world to forget something rather important.

    http://www.meltfund.com/2014/05/economic-bubbles-it-only-takes-5-years.html

    MeltFund CFO Robin Smith today:

    “Relax. This new property bubble will not run out of control until 2026. You’ve just forgotten cause and effect of the last one. Be bold, buy as much property as you can. Get rid of all other investments, avoid tax and love your neighbour.”

    • AB says:

      Just one correction Melty. I’m gunna get me lots of property so I’ll need to love my neighbours, not just my neighbour.

      • Mining Bogan says:

        What if the fuel excise goes up? If you’re going to be a slumlord you’re supposed to spend your time driving around, admiring and gloating over your vast portfolio.

        The fuel bill will be a killer in your triple-turbo, 8 wheel drive toddler-crusher.

      • AB says:

        I’ll just use my webcams via Malcolm’s NBN…

      • sydboy007 says:

        AB

        if you’re lucky MTs DBN (Dogs Breakfast Network) might allow you to reach full VGA resolution in black and white @ 10fps

        Plenty enough to ensure the tenants are behaving and let your rentier nature gloat over their pathetic dialup speeds :)

      • AB says:

        I like DBN sydboy007!

  4. Outstanding. Catherine nails exactly the factor impoverishing some and enriching others: land ownership.

    This works until it doesn’t, which is now and why I say: Don’t Buy Now!

    We used to recognise three factors of production: labour, capital and land. Somehow conservative economists confused and merged capital and land, despite the first being saved labour and the latter nature’s gift.

    Successive governments have deliberately tax-advantaged land and imposed its revenue needs on labour, despite the overwhelming evidence that doing so destroys lives, incentive and turns activity toward unproductive rent-seeking.

    We can fix this problem with the tax reforms the Australian Treasury and Ken Henry proposed, land tax, a Resource Super Profits Tax and the removal of 125 very bad imposts.

    The land tax already exists in the hands of the states. They merely (!) need to remove the exemptions, thresholds and wheezes. We would get a surprisingly dynamic economy, inexpensive land and a new federalism. It’s Time.

    • squirell says:

      David,

      “We used to recognise three factors of production: labour, capital and land. Somehow conservative economists confused and merged capital and land, despite the first being saved labour and the latter nature’s gift”

      that statement is pure gold. +1,000,000. Land is different, it was always there – any rise in price is a gift from a growing economy to the landholder. Its nonesensical to under tax land growth and over tax those who contribute to the growing economy.

  5. Pfh007 says:

    Flawse,

    Yep, that is a point that is constantly missed in the govt budget debate where opponents of the govt are running around waving placards saying the % of govt debt is low compared to other countries or households.

    As you say externally financed govt deficits do matter because all externally financed debt does matter.

    Of course household debt is a lot bigger than public debt at the moment but both are important if they are financed externally – and by that I mean, for the MMT crowd who have just spilt their coffee and are preparing their comments about bags of $AUS in Paris being elusive, we depend on foreigners bidding up our exchange rate to acquire local currency to enter in the public and private IOU /debt transactions.

    Surpluses are important as debt must be repaid, but that it is poor policy doing that, by driving up household debt that is externally financed, is the point I think Catherine was making.

    It is also worth noting that provided the money is well spent, and that is not a given, deficits do not matter much IF they are internally financed (happy now b_b) – which at the moment they are not – because if they are internally financed, the govts ability to flog debt to locals will be the limiting factor.

    As for financing govt expenditure without debt, by printing money / making accounting entries in the treasury ES accounts, in my opinion that is inevitable and will occur when it is finally conceded that allowing private banks to create money endogenously is the poisoned root of our present predicament.

    Or more importantly it is understood that is probably the only way to unwind a debt bubble and avoid a nation of economic zombie households for decades.

    • Opinion8red says:

      “…running around waving placards saying the % of govt debt is low compared to other countries”

      This time last year Chris Joye debunked the claims re our “low” public debt –

      “You’ve been grossly misled about Australia’s finances – again.

      Getting insight into the true state of the government’s finances is as important as understanding your own. The government’s liabilities are ultimately our debts, and will be paid back by taxing our earnings.

      Last time I sunk my teeth into these issues I explained how the ostensibly very low “net debt” figures bandied around by many, including the PBO [Parliamentary Budget Office] are a complete fiction: they assume the debts of wholly owned government companies and state governments simply do not exist.

      The net debt numbers are also artificially reduced by taking cash from the Future Fund, which was set up to meet unfunded superannuation liabilities, which are not – surprise, surprise – included in the debt estimates.

      It’s the same as ignoring money you owe to someone but recognising the cash you have saved to repay them.

      Once you add back in state and wholly owned government entity liabilities, Australia’s net debt almost doubles from 10.6 per cent to over 20 per cent of gross domestic product. Since net debt is open to so much fudging, real analysts focus on true debt. Since 2007 federal and state government debt has exploded from $150 billion to $500 billion, with the actual debt-to-GDP ratio approaching… 40 per cent…

      http://www.afr.com/p/markets/market_wrap/flaws_riddle_biased_budget_office_9HCbw7bISiFq8XnS0WuscN

      Ireland’s public debt-to-GDP (a bogus measure, in any event) was under 24% prior to their housing crash.

      Ours is significantly worse … pre-crash.

      • Pfh007 says:

        That is a very interesting and important point.

        Especially when everyone has become absorbed in the smoke and mirrors of national accounting and the annual farce called the ‘budget’.

  6. Pfh007 says:

    Flawse,

    Yep, that is a point that is constantly missed in the govt budget debate where opponents of the govt are running around waving placards saying the % of govt debt is low compared to other countries or households.

    As you say externally financed govt deficits do matter because all externally financed debt does matter.

    Of course household debt is a lot bigger than public debt at the moment but both are important if they are financed externally – and by that I mean, for the MMT crowd who have just spilt their coffee and are preparing their comments about bags of $AUS in Paris being elusive, we depend on foreigners bidding up our exchange rate to acquire local currency to enter in the public and private IOU /debt transactions.

    Surpluses are important as debt must be repaid, but that it is poor policy doing that, by driving up household debt that is externally financed, is the point I think Catherine was making.

    It is also worth noting that provided the money is well spent, and that is not a given, deficits do not matter much IF they are internally financed (happy now b_b) – which at the moment they are not – because if they are internally financed, the govts ability to flog debt to locals will be the limiting factor.

    As for financing govt expenditure without debt, by printing money / making accounting entries in the treasury ES accounts, in my opinion that is inevitable and will occur when it is finally conceded that allowing private banks to create money endogenously is the poisoned root of our present predicament.

  7. Escobar says:

    “It is the Government’s responsibility to make sure our monetary system works for the population, by spending enough money into the economy to keep employment and productivity thriving.”

    By spending enough money…. to keep employment and productivity thriving?

    Really?

  8. Renting is only a trap if you let it. My household spends less than 30% of net income on rent, meanwhile a friend bought a house recently & will be spending around 50% of net income on the mortgage. Mine is a 12 month commitment, the friend has a 30 year commitment (until they sell). Which one sounds trapped to you?

    Save wisely while renting and you don’t need to consign to doing it for life.

    • MrMedved says:

      50% net income when considering rate and maintenance)… and that’s at currently low low interest rates.

      Even as tempting as it is to stop renting it does not make financial sense. As an ‘investment property’ it is a ridiculous proposition.

      • Tandem says:

        Don’t understand what you mean. If is it investment property, she likely get income too to cover her 50% net income mortgage. If interest rates start raising – rent will increase too – there are underlying factors for both. But I do not know when they will start being much higher – where is the economic growth???

    • sydboy007 says:

      That’s the argument I’ve gave to many a person I hear looking to get onto the property ladder.

      Once you start doing the actuaal figures, and heck it’s plain scary they HAVEN’T done that before, the property fog starts to lift off their eyes and they realise they’d be better off with the inconvenience of renting than buying, especially with the increased mobility it provides should they change employment.

    • trece says:

      See the point on the rent & savings.

      However if houses always go up in price, then it looks like it is better to not save (or even go in debt) but own the house, because all what you save won’t catch up with how houses have gone up.

      Also, I realize that if houses go up in price what happens is actually that money and productivity is the one that has gone down in value. Your work (wages) are worth less, because houses and everything else have gone up. So again, what is the point of saving, as the savings loose value.

      So I suppose the question is will houses go up for ever an ever, and ever?.

      I feel a bit like with the fly buys at the grocery shop. Do people really think they are getting something for free (and that the grocery shop is doing it to help people get cheaper things?), or do they realize that they are paying for it when they shop? (worse, it makes everything more expensive because of the extra overhead). The thing is that when everyone is in the scheme, the ones that refuse to join fly buys end up paying more. (Not to talk that when you join you give your personal information and shopping habits for free, which they would otherwise pay a lot to get).

      So you may refuse to buy a house, but if this keeps going up for a lifetime, maybe one should just join the crowd.

      who knows?

      • It’s a fair point, looking at rent vs buy, you do need to take into account a long term view, because rent will always rise over the long term while mortgage repayments remain the same until the term is up (without taking into account a change in interest rates). If you can invest (as opposed to save) wisely you could potentially outperform housing or you could rent while owning an investment property to take advantage of rising prices and negative gearing (for now) while enjoying the lower cost of renting vs owning a PPOR.

        Sad reality is that few consider the financial implications of renting vs owning and just buy when they can afford to, which is especially risky today in my view with prices near record high vs incomes, interest rates at record lows and an economy that is going to be facing some tough hurdles over the next few years.

      • China-Bob says:

        BB, WHY must rents always raise?

        If I look at the Detroit housing market I see land / house pricing falling and guess what along with it tenants get reduced rent as new landlords seek to attach a suitable revenue stream to their cheaply acquired assets. About all one can say about rents prices is that they typically lag asset prices resulting in low rental yields where land assets are appreciating and high rental yields where assets are depreciating.

      • “BB, WHY must rents always raise?”

        Well they may not always rise year to year or even over a multi-year period, but we have a monetary system where our central bank is targeting 2-3% inflation, so while that’s the case they will always rise over the long term (nominally).

      • Tandem says:

        Bullion Baron – this is only point where I agree with you – now it is not the best time to buy. It was 3 years ago. Question – why you did not buy?

      • Tandem says:

        China Bob – why are you comparing with Detroit? Why not London or Monaco? Detroit has absolutely different problems, cultural and political. It is not a right sample. Choose the right one.

      • @Tandem, I’m in Adelaide, I sold my PPOR in early 2010 near the peak, prices bottomed around mid 2012, but have only in the last couple of months surpassed the 2010 peak. Meanwhile I have been saving tens of thousands by renting. I don’t think prices are going to be able to grow faster than I can save renting and rent price increases have been minimal the last 4-5 years. I will buy when ready to purchase a long term home (right now have no need for larger than the 2 bedroom place I’m renting) or when prices come back down to a more reasonable level relative to incomes.

      • Big Note says:

        “…you could rent while owning an investment property to take advantage of rising prices and negative gearing (for now) while enjoying the lower cost of renting vs owning a PPOR”

        This is exactly what most FHB are doing now.

        But these FHB’s are being captured as “investors” and everyone is panicing that the FHB is being priced out of the market.

      • AB says:

        “This is exactly what most FHB are doing now.”

        And again, all we ask for is a skerrick of evidence.

      • Big Note says:

        @AB

        Get out to find out.

        Armchair economics gets you nowhere – some things that make sense in the text book don’t always make sense in reality.

    • N.C. says:

      Renting is only a trap if you’re young and poor.

      To become old and rich, one must buy property.

      Policy tension?

      http://tunswblog.blogspot.com.au/2014/05/worried-and-paying-for-it-our-housing.html

      • tanmedia says:

        Or inherit. It worked well for a select few for centuries. You can argue that with the right assumptions, the peasants have been invited to the party.

    • Tandem says:

      Just few comments:
      - what % of your net income does quality of life worth?
      - what % of your net income worth not to have pets?
      - what % of your net income worth to have inspections every 3 months?
      - what % of your net income worth not having house decoration in exactly way you want? even not a hook in a chosen point on he wall for the photo of your family?
      - how much of your net income is move every year and expose your kids to new school and even just a new bedroom? This is heavy burden even for adult mental health, and huge for the children
      - 12 months commitment is mutual – you must stay there too, and NO commitment after 12 months.
      - 30 years commitment – she will het a house at the price, fixed 30 years ago. What will you get?
      - your rent is as guaranteed as your friend’s interest rates, however she at least fixed two elements – price and location. I am not talking about other things.

      I am shocked how many Australians after 40 are still renting. And when they retire they will ask for the aged pension and support for rent from new generations.

      • Rusty Penny says:

        And when they retire they will ask for the aged pension and support for rent from new generations.

        i) They already do get further support for rent.

        ii) 41% all ALL renters in Australia get assistance. Renting is another way little landlords get their taxes back to them.

        A cyclical pattern from tyrant landlord -> taxman -> rental assistance agency -> tenant -> tyrant landlord.

      • McPaddy says:

        While those who bought will ask for the next generation to go into debt servitude in order to fund their retirement. Yes, that’s far preferable because the banks get their cut too.

      • Tandem says:

        Rusty Penny: so those who spend 20% more of they income will be disadvantaged as those who did not will get their rent support. This is not right thing. Wise and sensible people must be rewarded and enjoyers shall be penalised. :-)

      • My quality of life is better renting without the need of hassle to pay for repairs, rates, worry about mortgage rates.

        I don’t have pets at the moment, but could rent a place that allowed pets if I wanted.

        I have an inspection annually when the landlord comes to renew the lease. It’s not particularly intrusive. He’s a nice bloke.

        Neither my wife or I are particularly interested in wall colours and shit like that. We have plenty of hooks and no doubt our landlord would be fine with adding more if needed or could use 3M products designed to be used and removed without a trace left.

        I could go on, but the bottom line is that it doesn’t suit us to be paying off a mortgage now. We don’t have kids, when we do our priorities may very well change, but this other friend who bought the house is single and bought a small house without a garden & has no plans to significantly alter it. I think a lot of people buy not for practical reasons, but just an ingrained mentality that everyone should be buying.

        Everyone’s situation is different. I don’t discourage buying a PPOR if it suits the person doing so and provided they don’t stretch their finances… IMO 50% of net income on a mortgage is taking too high a risk, especially in the current environment of record low interest rates, record high prices relative to income and an uncertain economic outlook over the next few years.

      • N.C. says:

        Commonwealth Rent Assistance: $3.6billion p.a.
        Tax breaks and benefits to landlords: $6.8billion p.a.
        Tax breaks and benefits to homeowners: $36billion p.a.

        Nice work if you can get it.

      • AB says:

        @Tandem – Your experience of renting must have been very different from mine. I bought 18 months ago but rented four different places over ten years before that.

        In each house I:
        - had a better quality of life because I lived in a place I couldn’t afford to buy but could afford to rent,
        - was allowed to have pets,
        - had inspections at most every 12 months,
        - was allowed to paint the rooms if I wished as well as put a reasonable number of pictures hooks,
        - paid in rent around 1/3rd of what a mortgage would have cost for the same house,
        - was forced to move once and I didn’t find any of the moves to be a heavy burden on my adult mental health (and my kids didn’t seem to mind either).

        In short, all four rental experiences were comfortable, affordable and enjoyable.

        My kids weren’t at school at the time but I’m not sure why they would have had to change schools anyway given that there were tens of different rental properties I could have moved to in the same suburbs.

      • Rusty Penny says:

        Wise and sensible people must be rewarded and enjoyers shall be penalised

        that ship sailed long ago.

    • Catherine Cashmore says:

      Agree BB – however, the point is, the gains ensuing from the location revenue of land, when allowed to accumulate, and not proportionally recirculate back into the economy, provide home owners with unearned gains which are very difficult for any ordinary renter (struggling with weekly payments) to equal investing else where. High land prices, essentially flow onto rising rents and falling supply (through vested interests re supply policy.) Therefore, for a large proportion of individuals, renting does become a trap.

    • Catherine Cashmore says:

      Agree BB – however, the point is, the gains ensuing from the location revenue of land, when allowed to accumulate, and not proportionally recirculate back into the economy, provide home owners with unearned gains which are very difficult for any ordinary renter (struggling with weekly payments) to equal investing else where. High land prices, essentially flow onto rising rents and falling supply (through vested interests re supply policy.) Therefore, for a large proportion of individuals, renting does become a trap.

    • Mav says:

      +1 . 2 million.. And with Command hooks, that old furphy about not being able to hammer nails into walls in order to hang stuff.. Is gone.

      • The Claw says:

        with Command hooks, that old furphy about not being able to hammer nails into walls in order to hang stuff.. Is gone

        That depends very much on the wall surface and the object being hung.

  9. Ozquoll says:

    A small correction – our sun has got about 5 billion years left, not 500 billion. Hopefully that won’t affect anyone’s retirement plans ;-)

  10. Big Note says:

    I think one critical thing people forget is that land prices are high (and will continue to rise) because of a lack of infrastructure investment over the past 30 years.

    Employment is highly concentrated in the major cities and the obvious result of this is a price squeeze.

    We have ample land in Australia, but its not accessabe!

    But i actually think another solution to the problem is to get rid of the national minimum wage.

    The minimum wage should be scaled relative to the cost of living in that particular city.

    To give you an idea of how this will work. The minimum wage in TAS for example might be half of that in Sydney. The corporates will follow the cheap labour, invest in that region, grow, and then the population will follow those jobs. It will then take the pressure of the other major cities, mobilise the population and take the pressure of land prices.

    Problem solved !

    Happy to put my hand up for PM.

    • The Claw says:

      I take it that you are not a person currently working for minimum wage.

      In my experience all people who comment on the minimum wage are people who are not being paid that wage. It is a bit like men discussing what should be done with womens’ breasts.

      • Big Note says:

        You missed the point.

        Example:

        Cost of living in Sydney = 3x
        Cost of living in Brisbane = 2x
        Cost of living in Hobart = 1x

        So why do we have a national minimum wage when the cost of living is vastly different across each city?

        Is discretionary expenditure in Hobart greater than Sydney because the cost of living is cheaper? No.

        Why not scale minimum wages relative to each city. Corporates will follow and invest. Population will follow the work. Some pressure on land prices elsewhere will ease. Everyone is happy.

      • Rusty Penny says:

        Minimum wage isn’t meant to cater for the minimum for each locale.

        It is, and should be calibrated for 1x, Hobart.

        Employers in Sydney then pay above minimum wage because of the expense of the place, and this is counter weighed by worker’s tolerance to a lower standard of living in Sydney on a minimum wage.

      • The Claw says:

        I would support the minimum wage in Sydney being raised to $50 per hour. That should get those corporates moving. Google will probably move to Hobart.

  11. China-Bob says:

    Great article but..

    While I agree with Flawse and Pfh on the fundamental difference between externally and internally financed debt, I still come back to the root cause of our problem being our collective inability to actually create new long-term”productive” assets.

    In Australia it seems that all our new export focused assets heavily leverage our natural resources and thereby directly transfer our non-renewable “common-wealth” into private wealth. This is very different from wealth and assets created by leveraging human capital. Whereas in the first case the very process of exploiting the natural resource always leads to it’s depletion, in the second case the process of exploiting human capital leads directly to a growth in human capital (basically exploiting human capital creates more value in our human capital making this the processes by which we collectively become more capable …aka richer).

    For me the concept of making “long term investments” in mining is an oxymoron, therefore all long term investments must be made in the expansion of our human capital.

    OK so what does this all have to do with housing prices?
    Well when, as a society, we fail to create any new long-term assets (expand our human capital) we indirectly direct all existing savings (and debt leverage) into our existing albeit shrinking asset base. In the end analysis land (and maybe housing) is the asset that survives all others so it becomes the asset which backs all our savings and debt. Given the above is it any wonder we have land asset inflation.

    For me the fix is equally self evident….Australians must invest in our human capital….this is what Germany does, it is definitely the economic engine that drives silicon valley…I’d even go so far as to say that China owes it’s success to the investments they made in developing their human capital and Japan is no different.

    So, in conclusion, the only hope we have of controlling house price inflation is to ignore it and focus instead on developing other productive assets hopefully based on the exploitation of our human capital. We must immediately remove all the stupid tax and regulatory rules that actively chase away any and all indigenous high tech industry. Additionally we must create the seed capital base to continuously develop new ideas and thereby create start-up continuity which develops real enduring value (aka investments)

    • Peter Fraser says:

      Our wages are too high because of our high dollar, but if we reduce our wages then our standard of living falls, but without lower wages we can’t produce competitively.

      Cat chasing tail – Dutch Disease, call it what you will.

      Looking past the gloom there must be some niche’s that we can exploit in either services or low cost manufacturing (software) that suits our predicament, but that requires a highly educated workforce and we don’t invest enough into education.

      Do you see the issue – it’s management at the political level that is letting us down. The debate shouldn’t be about a couple of cents excise on fuel, it should be much broader, much more forward looking, and much more courageous.
      .

      • tanmedia says:

        Actually, our salaries are high because of our high cost structures. If AUD falls relative to another currency, it is a completely different dynamic. But you’re right, there must be some niche….somewhere. Investment in education is all very well, but typically that cost is borne by the individual. Creating more public funds for innovation does not necessarily create Samsungs.

      • Rusty Penny says:

        but without lower wages we can’t produce competitively.

        Well that’s not necessarily true.

        In 1982, Australian GDP was around $193 billion,

        with wage share of around 61% ($117 bil), vs profit share around 19.5% (($37 bil)

        Now, in 2013 with a $1.525 trillion economy, wage share of 53.5% (($815.9 bil) vs profit share of 26.5% ($404 bil)

        For labour it’s grown 693%, for profits it’s grown 1074%….

        Profit share can drop around 35%, from it’s lofty heights to 1074% to 693%, to have an equal gain of the pie,

        $404bil profit share falls to $260bil, therefore total price index falls 10%.

        We are 10% more competitive if profit share falls to parity with wage share.

      • Peter Fraser says:

        and what was the relative value of our dollar against our trading partners in 1982 Rusty?

      • Rusty Penny says:

        That’s not relevant to my point. A fall in the dollar automatically harms everyone.

        I understand fully the implications of the dollar.

        However we’ve had arguments about high wages. when of the 3 biggest factors, it’s the least important factor.

        X = wages, Y = profit.. and Z = dollar

        69.3X + 107.3Y + Z = the price we compete on in nominal terms since 1982.

        “yeah X is the problem, cut wages !!!”

        previously we’ve masked the outsized increase in Y, because the dollar fell after floating… we got 0.7Z.

        Y has been overcompensated, and we’ve used Z to counter it. Now however, global forces are controlling the direction of Z ahead of us.

        A profit component is built into everything we sell.

        it has soared to uncompetitive levels, much ahead wages.

        I also pointed out, that if we were to cut profit to parity with the nominal increase in wages since 1982, we’d be 10% more competitive, without affecting our dollar or wages.

      • China-Bob says:

        Personally I dont think wages necessarily need to fall, what’s far more important is that we Aussies change our attitudes about what constitutes an investment. As I’ve said above imho all real enduring investments must develop human capital. Education is one way to do this BUT alone education does not create an environment where the next Google or Samsung is born. Our pollies should be searching out the principals in the few new tech companies that Australia has crested and honestly asking them why they relocated the companies. Most of the reasons given will be things like expand opportunities, move closer to the customer….they need to look through these valid reasons and focus on the few remaining reasons that they can affect.

        The obvious things pollies can change (that cost almost nothing) are
        -Employee Stock Option Schemes, Australia’s tax stance is flat out stupidity real own goal stuff
        -Reduced initial lease costs, such as create a special case for Negative gearing that rewards the lease holder for leasing to start-ups
        - Reduced regulatory burden, things like eliminate Super payments for startups, or alternately recognize so called “sweat equity” as a valid super payment
        – Tax holiday for 5 years or even ten years ( look at the revenue growth curves for any successful startup and realize that taxing them is macroeconomic stupidity it reduces GDP, additionally when you start from zero revenue it takes a long time for the revenue to grow so a 10 year tax holiday is nothing especially if as a result, you create the next Apple and also nothing if you create the next technology burn out.)

        Above these changes we need to create an environment where people are excited about being part of the next Facebook, this can happen in Australia BUT it requires that we first develop a few home grown successes and leverage these successes to develop the belief in our youth that they can succeed on the world stage.

        When we develop these things we provide the “infrastructure” through which our educational expenses are capitalized, without this reward why even bother to get an education? or educate…for that matter!

      • McPaddy says:

        This is great. PF, I 100% agree with you for the first time ever.

      • Lori says:

        “The debate shouldn’t be about a couple of cents excise on fuel, it should be much broader, much more forward looking, and much more courageous.”

        You mean more fundamental?

    • McPaddy says:

      You’ve nailed it CB. But the problem is that there is no broad recognition of this issue in Australia.

      To sum up (and state the bleeding obvious), sustainable wealth is only possible when you develop a society that is capable of CREATING value. Instead, what do we focus on for our exports?
      - mining: the classic exploitation of an unearned endowment
      - tourism: ditto, unless you excel in hospitality services, which we clearly do not
      - education: we’re the cut price option, made attractive only by the fact that we’re native English speakers and close to Asia (again, zero value CREATION, just inherited advantages)
      - Ponzi schemes like leveraged property speculation – less said the better

      Where is the leader who will have an honest conversation with Australia about this?

      We’re circling the drain. We may be a long way from the plug hole, but without fundamental change to the national mindset the ultimate destination is certain.

      • China-Bob says:

        I’m not sure that I’d be so down on education and tourism industries, although I do believe that both are very fickle industries, their volatility makes it hard to create enduring value.
        That said they dont need to be chasing the bottom of the market, there is a huge sector of rich Asians that look very favorably upon Australia. Matter of fact I was involved in creating a sort of Chinese/Taiwanese Summer-camp that is exclusively for the kids (and usually mum’s) of very rich businessmen. They want their kids to learn out-doors-man skills and English, so combining the two in a sort of Eco-Education-Tourism package makes a lot of sense. Chinese mums want the full spa package thats not to far from the kids camp. Believe me in this market the costs dont really matter, its the uniqueness of the product Australia can offer that creates value. I can even tell you of one case where the company jet flew the kids directly to the nearest airport, so their little darlings didn’t need to deal with commercial airlines and changing planes.

  12. metezcan111 says:

    Due to compulsory acquisition i have had to start looking at the property market after 11 years and like others cant understand what’s going on. None of the properties that have had a Tennant are getting the 1/1000 weekly rent to property price ive heard of being a guide. Only the 5% repayments are what allow it to work on paper (5% =1/20x52weeks=1000? I guess) so any increase to rates is going to hurt (and the budget and factory closures can only multiply this as it limits ability to raise rents), 2% rate increase ( long term average) =30 % repayment increase?. So instead of just topping up the $50 dollar shortfall on a 400k home price (such a caring landlord), they will be left holding $250 shortfall with only $80 to be able to be clawed back?.
    . So what’s going on?, well i used a pokie parlour analogy in the “property listing lull” story and id just like to add. As long as they have a seat and are putting money in then any winnings in the room are proof of it being a good investment, 3 x $500 winners proves they are on the right path even though it required 30 players spending $100 each to allow it to happen, and i guess the free coffee and biscuits are the negative gearing.

  13. mquick says:

    Wow. Awesome article. Until the end.

    “we can start that debate in 2016/17, by using our own preference and economic wisdom to vote a government which acts to widen the rich/poor divide out. By which time there ‘may’ (?) be better options to vote in.”

    I don’t believe we will see any government that will actually do this in the future. To me, there is a negligible difference between the two major parties and Australia does not have a true Progressive Party. The Greens are doing an ok job at it but are too focused on environmental issues (fair enough) and I believe have a ‘greeny’ public perception.

  14. Lori says:

    What a magnificent article, again, thank you!!!

    What amazes me from the comments, few of them really understand the dept of this article and its message and are not focused on its meaning. Many people are still looking only at some of the side effects/problems and last economic events. They still believe that repairing some of them will bring the old good times. What a very wrong perception….

    The article shows that we are living in a post-capitalist system, which is an obvious synthesis between capitalism and feudalism, with features from both previous economic systems. The new reality is more confusing for people who don’t understand the dialectic and the evolution of human society and its economic forms of development.

    Thank you, Catherine, we need much more many of your kind.

    • OMG says:

      Agreed, good pick up

      Too much talk how to tinkering around the edges will somehow create a level playing field and allow for paupers to prosper

      Will there be a debt levy? fuel excise increase? Who cares in the end, we are all drumming along to the same beat played by our masters in the media

      The odd Joe will make a good living and rise from the slums of suburbia, the remainder will continue to plod along in grief and anxiety as their curly locks turn grey

      Amazed by how some folks think removing NG will somehow lead to prosperity for the lower rungs of the masses, good luck folks, you’ll be posting those comments on here from now til eternity

  15. Zllab says:

    Amazing article. Thanks Catherine.

    You need 500 members to become a political party. I think MB has that in subscribers?

    We better form one before 2016/17 because change needs to come from the ground up!

  16. RusseII says:

    “The rules of the game are simple. The player uses as much debt as they can borrow – to ‘buy and hold’ as much as they can – and those who ‘got in’ at the beginning of the lending boom, securing the ‘best’ plots available, win the game.”

    This is so true. The real value of land is infinite. The only determining factor of its value is how much money is available. If you don’t believe me, discount the future cash flows.

  17. Charles Ponzi says:

    Looking forward to reading many more articles from Catherine.

  18. aido123 says:

    Nice article as it captures the productivity inefficiencies of measuring wealth in terms of land ownership.

    What I find interesting is the recent debate about raising the pension age to 67 or 70. As you know, most existing and soon to be retiring people are already home owners. Many with properties in excess of $1m.

    But consider the additional and unprecedented level of $$ rental assistance it will take for those who could never afford a PPOR thanks to our existing housing and tax policy.

    It should be in everyone’s interest to keep housing affordable.