Deflating Australia’s land bubble

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By Leith van Onselen

Prosper Australia has provided a submission to the Senate Inquiry into Housing Affordability, which is well worth a look.

The submission first provides nine metrics illustrating Australia’s residential property bubble, which include the following:

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It took forty years from 1950 to 1990 for housing prices to double, but only fifteen years between 1996 and 2010 to double again. The surge in housing prices is driven by the tremendous growth in household debt, as owner-occupiers and investors take out ever larger mortgages to speculate on housing. The household debt to GDP ratio reached a record high of 98 per cent in 2010, the same year real housing prices peaked. In 2013, the mortgage and personal debt ratios were 86 and 9 per cent, respectively, for a combined household debt ratio of 95 per cent.

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As mortgage debt escalated, investors’ net rental losses increased rapidly from 2001 onwards. In that year, net rental income losses were just over $1 billion, rising to $9.7 billion in 2008 as the cash rate peaked at 7.2 per cent. By 2010, when mortgage debt reached its historical peak relative to GDP, investor losses eased to $5.1 billion as the cash rate fell to a then historic low of 3 per cent in 2009 following the global financial crisis (GFC). The latest data shows income losses rose to $8.2 billion in 2011, the second largest absolute loss on record…

The housing market meets economist Hyman Minsky’s definition of a Ponzi scheme, as gross rental incomes minus expenses are clearly insufficient to meet principal and interest repayments.7 As 67 per cent of property investors are negatively-geared as of 2011, investment decisions are predicated upon expected rises in land values, not rents. This strategy will inevitably fail, as the escalation in real housing prices can only be sustained by a continual acceleration or exponential rise in mortgage debt.

The price to income (P/I) ratio, otherwise known as the median multiple, is another measure of residential property valuation…

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From the mid-1990s onwards, housing prices outpaced household incomes, and the P/I ratio increased from 4 to 7 nationwide. It is impossible for household incomes to match the rise in housing prices during the boom phase of a property bubble, as wages grow more slowly, usually just above the rate of inflation…

Land is the largest tangible market in Australia… Our housing bubble is actually a residential land bubble, as the total land values to GDP ratio doubled between 1996 and 2010, when it reached a record high of 298 per cent ($4.1 trillion). In real terms, residential land values rose from $895 billion in 1996 to a peak of $3.2 trillion in 2010, a relative increase of 262 per cent. This ratio is closely matched by a similar rise in the value of the residential housing stock. The rise in residential land values, rather than structures, is responsible for almost all of the increase in the value of the housing stock…

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Prosper then places the blame for Australia’s expensive housing on convergence of factors, with Australia’s inefficient tax system front-and-centre:

A convergence of factors are responsible: a large cohort of irrational investors gambling on housing prices, a FIRE sector willing and able to facilitate a credit boom, and low property and land taxes attracting speculators to this asset class…

A positive feedback loop has emerged between housing prices and mortgage debt, with rising prices prompting the take-up of more debt in an upwards spiral…

An inefficient taxation system, comprised of low property and land taxes, allows landowners to expropriate ‘geo-rent’ (economic rent derived from land) by capturing the uplift in land values generated by taxpayer-funded infrastructure and rising economic productivity… Government willingness to tax wages and business ahead of land has elevated its privileged status, resulting in larger capital sums being paid by owner-occupiers and investors.

It also advocates land tax reform, which it claims would significantly improve incomes, affordability, and productivity:

Counter-intuitively, reducing wage and business taxation and increasing land tax would not necessarily lower fundamental land prices, given the offsetting boost to disposable wages, profits and hence rents, but it would certainly lower bubble-inflated land prices. Land tax reform – urged on government by every independent tax review in living memory – would firmly correct the price to rent and income ratios. If Australia wishes to escape or ameliorate the profound financial destruction of a bursting land bubble, the solution lies in this equation…

Prosper also slams housing-related tax expenditures, which undermine the integrity of the tax system:

The generous scope of tax expenditures relating to the housing market has served to further increase prices. Tax expenditures are defined as a deviation from the commonly accepted tax structure, whether it is a tax exemption, concession, deduction, preferential rate, allowance, rebate, offset, credit or deferral. Australia has the highest rate of tax expenditures among our OECD peers, at more than 8 per cent of GDP.20 Tax expenditures are vulnerable to lobbying, and often compromise the fairness and efficiency of the tax system. Lavish tax expenditures for both owner-occupied and investment property has significantly worsened housing affordability because they allow landowners to capture greater amounts of geo-rent and prioritise unearned wealth and income over what is earned. Existing home owners capture the most benefit, ahead of first home buyers, investors and tenants.

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These tax expenditures provide a strong incentive to speculate on housing prices, and are reinforced by already low property taxes. Investors perceive rental income as secondary to expected rises in capital prices, while first home buyers over-leverage themselves to enter a bubble-inflated market…

Tax expenditures, combined with the ongoing deregulation of the banking and financial system, has transformed the housing market into a casino. Residential property is commonly viewed as a speculative asset to flip, rather than shelter to raise a family in…

Finally, Prosper provides two recommendations to the Senate Inquiry:

Recommendation 1: Reform Land Value Tax. The ideal tool to moderate land bubbles and properly fund infrastructure already exists in the hands of state and territory governments: state land tax (SLT). Unfortunately, this tax has been so riddled with exemptions and concessional treatments it must be considered dormant…

We suggest the current government introduce a nationwide one per cent federal land tax  (FLT) – fully rebatable on SLT paid – to oblige the states and territories to use their taxing powers properly. State governments could adjust their tax rules and keep every dollar the FLT raises, to the benefit of all Australians. The Commonwealth Parliament would be entitled to argue this intervention is for sound economic reasons and dissipate the political fallout. Placing state and territory finances on sound bases would vastly improve the federal system mandated by Australia’s Constitution. Transitional arrangements would need to be considered. Rebating all stamp duty paid against a hypothetical past SLT obligation would address concerns of fairness and equity…

Recommendation 2: Macroprudential Regulation. A range of macro-prudential tools are needed to moderate housing price inflation and subdue credit growth in a pro-cyclical financial system, such as those affecting the loan to value, (LVR), debt servicing (DSR) and debt servicing to income (DSTI) ratios.26 Quantitative restrictions should be placed on the share of new mortgages with moderately high LVRs…

To reduce systemic risk, a large rise in capital and liquidity ratios (buffers) is required to ensure banks can withstand a future economic downturn, bank run or large fall in the value of collateral. Research suggests the probability of a banking crisis can be reduced to a 1 in 100 year event by raising core equity (Tier 1) capital ratios to 11 per cent in isolation or raising core equity to 10 per cent with an addition rise in liquid assets of 12.5 per cent (the rise in liquid assets over total assets). For the Big Four banks, this would represent a rise of around 3 per cent in core equity…

The full submission is available here.

Comments

  1. Liking some of the Conclusions to subs, especially Catherine Cashmore’s and this from Prosper:
    “Political cowardice is expressed in absurd double-speak statements: “Improving housing affordability does not mean reducing the value of existing homes, which are usually the primary asset of any individual or family.” The tolerance of housing policies that maintain bubble-inflated prices, ignore objective evidence, contradict the recommendations of earlier inquiries, and erode housing affordability, are entirely predictable. Property ownership and speculation has been elevated to the status of religion in Australia, compounded by a perverse culture of homeowner entitlement driven by a degenerate taxation system that penalises effort and innovation, while rewarding speculation.”

  2. It doesn’t seem like they talk about housing supply at all? Only the demand side which is irrelevant if the supply side is solved.

    There can be no bubble if supply increases in response to elevated prices.

  3. ceteris paribus

    Nice summary from Prosper.

    One question that needs to be asked, however. How is the bubble to be deflated without wiping out those who have purchased their first (owner-occupied) home over the last five or so years?

    It is indeed the tricky part of moving towards affordability.

    • How is the bubble to be deflated without wiping out those who have purchased their first (owner-occupied) home over the last five or so years?

      We could pass a special law stating that anyone who bought a home in the last five years will be allowed to continue to live in it as long as they continue to make their mortgage payments to the bank (just the same as if prices had gone up). No one should be forced to sell just because market value has fallen.

      • you don’t need special law for that – that is current default condition.

        That would not be fair because those people would be owing and paying much more than what property is worth.

      • Speculator: why is it unfair? They will be paying that anyway. The question is, will they being paying it at the same time as more and more young people are also locked into unfair mortgage costs, or paying it at the same time as the ongoing injustice has finally been ended?

        Besides this, there are wider economic consequences that mean that the further question is, will they being paying it at the same time as the tradables sector and the economy as a whole continues to be strangled to death, to end in a major catastrophe of the entire socio-economic system, or paying it at the same time as the economy actually starts to rebalance and recover?

        There are NO GOOD options for the “already-mortgaged-up-to the-eyeballs”. Only a catastrophic one versus a bitter one.

      • Make their loans non-recourse, with no future repercussions on their credit record, so that if they sell it doesn’t matter if they have negative equity, they can emerge with a clean slate.

      • Unfortunately Speculator, when the forest is on fire, even the wet wood burns down eventually. The bank paid the asking price to builder/seller and whoever got stuck in the middle (mortgage owner) bears the burden, speculator or not. It’s the bank that’ll come after you, not the government. And when the banks are threatened, the government obeys whatever they say.

    • “How is the bubble to be deflated without wiping out those who have purchased their first (owner-occupied) home over the last five or so years?”

      It is not possible to deflate the bubble without wiping out those who have purchased their first (owner-occupied) home or people’s savings (bubble can be deflated by nominal price collapse – hard for FHB, or by inflation – hard for people with savings)

      But, government can, if it wants help recent FHBs (principal reduction) at the expense of speculators and banks who actually created the mess and collected huge profits over the last few years.

      That would be morally right thing to do and it would also help avoid deep long recession.

      Unfortunately, the opposite will happen. Government will bailout banks and big speculators by wiping out FHBs and all tax payers.

      • “That would be morally right thing to do and it would also help avoid deep long recession.”

        Why? As harsh as it sounds everyone who has purchased in the last x years has had alternatives – renting being the most obvious.

        I agree that in the case of a correction the government shouldn’t be bailing out banks and/or large speculators, but for FHB’s anyone that has purchased a house took on all the risks of doing so.

      • “but for FHB’s anyone that has purchased a house took on all the risks of doing so”

        That would be true if they actually had information about the risk and info about state of the housing market.
        Unfortunately, that was not the case, no public official ever mentioned that risk to FHB, banks who gave them credit didn’t warn them about that risk, media did the opposite … they were actually scared (if you miss now …) and mentally forced into buying … all with government approval and support.

        So unless, highly educated on the topic, FHBs had no chance to comprehend risk they are taking.

      • “That would be true if they actually had information about the risk and info about state of the housing market.”

        I think the GFC was a pretty big clue that house prices can go up and down. It was even on the front page one day.

        Likewise the media has been full of bubble talk, both deniers and supporters (it is a symbiotic relationship after all)

        Compensating someone because they succumb to a sales pitch is not on.

      • abruce3 is right. The last in will suffer the most – as they should.

        Welcome to capitalism, self-determination and liberty.

        What? You thought it came free of risk?

        Don’t be stupid.

        It sucks, but it’s less crap than what we have currently (I.e. protection for the oligarchy).

  4. The cost of the CGT exemption for housing is vastly overstated.

    If you made housing gains taxable then you’d have to make mortgage interst dedcutible (like in the US where gains on houses are taxable), therby making every mortgaged house owner negatively geared.

    Also it would likely be grandfathered on existing properties, freezing lots of property as pesople would be reluctant to sell existing properties.

    • If you made housing gains taxable then you’d have to make mortgage interst dedcutible

      There are three errors in this statement. Can you spot all three?

      • You mean the spelling mistakes? Two of them? And the fact that it is not a foregone conclusion at all that a CGT on housing would have to be accompanied by mortgage interest tax deduction.

        What the NZ Productivity Commission said was wrong with a CGT, is that fiscal creep would catch revenue and to be fair, some means would have to be found to make the CGT impact net of inflation. It also pointed out that there are losses in property value as well as profits, as busts follow booms: and would there be CGT payouts for people who sold at a loss?

        I hold that if there are unreasonable capital gains being made in housing, there are other policy areas needing attention; like housing and land supply. CGT’s are just a diversion and a perverse signal that the real distortions have become accepted as status quo.

      • PhilBest you nailed all three.

        I generally find that people who can think clearly also spell correctly.

        I wouldn’t mind seeing a capital gains tax on family homes that was adjusted by median income multiples. You bought at 5 times median income and sell at 9 times median income – you pay tax on the 4 median income gain.

      • Sorry, I was in a rush and forgot to check the spelling 🙁

        The point remains that if you make income taxable then expenses (including interest) should be deductible under general tax principles. if you don’t, then you introduce a whole bunch of new distortions into the investment scene.

        This is before you consider the practical elements of calculating such a tax. Every home owner would have to keep every receipt and decide whether it is an improvement (and offset against gains) or maintenance, with the inevitable fun and games around definitions and audits.

        Generally I think people vastly overestimate the gains they’ve made from housing because they don’t keep a good track on what they’ve spent on the house over the years.

        The current home tax system of no deductions and no tax works reasonably well. Taxing gains on home owners didn’t stop the US home bubble. As others have said, zoning and other supply constraints are more important.

        Also, coming back to CGT, people seem to forget that the CGT dissent was introduced as a simplification measure to replace CPI indexation of gains (i.e. returns up to CPI were tax free and excess gains were taxed at marginal rates- this was a major pain to calculate – try it on a share portfolio with dividend reinvestment).

        The 50% CGT discount is less generous than the old regime if gains are less than twice the rate of inflation.

        BTW, I worked with Treasury on elements of the 2000 business tax reform package so I’ve had exposure to the practical constraints on tax policy too.

      • A valuable comeback comment by dodger.

        Govt can do whatever it likes and can do things that are not simple or fair.

        There are so many taxes and charges already. It is unlikely that a new tax on capital gain would really solve the housing disaster. As stated elsewhere unchoking supply, etc, is a better method.

  5. Let’s not kid ourselves peeps….. if/when the bubble pops, it’s going to ‘wipe out’ those who bought near the top and who are highly leveraged. It won’t happen nicely. Glad we sorted that out.

    • If the issue is taken seriously, which means re-modelling the role of the RBA and the use of household debt to drive the economy, there need not be a pop or the streets full of people who have been ‘wiped out’.

      Certainly some people might form the view that they could have made better choices and may find that their ‘wealth’ is not what their projections promised but that is a big difference to the hysterical doomster speak that often comes from the ‘bull’ universe.

      Pain will only be severe if the government continues to blindly follow the advice of the pet banking sector economists and the recommendations of the neo-classical crowd.

      Defusing a Debt Bomb requires direct government action and full use of the powers it has available, including fiat currency and liquidation/nationalization of the banks.

      We are after all only talking about mere accounting entries.

      Providing the Government credits my super account with $500K in cash I don’t mind if they credit your mortgage with $500K. Provided that when they do so they immediately impose tight regulations regarding the granting or mortgages and borrowing off shore by the TBTF banks for mortgage lending.

      No need for household mortgage debt to exceed 25% of GDP and for any of it to be financed from off-shore.

  6. I still do not believe that a reform package that does not increase the elasticity of housing supply to greater than “1” by freeing up the fringe land supply and infrastructure financing methods, will be anywhere near as effective as one that does.

    I am disappointed in Prosper Australia if they did not include this in their recommendations for reform.

    I believe that land taxes and macroprudential policies would still allow urban land prices to go and stay high enough to exclude a similar size cohort from home ownership. I believe exclusion from home ownership is derived solely from housing supply inelasticity.

    Everything else: tax policy, finance and credit policy, merely determines the level of price and mortgage debt at which this cohort will be priced out.

    • Hi PB
      Would a reasonable rate of LVT be enough to remove the perverse revenue incentives which currently encourage state and local regulators to maintain UGBs? Your thoughts?

  7. There have been a few good submissions into this inquiry. It’s easy to see that a lot of time and effort have gone into all these submissions, but unfortunately, nothing is likely to come from them, and they’ll all be dumped into the “too hard” basket.

    • Have to agree. If successive governments are prepared to ignore “every independent tax review in living memory”, why will they listen now. Very cheeky of our supposed elected representatives whom are clearly experts in everything.

      They have even less reason to change tack while every FIRE breathing rentseeker is forwarding their own perfectly plausible sounding submissions designed to run interference at every turn.

      There is so much truth in the submissions of Prosper, Catherine Cashmore, Saul Eslake, et al, that it makes my brain ache. For our government it is nothing more than the sound of crickets chirping.

  8. bernard collins

    Government debt federal and state will be responsible for infrastructure costs on developers keeping land expensive ,who else is going to pay for new schools hospitals etc.

  9. My first house, which was a typical first home buyer house in an outer Brisbane suburb, cost $34500 in 1980 and I sold it in 1985 for $75000 and it sold again in 1993 for $147000 and that same house would have to be worth $500000 today. So going by this, I think that the opening statement of the above post might be a little misleading

  10. OK, so I went ahead and created a submission to the housing Inquiry, I want to thank macrobusiness and many of the commenters here on increasing my economic knowledge over the years. I hope they take their time to read it at least and it gets published. As a non economist i feel a sense of achievement just by creating it. I would have never dared to add it if I had not been reading about this issue for such a long time here . Cheers,

    _____

    Senate Inquiry: Affordable Housing
    Date: 4th March, 2014.
    ____________________

    Much has been said about Australia and its Housing market affordability, thousands of articles in the mainstream media, segments of TV and countless papers and studies by many firms and respected economists and institutions all try to explain something that, to the average working Australian seem obvious.

    The truth is, that the Australian worker earning an average salary cannot longer afford an average house price (at least in the main cities), or to be a bit more accurate, it cannot afford it without going through some serious self discipline, years of saving while checking that house prices are escalating more quickly than the deposit, and financial stress about long term ability to repay. (Ref 1 & Ref 2 & Ref 3)
    Even those that do get to buy something usually start with something which is smaller or in need of lots of renovations or way further out of what they usually could have afforded given their level of income.
    Not to mention that it is now almost impossible to afford a place without having two incomes, with all the social pressures and strains that puts on a family budget, having the stress of not being able to stop one of the incomes a few years to raise kids, or in times of illness or any other life event that derails the steady inflow of two incomes.
    _______
    I apologize in advance if some of my paragraphs make some generalizations or points that are not fully backed up by thorough research. There are plenty of submissions that already have tons of evidence. I am just trying to make my point in a measured way, with no big exaggerations and trying to take an honest view of what it feels like being on the First home Buyers “wish” camp.
    I am not an economist, and most of the submissions already address the “Australian bubble” well enough from all the main points of view. Supply side issues, Demand side issues, vested interests, taxation distortions (negative gearing) etc, so I don’t have much more that I could add to that.
    What I just want to do with my submission to the Senate Inquiry is just give my two cents, and illustrate a few points that I think have not been addressed widely so far.
    I think I speak for a lot of people when I demand change and reform on this very sensitive topic for any Australian that still wants to be part of the “Australian dream”. I know solutions won’t be easy and they will face many well-funded campaigns from the vested interested parties, but if Australia is to remain a prosperous and egalitarian country it needs to know that it is finally the time to act and NOW.
    Many government projections and studies seem to conclude that Australia’s finances will be in a much better place if people retiring the workforce have a good superannuation balance and OWN its OWN home. Unfortunately, the way the trend is going now there will be a big percentage of working Australians that will miss out entirely in the possibility of ever owning a home, to the detriment of future government budgets. So even if it causes some pain, it is in their best interest to sort out this problem once and for all NOW, before it gets worse.
    So some of the points I think are not fully addressed yet in the submissions I have read are:
    – Buying a house is the most significant investment most people (and most financially illiterate people) will ever make in their whole lives, yet, while most financial institutions have to have policies and procedures to avoid conflicts of interest, full Product Disclosure Statements (PDSs) and a whole set of warnings just to prevent people from making investment mistakes, the whole “Housing Industry” gets away with it.
    -Real estate agents give financial advice on this very expensive asset.
    -The Media is happy to publish “articles” and “research” that show how house prices are going to grow exponentially year after year.
    -Property investment “gurus” take full page ads in newspapers inviting to a “free seminar” to “build wealth” with no kind of regulations to prevent people who don’t know nothing about investing going on to take a half a million dollar interest only mortgage to feel like a rich landlord for a while.
    I wish there were quite a lot more regulations on the whole “investment property” industry, since when you have magazines in every newsagent in the country screaming at you from the front cover to “buy in this suburb because it will double in the next five years” it is too difficult for Joe Smith not to be tempted to get into the game.

    – The link between high house prices and Australian low productivity growth has been poorly covered in mainstream media. The reason any worker needs really high salaries just to survive is because they need to pay 400k-600k mortgages for any place to live… this is certainly not sustainable and we are becoming way too expensive a country to do business in (ask Ford and Holden and Qantas), compare that with any other country in a globalised work force and that is the reason why we will struggle to obtain decent growth in the years ahead (both in productivity and wages). I guess the point that I am trying to make is that if workers were not up to their necks in debt (and this country DOES have a big problem with PRIVATE debt, even if not so much public debt) the workforce could be a bit more flexible and competitive. (Ref 4 & Ref 5)

    – I live in Sydney. Now, statistics are useful and can show but certainly can also hide a lot of issues as well. Medians and averages, State and National figures smooth out a lot what is happening in certain cities. In Sydney any suburb that is close to train stations and within 50 minutes commute to the CBD has experienced a huge growth not only in house prices, but also in rents. Needless to say that salaries have not kept up with that growth, so the solution is either to keep moving further away (for renters) or just keep seeing how the rent eats a bigger proportion of your salary year after year, all at the same time while feeling that the suburb you have been living and getting used to for the last few years is further away from reach, and that you will never be able to afford to buy on it.

    – Tied to last point I think that it is a disgrace how the escalating cost of housing is hidden from the CPI figures, and I don’t know how the government (and ABS) gets away with it.
    I don’t understand it because only people who fully owns a house or is close to it, don’t have to worry about this. People starting a family or early in their career, either rent or have to pay a mortgage (and the monthly payment is certainly proportional to the size of the mortgage you need to buy a place). In both cases this represents around 27% to 40% of a person’s salary, so any increase in house prices/rents should have a huge impact in a TRUE cost of living measure.
    I don’t know what is the current weight being used for “housing costs” in the CPI, but I am sure it must be hugely under – represented.
    If the CPI rose 7 or 8 % per year I am sure it would make headlines in every newspaper and TV news shows. People would have a huge outcry and would blame the government, so I have to guess that this might be actually being done deliberately.

    Those are my main points and if the result from the Inquiry just addresses the main issues of applying “Financial advice” legislation around property investment and/or sorting out the misrepresentation of CPI figures that ignore the “out of this world” house appreciation values happening here, then I will feel that I have achieved my purpose.
    _____
    I will just add these next few paragraphs as more of an anecdotal evidence / point of view / rant :
    Making sure the government feels a bit of heat for this issue is the main goal that I am trying to achieve because I really think it is the first step to fixing the problem:
    To a certain degree the government has escaped from any backslash for the current situation, most home owners and investors are certainly happy with raising house prices, so they even get some praise for it, people actually think that our overvalued houses are a sign of how “strong” our economy is and how “wealthy” they are.
    When you have informal conversations or read property forums, or comments sections in the media, most come from financially illiterate people (note that I don’t mean this in a derisive way, I think most of us, me included are financially illiterate in most aspects of the economy. I noted before that I am not an economist, I just have an interest in economic matters and I happen to like reading a lot), and they tend to point the blame to many places:
    -People like to blame the real estate sector, for creating “auctions” and playing with people’s emotional side rather than the rational side at the time of making one of their life’s biggest financial decisions.
    -People like to blame the media, for reporting (and benefiting from it) the boom and the record prices as something to be praised on and treated like a sports tournament:
    Which city or which suburb is the top for growth in the country or the next “hot spot”, is Melbourne getting close to Sydney? Is Perth overtaking Melbourne?
    As if having such a score is useful at all or something that should make you feel “proud” of your city.

    -People like to blame the Banks/Financial Institutions : for taking advantage of historically low credit rates to give bigger and bigger mortgages year after year, essentially creating the social hysteria of “buy now or lose forever” feeling. This puts pressure on people to sign the dots on mortgages that they can barely afford. They take every inch of your income, bonuses, future salary growth and insert it into a big formula to tell you that you can surely afford X amount of debt, when surely what can comfortably be repaid is around X minus 30%
    -People like to blame the builders, for building “overpriced” dog boxes, or “mcmansions” that no one wants to live in, but they are the only available choice, so of course they end up selling. But just a bit of research shows that house costs have not really escalated, and actually one of the big items in the price of new homes are to pay for up front infrastructure that the councils/government don’t want to pay for.
    What HAS ESCALATED IN PRICE is the LAND value.
    Which leads to only one place to point the fingers to: GOVERNMENT + RBA as the main culprits in the current situation.
    Why on earth did the GOVERNMENT + RBA not implement macro prudential tools to avoid having such a big increase in house prices?
    Why did the GOVERNMENT + RBA allow to have 100% (a few years ago) or 95% mortgages, essentially allowing people with no deposits or no discipline to save for a house enter the game greatly increasing demand and prices.
    Why did the GOVERNMENT + RBA allow for mortgage terms of over 20 years to exist? Isn’t it a benefit for the country to have people pay their houses as soon as possible to be able to start businesses or have actually some money left to enjoy life and spend in other areas of the economy (retail, leisure, travel, education, etc)
    Why did the GOVERNMENT allow a massive increase in immigration without the accompanying policies to boost housing construction to make sure our cities could handle the growth correctly?
    Why does the GOVERNMENT + ABS get away with saying we have 2% or 3% inflation when LAND prices have more than doubled over the last 10-15 years.
    _______
    References :
    1: http://www.abs.gov.au/ausstats/[email protected]/Products/6302.0~Nov+2013~Main+Features~Australia?OpenDocument
    2 : http://www.smh.com.au/business/property/australian-capital-city-house-prices-rise-10-in-2013-20140102-306tk.html
    3: http://www.macrobusiness.com.au/2014/02/housing-and-the-inequality-divide/
    4 : http://www.macrobusiness.com.au/2014/02/its-housing-thats-killing-productivity/
    5: http://www.macrobusiness.com.au/2014/02/competitiveness-so-much-more-than-wages/

    • Thank you, foreigner. Your submission ought carry equal weight with all those that quote economic statistics. It is human.

      We trust government to do the things we cannot do ourselves. They are very good at sewers, bridges, police and hospitals. Where government fails us is in fair and equitable taxes. The cost of land is ridiculous – because of bad tax design. The blueprint for reform is in the Henry Tax Review: remove 125 bad taxes and introduce two – a land value tax and a resource super profits tax. What could be simpler?

      • Thanks David,

        I am really grateful that you took the time to read this, hopefully the Senate Inquiry will not just be another talk fest and no action kind of thing. Looking forward to hearing at least one small reform coming out of it. Thanks for fighting the good fight. Cheers !

      • Neville Gearless

        Good submission foreigner. A lay person should do a submission to these people. (As I am clearly a lay person too)
        Watch Abbott be in total denial over the whole disaster.

  11. Bryan Kavanagh

    History is being re-written if they’re now saying LA had a housing shortage. http://thedepression.org.au/?p=2557

    I might be a little biased about the Prosper submission, but, of course, the need to tax land has broader considerations, like giving the right signals to those who want to produce or work. (Anyone notice what’s happening to Australian manufacturing, business and employment at the moment?) When there’s easy money to be had investing in property, why work? We have a rotten tax system. http://www.onlineopinion.com.au/view.asp?article=16067

  12. they’re now saying LA had a housing shortage.

    That’s a bit like saying you or I have blood pressure. Of course we do, but is it natural and healthy, or contrived and harmful. How severe is it? who gains and who loses?