Who really benefits from the property cycle?

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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.

Take a cursory look through the international press and reports on housing related matters, and it could be merged it into one text as property cycles become increasingly interrelated and investors search for ‘safe havens’ off-shore.

Overwhelmingly – affordability – bubbles – the rise of Asian investors – and fears over a new breed of non-home owning ‘renters’ dominates, and although headline chasing would place any sensationalist report front of line, the reader comments and related dialogue that follow, present a familiar picture for the ordinary home buyer – no matter what reforms are taken, it never seems to get any easier.

You could be forgiven in thinking it’s by some abject force of nature, bustled in at the time of the ‘big bang’ that property – (or as I pointed out here, ‘land’) – is deemed ‘unaffordable.’ Outpacing wage growth and inflation through the course of a cycle, subject to the whims of a bank’s propensity to lend – burdening buyers with one of the most stressful experiences they’ll go through in life.

Or in the bleak words of the eminent poet Leonard Cohen;

“Everybody knows…. That’s just the way it goes.”

This is what the real estate and finance industry would have you believe as they navigate through the fluctuations of the property cycle with authoritative analysis, on what and where to buy. And no doubt, it’s been a prosperous affair.

The number of ‘property investment books’ written by the ‘I Did It – And You Can Too!’ experts, belies belief. And yet, becoming successful in the game isn’t incredibly hard for anyone with an ounce of locational common sense. The authors are simply singing their own interpretation of an age-old song titled ‘Monopoly.’

Over the course of a business cycle, which is both lead by, and correlated to the housing cycle, the gains – more correctly termed economic rent or “earnings from land,” alone – by far and away surpass those that can be gleaned from other more productive investments.

This was stressed in a recent submission by “Earthshare Australia” to the upcoming Senate enquiry into housing affordability:

“Unearned incomes in land increased a whopping $187 billion in the December 2013 quarter alone (ABS 6416). Total yearly dividends (2013), for investors engaged in risk, was recently reported at $84 billion – $103 billion less for an entire year.”

(Leaving them to question) “Why invest in small business or the ASX when one can earn more for less risk at a lower tax rate as a land speculator?”

These gains occur primarily because we choose to leave the larger proportion of ‘economic rent’ (mistakenly termed, ‘capital growth’ – however in this context, we are talking about the unimproved value of the site) locked in the land, rather than recycled back into community – from where it evolved.

Hence why housing is so expensive – the financial benefit derived from improving the surrounding facilities, is not effectively utilised – and our tax and supply policies do little to assist.

The Henry Tax review was not slow to point this out, when it suggested progressively scrapping a vast array of ‘bad taxes’ (payroll, insurance, vehicle registration, stamp duty, and forth, as well as reducing those that ‘reward’ speculation) and instead, collecting more of the economic rent of natural resources – significantly ‘land.’ (Notwithstanding, it was another Government ‘review’ which fell largely on deaf ears.)

Yet, historically, the capture of economic rent (through land tax and to some extent ‘betterment’ taxes) financed some of the most remarkable infrastructure we have. Sydney Harbour Bridge being a case in point.

The tale of a Bridge and our accumulated wealth….

It was acknowledged at the time, that residents on the north shore would benefit significantly from an increase in their property values as a result of this essential piece of infrastructure. Therefore, a framework was set in place to capture a proportion of the uplift – approximately one third – to assist with funding.

This was in no way detrimental to the property owners.

The increased advantage of economic activity coupled with the rise in prices resulting from the enterprise, more than compensated. A win-win if you like – and readily accepted by the public as ‘fair.’

Over time, changes in the way both state and federal government collected tax moved focus away from land values, onto productivity, effectively, placing a fine on labour and doing a good job of keeping us asset rich and income poor.

It’s great for the haves – but not the ‘have-nots’ (our growing pool of tenants.)

Consequently, the wealth locked in our residential land market, through the process of this accrued speculation – sits at post $4 trillion (add the buildings on top, and it’s an estimated $5.02 Trillion.)

It’s so large a number; it’s almost meaningless in real terms.

Western civilization has not been around for a trillion seconds – go back a trillion seconds – (31,688 years) – and you’d see Neanderthals roaming throughout Europe.

Yet our housing market is worth 5 of them. It’s quite an achievement.

In comparison, the UK housing market is assessed to be $5.2 trillion with a population of around 60 million, so the distribution across a population of 23 million, is telling.

It’s this, that enables publications, such as the ‘’Global Wealth Report’ produced annually by Credit Suisse, to assess Australian’s to be the ‘richest in the world’ in median terms.

In other words – if you stand everyone in a long line, richest to poorest, the middleman has more ‘asset’ wealth than any other country assessed.

It should therefore come as no surprise that our wealthy know where to ‘bank’ their dollars – and it’s not down the high street.

As economist Adair Turner and others have pointed out in response to a recent report by Oxfam, which demonstrates how Britain’s five richest families are wealthier than the poorest 20% of the population. The riches are only in part derived through productive activity – the vast ‘wealth’ however, has been derived through ‘rents’ (unearned gains) in land.

If you thought wars were about religion – think again.

The compounded rent is effectively what we pay for when acquiring real estate – a calculation that takes into account expectations of future growth, minus expenses for the time held – along with a range of other variables such as wages and borrowing rates.

Yet capturing a greater percentage of annual land values, whilst at the same time reducing those on productivity holds much in its favour.

• It reduces the propensity of boom/bust housing cycles,
• Encourages timely construction and effective utilisation (good for both the economy, employment and consequently, our welfare state)
• Aids infrastructure financing,
• Supports decentralisation,
• Assists in keeping the cost of shelter affordable – leveling to some degree, the playing field between non-owners and owners.
• And importantly, in regions where it’s been implemented with success – Pittsburgh (Pennsylvania) being examples -most owners pay less tax when there’s a shift from productivity onto land, than would be the case otherwise.

Change ahead?

Of course, to change the mindset of any nation that has been encouraged to use their housing investments as leverage for economic activity, a welfare fund for retirement, collateral for the advancement of business and commerce, and an ATM for family emergencies, is no easy task.

Not to mention the many vested interests in both Government and the property industry, all of which derive their income from the promotion of it.

However, it’s vitally important we do so – because it sits at the very base of every conversation Government is current having regarding the welfare state, cutting pensions, and increasing the working age until retirement.

Even in our technological age of driverless cars, lasers that can change the weather, 3D printers that can produce substitute body parts, and solar farms that can produce enough energy to run a small city, nothing is possible without the land which gives us the food we eat, the water we drink, the air we breathe, and a rich array of commodities to fuel our appetite for ‘growth.’

There is nothing to be gleaned in from the hording of land, and whilst secure private tenure of property is vital in so much as land needs to be cared for, cultivated, and effectively utilised, a proportion of ‘unearned’ economic gains that come from the locational rent of the unimproved value alone – should not be privatised to the extent that prices escalate through the inducement of speculative gain.

Can supply policy solve it alone?

We talk a lot about supply, but whilst the status quo exists – rising land values being used as the primary driver for economic growth – high prices ensure land will only developed for profit, timed to capture the upward wave of a cycle, rather than developed to meet the immediate needs of a home buyer, which does little to deter the wasteful process of land banking.

It is not insignificant that the burdens to supply policy, which we consistently criticise – the structural impediments to development – were implemented along side a gradual shift of the rental capture of land, onto productivity.

As Bob Day asserts in his submission to the Senate debate on Housing affordability, (first published; Home Truths Revisited May 2013)

“The regulatory seeds of the housing affordability crisis were sown in the 1970s. Until then land was abundant and affordable, and the development of new suburbs was largely left to the private sector”

The 1970’s was not only the point at which urban zoning (a process of false scarcity) was imposed by state Governments – it also came at a time at which any hope of tax capturing the fair uplift in land values to keep construction timely and offset soaring costs, had been truly eroded.

This, coupled with a shift in infrastructure financing – as private enterprise played an ever-increasing role and projects were no longer provided with capacity ahead of time, but required to prove revenue – ‘user pays’ whilst homeowner benefits – was the beginning of the end.

A Glance Back At Policy..

Early settlers had rejected the British system of taxing both land and buildings, in favour of the methods advocated by the classical economist Henry George, who had previously presented his ‘single tax’ theory in Australia to thunderous success.

However, over time, the Government’s inept and poor administration in the regularity and standard of valuations, the creeping in of exemptions (including the family home) coupled with lobbying from large landholders – a group which have historically maintained the greatest political clout – significantly eroded the system, and by the 1950s an array of taxes were falling increasingly on productivity, rather than land.

In 1953 when the Menzies Government abolished the Federal Land Tax, rapid ‘post war’population growth had firmly laid the foundations for a thirst to profit through ‘capital gain’ (mounting land values.)

The then Labour party – which had historically always rallied in favour of raising revenue from the economic rent of land rather than productivity, were up in arms, prompting Arthur Calwell to speak in opposition of the plan, passionately declaring;

“…We have always believed in the land tax….The land belongs to the people, and its use must be safeguarded and protected at all times!” ((Hansard, Vol 221, pp 165-170 passim)

However, it was the beginning of the end. Up until 1961 it was an integral part of the Labour platform. By 1963 however, the commitment had been omitted all together, apparently, without conference approval. (Cameron Clyde “How Labor Lost Its Way” “Progress” May-June 2005)

When Whittlam came to power in 1972 (see Bob Day’s comment above) he ignored any call to bring in legislation to collect the economic rent of land, instead of levying heavy direct and indirect taxes on income, and in so doing, a politically fabricated boom in land values was underway.

In the decades that followed, the promotion of negative gearing (1985), halving of the capital gains on investors (1999), onerous levies on development and upfront infrastructure costs passed onto buyers – grants, incentives and so forth, had little to do with the delivery of affordable housing, and everything to do with escalating land prices.

It should come as no surprise then, that large landowners and the commission side of the real estate industry, shy away from any changes to the tax system. The smoke screen debates on affordability and scrapping negative gearing are just that.

So what now?

Due to China-led resilience and economic stimulus Australia, although in no way unscathed, avoided the disastrous consequences of 2008, resulting in thousands of foreclosures across the US and Europe, whilst banks were bailed and families continue to be evicted.

Not so the recession that marked the early 1990s.

Affecting 17 out of 18 comparable OECD countries, high unemployment, a large current account deficit and elevated level of foreign debt left many economists gloomy Australia would ever achieve long lasting economic recovery.

Endless debate was given to the causes and consequence, which left policy makers reassuring the community that lessons’, would be learnt! However, as the then Governor of the RBA, Ian McFarlane, later summed up in his 2006 Boyer lecture:

“Any boom built on rising asset prices financed by increased borrowing has to end.”

And considering the date this lecture was given (2006,) the following comment was insightful:

“No-one though has a clear mandate at the moment to deal with the threat of major financial instability associated with an asset price boom and bust.”

It’s unfortunate that “no-one” happens to be our most influential political and economic policy makers – and indeed, we’re not alone.

After every economic crisis, there is always the promise that events will never happen again – safe guards are put in place and eventually the wreckage is cleared; however happen they do, and reforms that promise otherwise, repeatedly fail.

Significantly, globalisation, the interrelating of major economies, is adding to the volatile nature of each economic downturn. As Wayne Swan asserted in his speech “A Future Of Promise” given at The Sydney institute in 2007:

“It is, truly, the sharpest synchronised global downturn in living memory…And it’s being inflicted on good Australians through no fault of their own.”

No cycle is exactly the same, but whilst history may not exactly mirror the past, patterns do.

There’s only one reason we have devastating house price booms and busts – the pre marker to any recession and economic disaster, and that is speculation induced in this case, through the privatisation of unearned gains. And whilst some continue to reap a windfall from exploiting this process, we really need to pause and ask – ‘”Who is it really benefitting?”

Leith van Onselen
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  1. Magnificent essay, Catherine.

    It really is as if the whole game is rigged by the most powerful rentiers. Everything has gone exactly according a plan that could not suit them better.

    What you are highlighting is how important it has been, that the burden of taxation has been shifted off land. I am torn between this and urban growth containment as the main contributor to the rise and rise of urban land prices. I would say that they are factors number one and two for importance; you might just put them round the other way to me, that’s all.

    I think land taxes are a good idea, period, for numerous reasons besides their beneficial influence on cyclical stability and housing affordability. They actually contain urban growth where it makes sense anyway, making the idea of boundaries redundant, and without the boundaries corollary harm.

    I see it as a massive political problem now, that public understanding and debate is so unsophisticated that there is minimal blow-back arising against the specific guilty parties that deserve it. We need to declare war on economic rent, not on “the rich” per se. We need to change all the incentives about “how to get rich”.

    It is as simple as this. When people get rich through economic rent, this IS “the rich get richer while the poor get poorer”. When people get rich through producing something of value in a competitive market, this IS “a rising tide that lifts all boats”.

    But we have people on Left and Right clinging to un-nuanced versions of their favourite slogans, with both of them providing the rentier racket with useful idiocy. Henry George had considerable clarity about this, lamenting the way the political representatives of “labour” forever had “the employer” in their cross-hairs instead of the rentiers who were their mutual enemy.

    • First you have to establish your basic rules.

      No person should be without the basics, as long as if they can have a go they are having a go. That is the paramount principle of Australian society.

      Secondly, no man should be able to stand between his assets and income and the redistribution to others to provide the basics. That’s the second principle of Australian society.

      The third principle is that the more you have the larger percentage of what you have you are required to hand over to meet that deficit in the basics.

      [As an aside the argument normally put is that handing over more when you earn more stomps goers motivation, and stomping goers motivation stomps productivity because they are the goers. The two points here are that of ensuring it is very clear the this absolutely compulsory part of the tax handover is to get rid of basics shortfall, and tax can reduce if basics are met which sets the clear objective, and secondly the thought of not having your wealth motivates just as strong as having more (for example financial pressure is a driver of crime, you don’t risk jail lightly)].

      The fourth principle of Australian society is that to the extent that income represents spending and assets represent future spending there is no justification for the distinction between assets and income at a fundamental level as determinant for what is and is not taxed.

      So lets now turn that to the topic you raise.

      If I own land and that was valued at $200,000 last year and today it is valued at $300,000 then I have gained. No doubt about it.

      But it is not like cash. There is some uncertainty. (The RBA keeps cashes value in check with inflation but doesn’t do the same for my land value)

      So, the work that needs to be done is on how we value in such situations. And how we allow someone to cash out that position to cover the gain and the tax.

      For example, we have deeming interest in the social security system, we have all those valuation categories banks have to play with.

      And say if that gain gets valued at $80,000 for tax purposes and say I therefore owe $20k tax then I need to be able to have an option of getting $60k from somewhere on that gain. And then if when I sell at a loss I need to be able to not have to pay that money back and get a tax refund.

      • rob barrattMEMBER

        There are no rules. This is the human condition. Put another way, if a parcel of land is made ‘available’ then people will compete in order to breed on the best parts. The more parcels available, the more breeding takes place. The pressure is constant, you cannot divide land up in an equable fashion. A view of the sea will always be “worth” more than a view of the local council tip. What we see now is the entirely predictable behavior of the human race given those facts, and this in a democracy that is arguably better than a whole lot of other places. We already know what happens when we vote in a one party state to fix things.
        We compete. Period. We don’t give a stuff. What’s the point in owning a Porsche when the speed limit is 100kph at best? Yet adverts for cars constantly imply you can go faster. The reason that “obvious” legislation doesn’t get passed is the same reason why you can legally buy a car that is socially and environmentally a disaster. No one lets their socialist feelings get in the way of their personal advancement.
        The rentiers are you. Welcome to the human race. Competition for resources and, by extension, every rort that goes with it will always be with us.

      • I also think that “the Australian way” should include that the system should not be rigged in favour of more people getting something for nothing, than what people who actually work for something, get.

        It also should not be rigged to provide wealth transfers “for nothing” upwards in society, both from poorer to richer, and from younger to elder.

        What you are talking about is “consequences” of gains that are assumed to happen, being taxed as opposed to not taxed.

        What Catherine Cashmore and myself are saying, is that the presence of a tax would mean that the gains would not happen in the first place. Speculators would be shut down where it matters most – in the banking of land and the withholding of under-utilised sites from redevelopment.

        The level of actual taxes would be the same as or less than, other taxes that would be abated. There would be winners and losers from this shift – the winners would be producers/workers, which there is absolutely nothing wrong with. There would be a substantial net gain in the overall welfare from the positive shift in incentives.

        The losers would be the zero-sum reapers of wealth transfers, and you can bet that they will be vocal. One of their prime arguments will be the poor innocent old owner of valuable family land who nevertheless has a low income. All right; I am sure exceptions can be made for them. About the rest? Tough. There are families who need housing at a socially just cost. Someone has to relinquish some of their gains to allow for that, and it should be zero-sum gainers, not producers and value creators.

        Taxes, like life, include a lot of inherent unfairnesses. The status quo is unfair to producers, value creators, and workers.

        It is time to stop the sympathy for the zero sum gainers in urban land as if they are merely lucky Lotto winners – they should be regarded in the same way as an oligopolist in a dictatorship who gouges on the price of essential foodstuffs.

        Having said all that, I think that abolishing the rationing of urban land supply would solve the social justice problem on its own; land taxes, to me, are logical on grounds of economic efficiency in a myriad of ways. I think they should be a bigger part of the tax mix than what they currently are, regardless of the current issues of wealth transfers in urban land.

        For example, take a 1/10 of an acre site that a 100-year-old house near the CBD is sitting on, in an affordable US city versus an Aussie city. This site is worth probably $50,000 in the US city and $500,000 in the Aussie city. There might be a slightly higher burden of taxes on land in the US city, but it is the absence of growth constraints that explains most of the difference by far. The decider is whether you can develop housing on rural land you bought for $20,000 an acre or not. “Option values” from there to the city centre take care of the rest.

        I do not believe that growth containment combined with a land value tax would keep the price of the hypothetical 1/10 of an acre down to the same extent; I do believe that it would keep it down to something well below “ten times too much”. But there would be a LOT more “forcing land owners off their land” in the process, compared with a “no growth constraints” system plus a land value tax. The whole failure of assumption in urban growth containment, is that intensification can stabilise prices just as effectively as greenfields growth – which is BS in practice. LVT’s high enough to FORCE site owners to “intensify or sell” are actually essential if the planners assumptions are to have any validity at all.

      • Rob Barratt,

        You haven’t read the article, or you aren’t capable of learning from information provided.

        Historical and contemporary data on house price median multiples indicates that a paradigm shift in the level of economic rent embodied in urban land costs, can and does occur, depending on “rules”. It is nonsense to claim that these shifts in economic rent were inevitable anyway, or that there were no shifts.

        It is also shown up as nonsense when a country like Australia ends up with comparable economic urban land rent to a country like the Netherlands or Japan, when Aussie has thousands of times as much spare land per person (and even if you want to compare arable land, the difference is in the order of hundreds of times).

      • rob barrattMEMBER

        I claim exactly that they were inevitable.You surely don’t believe that the Liberals couldn’t foresee the effect of FHOGs and negative gearing (on existing properties)? And once they were in power, what did Labor do to fix it? Wayne Swan practically fell over himself in his hurry to state that Labor would keep it after Ken Henry had rather carelessly proposed an increase in “fairness”. Democratic governments are inevitably ineffective when it comes to making the right “rules”. They walk away. Richo’s famous comment “whatever it takes” precisely explains the mentality. If democracy could have brought about “fairness” it would have happened long ago. In the end it’s a bitter uphill battle against the politician’s self interest, which always, always wins out in the end.

    • @PhilBest,

      “Henry George had considerable clarity about this…”

      The “Henry George of Germany”, Michael Flürscheim, had considerably more clarity about this.

      Get chapters III-V into ya —


      “The taking of usury has been condemned by the ethical and often by the statutory laws of various nations, and only since a comparatively recent period, that of Elizabeth, has the term usury been confined to the taking of exorbitant increase, while the new term “interest” has been substituted for what before was called “moderate usury.” So at least we are informed by R. G. Sillar, the indefatigable enemy of interest, who tells us that “when the first usury law was passed, it was necessary to coin a word for legal usury, and we find the word ‘interest’ was first used in a public document in 1623, in the Act of James I. It was most likely used privately before this, for Shylock says: ‘My bargains and my wellwon thrift, which he calls interest,’ and he apparently says this with a sneer.”

      All attacks upon interest were ineffective as long as the root of the poisonous vegetation was not touched. Finally the man of science tried to justify what was universally practiced. Only in this way can we explain the defense of interest set up by political economists: threadbare sophistries of so flimsy a fabric that custom and prejudice alone prevent every observer from seeing through them. An untutored savage would laugh at such teachings, or would think their exponents possessed by evil spirits. Try to make him understand, when he borrows one of his neighbor’s horses which the other does not need, but only keeps in reserve for an emergency, that his feeding of the horse is not a full equivalent for the loan, provided the use the animal is put to does not decrease its value. Try to make him see the possibility of a claim amounting to two horses after a certain number of years, both as young and good as the original horse was when he borrowed it, and that a time may arrive when, though the borrowed horse long since went the way of all flesh, the debt to his neighbor or his heirs shall have grown to the extent of more horses than are possessed by the whole tribe. A mere savage will never succeed in seeing the possibility, not to say the justice, of such a claim; it needs a civilized man to understand the effect of compound interest, and an economist or jurist to defend the principle. And now let us see how these gentlemen go about it…”

    • And here is a copy of the Commonwealth Land Tax Act of 1910.


      All it needs is a shiny new font and a few tweaks and it is ready to go.

      The best part of a Commonwealth Land Tax is that explicit trade-offs between income and other taxes for the introduction of a land tax can be made.

      As with the GST the Federal Land Tax can be introduced in exchange for a reduction in the tax on people being productive (aka income tax) – especially for lower income earners.

      It also means that people who require some assistance can be given it via increases in income support etc.

      • Pfh, do you see a Cwlth land tax model introduced independent of the state’s intentions?

        Doesn’t a LVT introduction require a trade-off with the state SD collection?

      • Patrician, Multiple levels of government can tax the same base. We already have council rates (if Site Valuation) and State Land Tax on an identical base. Sharing the cadastra and valuation cost is an administrative efficiency identified in the Henry Review. Petrol taxes are also levied by both state and federal governments, albeit at different points in the production chain.

        The purpose of all this is to improve the quality of the tax base, not increase overall government revenues and impoverish taxpayers. Ken Henry’s 125 bad taxes is a nice shopping list to pick and choose from. How about ending Payroll Tax, a vile instrument that falls on wages? Stamp Duty? Mining Royalties for 3D1k?

      • TP,

        DC’s response is on the money.

        State govt can and once did levy income taxes.

        As to who collects it – perhaps the more important issue is being able to cordinate its introduction with changes to income tax to acheive the trade-off.

        The problem the states have is that if they try to raise independent income via land tax they have to acheive a perfect match with taxes removed to avoid the claim of raising taxes.

        Much easier for the commonwealth to co-ordinate that but working with the states will make assessment a lot easier.

    • An encouraging burst of integrity from PWC.

      I hope it doesn’t cost them in business from big rentier interests, like what happens to many people in consultancy and so on, when they throw in their lot with the forces of light on urban planning issues.

    • What is the critical mass of house sale numbers below which all states will suddenly consider land taxes to be a very good idea?

      • There is no critical mass at which the vested interest urban land rentiers will ever consider land taxes to be a good idea – and this money will always talk.

      • Saco,

        That is a good question – why don’t the states resist the bi-partisan drive in Canberra to centralise the power of the purse strings.

        Why don’t state pollies move to secure more of their funding directly rather than rely on hand outs from Canberra.

        Probably a few reasons:

        1. They actually support the centralisation agenda – Most Australians have fairly weak state affinities and excessive trust in big paternalistic institutions who tell them what to do and what to think. A relic of our British cultural tradition.

        2. They prefer to leave most of the tax work to ‘Canberra’

        3. They are a lazy bunch.

        While some might pull their fingers out and an attempt a transition to land tax to reduce reliance on stamp duties the more likely approach will be to demand that Canberra tax more and give them the money that will allow stamp duties to be removed.

        IMHO – those that spend should be those who tax wherever possible. That means forcing state governments to take more responsibility not less. A bit of competition in public administration is often the only way to keep our pollies and policy makers awake.

        Plus it means people can vote with their feet.

    • Isn’t this just an acknowledgement of the end of stamp duty growth?

      Leith use to put up an analysis of the transfers that go through the Victorian Lands Department. It consistently showed that the expected amount of transfers were not being met.

      While the Government and other parties have been happily gorging on the gains of this speculative high I believe that some are now trying to position themselves for the comedown.

      In summary, it is being considered out of necessity, not out of concern for the masses or notions of fairness.

      Edit: I forgot to congraulate Catherine Cashmore on yet another excellent piece. Thank you for your work.

  2. In the same vein as a bridge being paid for by a levy on property opened up for development, investments (and operating subsidies) to radial-pattern transport systems should be paid for by levying the benefiting owners of CBD property. In fact, even in the case of a harbour bridge, it should be borne in mind that the established urban area on one side will reap value gains as well as the lesser developed land on the other side.

    It is another ploy of the big rentiers in urban property, that they seek to have the infrastructure and amenities that bring value to their location, paid for by “other people”. Car drivers (petrol taxes), regional ratepayers, national taxpayers, etc.

    Note that fare revenue for radial mass transit systems do not represent a wealth transfer like the subsidies from “other people” do.

    The next dastardly stroke from the rentiers, in many cities, is getting the mass transit system subsidised from sales tax revenue, often raised for the specific purpose. CBD property is disproportionally occupied by workers in bureaucracies and financial services and so on, to which sales taxes do not apply….! Yet another wealth transfer is set up.

    Few people are awake to all this.

  3. Outstanding work, Catherine. We have every arm of government straining to increase land prices and an enormous unproductive property sector whose sole agenda is to capture the value created by the need to have somewhere to rest your head at night.

    Most taxes hurt people, some very badly. The handful that don’t should be the key revenue measures.

    Ken Henry showed the way: remove 125 very bad taxes and add just two: a Resource Super Profits Tax and a Land Value Tax.

    The states have exactly the tool in State Land Tax, but riddled it with exemptions (englobo land, tennis courts, uncoordinated between states). Yet they whine over federal distributions like an old lady’s cats at dinnertime.

    Land tax is the ideal means to fund infrastructure. Every freeway, every public school and every street tree increases land values. Only a fraction need be handed back to fund the lot.

  4. Absolutely brilliant Catherine. It seems that the only increase in wealth that will never be meaningfully taxed is that which flows from economic rent.

    On the other hand productive labour and enterprise is taxed to within an inch of its life. The budget deficit levy proposal is yet another example of penalising productivity to ensure the unearned and undeserved gains from economic rent are maintained.

    Great point on the user pays principle too which again ensures that the likes of toll road users are the only ones who pay for the benefit realised.

  5. There is no cycle in car sales because there is adequate supply from a number of competing sources.

    None in flat screen TV’s either.

    • Cognitive Dissonance

      Do you mean to say that because its component parts deteriorate over time and must be repaired or replaced at some stage in the future that it is not becoming more and more valuable as every day passes ?

      • I guess it’s your cognitive dissonance that leads you to that conclusion.

        You’re living your narrative.

    • I don’t think policy makers go to quite the same remarkable lengths to bolster demand for cars as they do for houses. Supply constraints are an important part of this picture but not the whole picture. Why did it take 30 years of increasingly onerous supply constraints before prices suddenly rocketed away – coincidentally not long after credit became much more easily available? I bought just previous to that – credit was not that easy to obtain and prices were reasonable. In more recent times, I witnessed an absolute explosion in land and housing supply here have absolutely no effect at mitigating runaway prices , though they are trending back down slowly now as the boom has passed the peak. Easy credit is the elephant in the room that MB does not seem to want to discuss.

      • Oh Lefty, we have discussed this at length here and elsewhere. The demand is inelastic – every household needs a house unless they can bunk with family. that usually doesn’t last long. Try enthusiastic procreation with your mother in law just 110mm away in the next room.

        Supply however is elastic, and it shrinks when prices have been driven higher beyond what people can pay due to added input costs that the three levels of government have applied to housing. Governments have priced their taxes too high on one of life’s necessities.

        By contrast governments have reduced the input costs on cars with ever lower tariffs.

        If government added a $20,000 tax to every new car, what would it do to new car sales, and what would it do to the market value of existing vehicles.

        Mate it’s a no brainer isn’t it?

        Easy credit is an enabler, not a creator of high prices. Excess demand has to pre-exist.

  6. Cognitive Dissonance

    Credit expansion beyond the expansion of the underlying economy that supports it is a type of fraud, every other argument trying to explain housing ‘unaffordability’ is just details

    • Most of the countries around the world, where there are illegal housing – shanty slums – have a house price median multiple over 12, for the formal housing market.

      There is actually no mortgage credit at all available to most people. Houses are paid for, by those who do buy them, out of savings and family assistance.

      The cause is always corruption in the process of development permission and infrastructure provision.

      It is people trying to divert the argument to “credit” and away from the details of housing supply, who are not helping.

      • Supply and Demand is numerological framework which leaves all other data to the way side. First and foremost is the ability of the enviroment to support such activity’s i.e. energy – resource consumption from conception to future demands.

        Secondly is the ability of owners or renters to wages which will allow them to meet future liability’s, a metric which has been in decline for decades, which is exacerbated by increasing liability’s across the board [see two income trap et al]

        Lastly is the observation that since Georgism the population has massively increased and the quantity and quality of resources has been greatly diminished.

        skippy… You have to ask the question – how relative are the meandering moral opinions of humans from Elizabethan to Victorian eras applicable to the present and future. Might as well just do the give everyone four square acres and your on your own schtick, that way you own all the rights to your labor.

  7. Who really benefits from the property cycle? I do.My kids don’t.A well researched and informative article with insightful commentary as usual.I am not able to add anything to the debate but an example of the madness viz. A block of land( 500sq m) in Padstow,formerly a working class suburb 19 km from Sydney, is being offered for $650,000. After seeing news of a tornado in Little Rock today I looked at real estate in that town. Hundreds of similar sized blocks are on offer for less than $10,000.What economic fundamentals,other than supply and demand, are at play to account for this enormous difference? What is the role of greed? Is it possible to quantify greed? I have my own answers to these questions but always like to hear other views.

  8. Of course,why didn’t I think of that? Seriously though, it’s the same all over the States. I conclude whichever why you slice it supply and demand is at the core of the issue. This sure beats studying at Uni.