There's an irony in all this distributional analysis. Investors can claim deductions on interest for their investment property as an "input cost into production", but (landless) private renters cannot claim deductions or a tax credit for paying rent to put a roof over their heads as an input cost into producing a subsistence living.
My current take on the former socialist countries housing transformation. Everyone was complaining to the politicos about government-owned housing needing a lot of expensive work. Bingo! They sell them all at giveaway prices. The government makes some money and everyone stops complaining to them about not maintaining the buildings.
Existing owners of urban land have a vested interest in maintaining planning policies that improve access to existing commercial centres and enhance the range of facilities that can be accessed in these centres. Australia is a big country with a small population that would benefit by a policy that limited expansion of existing cities whilst ensuring that new centres are identified and made available ahead of time. Governments could offer incentives for those willing to pioneer new centres of development as has been done in each state of Australia from time immemorial and practiced to great advantage in China. What we need is a new start and some fresh thinking that could include the auction of blocks of government owned land in locations where development is desired. Secondly, to enable people to live and access goods and services closer to their work its desirable to relax zoning restrictions. If we could design settlements that removed automobiles from the vicinity of a house creating a safer public space for kids to play and residents to meet each other as they participated in community activities, the birth rate might pick up. What we have at the moment is dysfunctional from sixteen different points of view. Our three tiered system of government that amounts to control from the centre limits the scope for local initiative. We have the wrong sort of planning and that is resulting in declining labour productivity, escalating debt and inflation. The Australian economy exhibits the poor results associated with central planning, a system that we accuse the Chinese of having whereas their system of government, so far as the economy is concerned is more decentralized, more experimental, more entrepreneurial, than ours. On top of this we have ESG, and rapidly inflating fuel costs. First KPI for government should be to ensure its citizenry is housed. Humans are the endangered species. We humans are a victim of man's inhumanity to man.
Maybe it is just me, but I couldn't follow the point or logic of what this guest poster was trying to make. Private ownership was bad, but even state ownership was bad when you consider the quality of the housing and then bingo through a feat of pure neo-liberalism economic thought the whole place (Poland) was turned into Nirvana through selling off state owned assets.
How do we explain Canberra, which is also based on state owned land that is held in leasehold. Is this also a Nirvana of home ownership joy?
I will have to re-read it again later on, but again I found no solution here. Was s/he advocating for complete abolition of private land ownership (good luck with that one). Or the creation of mass good quality Social Housing (again good luck turning that dogma around 180 degrees, let alone funding it). At one point I thought s/he was going to go down the path of Betterment Tax, which IMHO has a better chance, if still strongly opposed, chanced of success), but no that wasn't mentioned.
I keep on saying we got to this problem through the sum of thousands of decisions over decades and we sure as hell we are not going to get out of it through one or two silver bullets.
OK I had a chance to read it again in a bit more detail and I would summarise and analysis it as follows.
CENTRAL THEME
The land question has always been and always will be at the heart of the problems of inequality and poverty. It matters not whether this land is held in public or private ownership. What matters is that people can get access to this land through good quality housing, being ownership or renting. If renting - then this could be done either through the private market system or the social housing system. If all this happens – then inequality and poverty will be alleviated.
SOLUTION
As such, the challenge is to find the best method of distribution (ideally of the value of land rather than its physical form), not to come up with ways to subsidise tenants. It then goes on to (vaguely) suggest that policy should “direct re-distribution of physical land or even indirect re-distribution of rights to enjoy its value (e.g., via land value taxes to be used to fund a citizens' dividend)”. This may mean something to economists or the Green Left Socialist Movement, but I haven’t the faintest clue what this means in practice (apart from tax the hell of land owners who don’t maximise the existing use rights of their land – will won’t necessarily result in affordable housing).
The author then points to Solider Settlement Movement that were implement in virtually all states after WW I & II and all failed mainly because they were based on some 19th century idea of the Yeoman Farmer toiling honestly to make a living on the sweat of their brow, all on land that they owned – pity it was piss poor land that had no hope of sustaining a family on land holdings of 100ac.
The Poland exampled worked (not exceptionally and not to a standard that most Australians would willing accept unless they were in dire straits) until such time as the Government decided that it no longer wanted to invest in such things. The whole premise of the author’s argument is that Governments of all persuasions are willing, able and desiring to investing in good quality housing for all, for all eternity. Somehow I don’t buy that premise.
CONCLUSION
I think housing affordability and access to good quality housing (for ownership or renting) is one of the top three critical issues facing this country. But I don’t think we will address this issue through wishy washy blue sky dreaming. At some stage you need to be pragmatic and realistic as to what you can and can’t do and that often means giving politicians the space to make bid bold changes. Personally I don’t think this proposal (whatever it is advocating) advances that cause.
There will always be a land/property problem because the demand for land will always increase with economic growth and the supply will always be restricted. Thus there are only two rational solutions to try and prevent mass poverty a) try and make everyone a land/property owner or b) increase taxes on land/property and reduce them on
everything else (or distribute revenue on a per capita basis). The UK and Australia have been trying approach a) for 60 years and it has reached its limit.
Personally, I think there are at least a 100 possible solutions, all with varying degrees of difficulty, but with zero level of popular support.
I thought Bill Shorten had the most comprehensive approach to solving this problem with his pitch at the 2019 election, but we (a big part of the problem) didn't want that for a number of different reasons. His was not the magic panacea, but it was a damn good start.
I'm seeing institutional Discrimination of lower income households when the "80%of market rate" principle us applied to "Affordable Rental Housing" in mynpart of NSW.
6 years of obfuscation around ARH Contributions and a local LGA policy has lead to Gov enabled ARH that is median rental or more in my part of NSW.
Property ownership - the community should own ARH acquired through affordances to developers, so WE can hold the benefit into perpetuity - just like the developer manage their profit of the benefit into perpetuity.
Benefit should be shared yo best honour the goodwill of agreeing to increased density.
This is an argument for a capital gains and an inheritance tax: "those who own land find themselves in a position where they can demand "gifts" from people. If you can, grab and hold the best land. Then you just sit back and wait for others to give you the gifts of economic surpluses that crystallise as capital gains in your land. It is a slow process, and the gains are not always liquid, but every investment around your land — railways, factories, houses, schools, hospitals — is a capital gift to you. ".
His fundamental counter-argument is: actually speculation does perform an economic role.
Speculators holds onto land to allocate this scarce resource to bidders with the best, most profitable ideas in a competitive market.
Whether they be commercial uses for the land, property developers, or whether they are well paid employees looking for homes.
It’s also a matter of economic & personal freedoms. We’re free to “speculate” on the outcome of horse races, card games, lotteries & roulette tables. In games like poker & blackjack, players can and do develop “an edge” or skill at the game. Meaning their speculations are seen as more rational than novices.
The same goes for land speculators.
They are still taking on risk. All economic activity requires calculation & taking on the risk of failure.
Not every city develops into a vibrant metropolises.
Take Detroit Michigan or American rust belt cities. Small mining towns in Australia during the boom then bust.
50 years ago, Aussies, immigrants, and everyone bought land for cheap, because relatively speaking, the economy was small. People were poorer.
They held on to their land, lived their lives, apparently doing nothing, and are now “cashing in” and selling up.
But did any of them make calculations, or speculate as to the future of Melbourne & Sydney? No. But by virtue of buying & holding, they undertook calculation & risk anyway.
Who knows, maybe Melbourne & Sydney could’ve gone the way of Detroit?
We also have to accept that sometimes people get lucky through no apparent effort of their own. Luck is metaphysical. Some are just luckier than others.
Are we lucky that we were born in Australia while others were born in parts of India, China or Africa suffering through rural poverty, disease or warring factions?
In a (mostly) economically free society, we permit speculation as we permit the chase of profits & personal wealth.
By some measure, Aussies are now the richest citizens on the planet - in large part due to our houses.
Trying to reduce this wealth is politically infeasible. Voters will reject it, as we saw in 2019.
These assets also support the Aussie ecosystem of Aussie bank SME lending.
We can begrudge wealthy, lucky people. And I would look at how government writes regulations & tax laws to benefit owners at the expense of non-owners.
But I would also ask - why aren’t there more opportunities for people at lower levels of society to climb?
Why aren’t cheaper, no-frills housing options more available?
Low-cost boarding rooms or flop houses are much better than living on the streets, yet where are they?
Why hasn’t another lower-tier Aussie city risen economically to rival the major cities?
As mentioned, Aussie migrants from the 50s on bought cheap and waited for Melbourne & Sydney to rise.
In America, Americans vote with their feet, move clear across the country for better jobs & lower prices.
Why don’t we do that in Aus?
Cities around the world use regulatory & tax arbitrage to attract business & migrants to move in. Ireland, Singapore, the Gulf states.
What if Perth or Adelaide wanted to do the same, to entice corporations to move in?
Simply put, inequality is actually two separate questions - the top end of town grows its wealth using its financial & political clout, we have to ask if the political favours they receive are fair.
But the second question regarding the disparity is: why isn’t the other end of town able to grow its wealth as fast, or at all?
Are the rich crushing all opportunities for the poor? Or is government imposing itself on their opportunities?
I think there’s more to this story than simply “speculation evil, speculation akin to feudalism.”
Rothbard first spelled it out, and we can view and understand Australia through this lens.
Interesting link, but it seems be missing the basic premise of land value taxes. Firstly, the value of the residual can be separated from any improvements made. Second, unimproved land would trade at a near zero price only because the liability of the tax would roughly equal the asset value of future income net of capital investments on the land. Rent wouldn't be zero. Third, in practice there many land value taxes that work fine.
I think the big criticism for me is that it doesn't change the rent of locations, and hence unless land value taxes are part of broader redistributive efforts, won't change the fact that lower income household have toruble renting in accessible and high amenity locations.
Loved most of this, but I’ve got some beef with this sentence: “The same is true for urban land, with the invention of cars and elevators allowing people to use land more effectively.”
Cars are a fantastic way of using land less efficiently. Huge amounts of parking lots and garage space could be housing instead, if we built out more sensible (space-efficient) urban transportation systems.
From the article, "Twenty or thirty years in the future, you liquidate the capital by selling the land. You have added no value, taken no risk, or capitalised any company that employed anyone; you have simply extracted wealth from society." OK, so let me get this straight, you're saying, no one has ever lost any money in the 'real estate' game? Everyone who invests (buys) real estate makes money without any risk, no thinking, no effort, and never, ever loses money? Does the author make these amazing declarations based on personal experience in property investment? Just curious, because my personal experience doesn't support this 'guaranteed/can't lose' doctorine. Maybe it's just me.
Do you think anyone who bought land in any major Aussie city 30 years ago has lost their money? Sure, they may have made more money elsewhere, but clearly owning land (though perhaps not buildings, especially if you don't know what you are doing..) in major urban areas has been the safest bet for centuries.
This is directly linked to the nature of land and property. The capital gains in property (more than any other asset class over the 20 year credit/business cycle) are a function of under taxation and
inelastic supply. This was just as true 200 years ago as it is now.
Thus you need major tax reform if you want to bring mortgage lending into the real economy: Current mortgage lending in the current tax system guarantees unearned profits from simply occupying a piece of land for 20 years. Unlike owning a stock or bond (which has risk and capitalise real business) freehold land ownership has no social value. It simply skims off social created economic value that crystallizes out in increased land values. These land profits (it's the land that increases in value, not the building) need to be paid back to society and not privatised to the rich who can afford land.
No tax reform means land will always be the best speculative asset over the long term and thus bank lending will always shift to it across the business cycle, creating bubbles and busts. Even if there is no overall increase in credit in the economy, the amount of mortgage credit will expand and thus there will still be a mortgage driven 20 year business cycle.
Not sure who your guest is Cam, but this is incredibly well written and articulated. Great post
There's an irony in all this distributional analysis. Investors can claim deductions on interest for their investment property as an "input cost into production", but (landless) private renters cannot claim deductions or a tax credit for paying rent to put a roof over their heads as an input cost into producing a subsistence living.
My current take on the former socialist countries housing transformation. Everyone was complaining to the politicos about government-owned housing needing a lot of expensive work. Bingo! They sell them all at giveaway prices. The government makes some money and everyone stops complaining to them about not maintaining the buildings.
Existing owners of urban land have a vested interest in maintaining planning policies that improve access to existing commercial centres and enhance the range of facilities that can be accessed in these centres. Australia is a big country with a small population that would benefit by a policy that limited expansion of existing cities whilst ensuring that new centres are identified and made available ahead of time. Governments could offer incentives for those willing to pioneer new centres of development as has been done in each state of Australia from time immemorial and practiced to great advantage in China. What we need is a new start and some fresh thinking that could include the auction of blocks of government owned land in locations where development is desired. Secondly, to enable people to live and access goods and services closer to their work its desirable to relax zoning restrictions. If we could design settlements that removed automobiles from the vicinity of a house creating a safer public space for kids to play and residents to meet each other as they participated in community activities, the birth rate might pick up. What we have at the moment is dysfunctional from sixteen different points of view. Our three tiered system of government that amounts to control from the centre limits the scope for local initiative. We have the wrong sort of planning and that is resulting in declining labour productivity, escalating debt and inflation. The Australian economy exhibits the poor results associated with central planning, a system that we accuse the Chinese of having whereas their system of government, so far as the economy is concerned is more decentralized, more experimental, more entrepreneurial, than ours. On top of this we have ESG, and rapidly inflating fuel costs. First KPI for government should be to ensure its citizenry is housed. Humans are the endangered species. We humans are a victim of man's inhumanity to man.
Maybe it is just me, but I couldn't follow the point or logic of what this guest poster was trying to make. Private ownership was bad, but even state ownership was bad when you consider the quality of the housing and then bingo through a feat of pure neo-liberalism economic thought the whole place (Poland) was turned into Nirvana through selling off state owned assets.
How do we explain Canberra, which is also based on state owned land that is held in leasehold. Is this also a Nirvana of home ownership joy?
I will have to re-read it again later on, but again I found no solution here. Was s/he advocating for complete abolition of private land ownership (good luck with that one). Or the creation of mass good quality Social Housing (again good luck turning that dogma around 180 degrees, let alone funding it). At one point I thought s/he was going to go down the path of Betterment Tax, which IMHO has a better chance, if still strongly opposed, chanced of success), but no that wasn't mentioned.
I keep on saying we got to this problem through the sum of thousands of decisions over decades and we sure as hell we are not going to get out of it through one or two silver bullets.
OK I had a chance to read it again in a bit more detail and I would summarise and analysis it as follows.
CENTRAL THEME
The land question has always been and always will be at the heart of the problems of inequality and poverty. It matters not whether this land is held in public or private ownership. What matters is that people can get access to this land through good quality housing, being ownership or renting. If renting - then this could be done either through the private market system or the social housing system. If all this happens – then inequality and poverty will be alleviated.
SOLUTION
As such, the challenge is to find the best method of distribution (ideally of the value of land rather than its physical form), not to come up with ways to subsidise tenants. It then goes on to (vaguely) suggest that policy should “direct re-distribution of physical land or even indirect re-distribution of rights to enjoy its value (e.g., via land value taxes to be used to fund a citizens' dividend)”. This may mean something to economists or the Green Left Socialist Movement, but I haven’t the faintest clue what this means in practice (apart from tax the hell of land owners who don’t maximise the existing use rights of their land – will won’t necessarily result in affordable housing).
The author then points to Solider Settlement Movement that were implement in virtually all states after WW I & II and all failed mainly because they were based on some 19th century idea of the Yeoman Farmer toiling honestly to make a living on the sweat of their brow, all on land that they owned – pity it was piss poor land that had no hope of sustaining a family on land holdings of 100ac.
The Poland exampled worked (not exceptionally and not to a standard that most Australians would willing accept unless they were in dire straits) until such time as the Government decided that it no longer wanted to invest in such things. The whole premise of the author’s argument is that Governments of all persuasions are willing, able and desiring to investing in good quality housing for all, for all eternity. Somehow I don’t buy that premise.
CONCLUSION
I think housing affordability and access to good quality housing (for ownership or renting) is one of the top three critical issues facing this country. But I don’t think we will address this issue through wishy washy blue sky dreaming. At some stage you need to be pragmatic and realistic as to what you can and can’t do and that often means giving politicians the space to make bid bold changes. Personally I don’t think this proposal (whatever it is advocating) advances that cause.
There will always be a land/property problem because the demand for land will always increase with economic growth and the supply will always be restricted. Thus there are only two rational solutions to try and prevent mass poverty a) try and make everyone a land/property owner or b) increase taxes on land/property and reduce them on
everything else (or distribute revenue on a per capita basis). The UK and Australia have been trying approach a) for 60 years and it has reached its limit.
Personally, I think there are at least a 100 possible solutions, all with varying degrees of difficulty, but with zero level of popular support.
I thought Bill Shorten had the most comprehensive approach to solving this problem with his pitch at the 2019 election, but we (a big part of the problem) didn't want that for a number of different reasons. His was not the magic panacea, but it was a damn good start.
An excellent post. Well written and most certainly enlightening.
I'm seeing institutional Discrimination of lower income households when the "80%of market rate" principle us applied to "Affordable Rental Housing" in mynpart of NSW.
6 years of obfuscation around ARH Contributions and a local LGA policy has lead to Gov enabled ARH that is median rental or more in my part of NSW.
Property ownership - the community should own ARH acquired through affordances to developers, so WE can hold the benefit into perpetuity - just like the developer manage their profit of the benefit into perpetuity.
Benefit should be shared yo best honour the goodwill of agreeing to increased density.
This is an argument for a capital gains and an inheritance tax: "those who own land find themselves in a position where they can demand "gifts" from people. If you can, grab and hold the best land. Then you just sit back and wait for others to give you the gifts of economic surpluses that crystallise as capital gains in your land. It is a slow process, and the gains are not always liquid, but every investment around your land — railways, factories, houses, schools, hospitals — is a capital gift to you. ".
“The greatest hidden truth of our times is that landowners (though not building owners/managers) perform no positive economic function.”
Obviously this post is slanted one way, with heavy influence from Henry George’s thinking.
Would you consider a challenge to these ideas in the form of reposting Murray Rothbard’s criticism of George? (https://mises.org/library/single-tax-economic-and-moral-implications)
His fundamental counter-argument is: actually speculation does perform an economic role.
Speculators holds onto land to allocate this scarce resource to bidders with the best, most profitable ideas in a competitive market.
Whether they be commercial uses for the land, property developers, or whether they are well paid employees looking for homes.
It’s also a matter of economic & personal freedoms. We’re free to “speculate” on the outcome of horse races, card games, lotteries & roulette tables. In games like poker & blackjack, players can and do develop “an edge” or skill at the game. Meaning their speculations are seen as more rational than novices.
The same goes for land speculators.
They are still taking on risk. All economic activity requires calculation & taking on the risk of failure.
Not every city develops into a vibrant metropolises.
Take Detroit Michigan or American rust belt cities. Small mining towns in Australia during the boom then bust.
50 years ago, Aussies, immigrants, and everyone bought land for cheap, because relatively speaking, the economy was small. People were poorer.
They held on to their land, lived their lives, apparently doing nothing, and are now “cashing in” and selling up.
But did any of them make calculations, or speculate as to the future of Melbourne & Sydney? No. But by virtue of buying & holding, they undertook calculation & risk anyway.
Who knows, maybe Melbourne & Sydney could’ve gone the way of Detroit?
We also have to accept that sometimes people get lucky through no apparent effort of their own. Luck is metaphysical. Some are just luckier than others.
Are we lucky that we were born in Australia while others were born in parts of India, China or Africa suffering through rural poverty, disease or warring factions?
In a (mostly) economically free society, we permit speculation as we permit the chase of profits & personal wealth.
By some measure, Aussies are now the richest citizens on the planet - in large part due to our houses.
Trying to reduce this wealth is politically infeasible. Voters will reject it, as we saw in 2019.
These assets also support the Aussie ecosystem of Aussie bank SME lending.
We can begrudge wealthy, lucky people. And I would look at how government writes regulations & tax laws to benefit owners at the expense of non-owners.
But I would also ask - why aren’t there more opportunities for people at lower levels of society to climb?
Why aren’t cheaper, no-frills housing options more available?
Low-cost boarding rooms or flop houses are much better than living on the streets, yet where are they?
Why hasn’t another lower-tier Aussie city risen economically to rival the major cities?
As mentioned, Aussie migrants from the 50s on bought cheap and waited for Melbourne & Sydney to rise.
In America, Americans vote with their feet, move clear across the country for better jobs & lower prices.
Why don’t we do that in Aus?
Cities around the world use regulatory & tax arbitrage to attract business & migrants to move in. Ireland, Singapore, the Gulf states.
What if Perth or Adelaide wanted to do the same, to entice corporations to move in?
Simply put, inequality is actually two separate questions - the top end of town grows its wealth using its financial & political clout, we have to ask if the political favours they receive are fair.
But the second question regarding the disparity is: why isn’t the other end of town able to grow its wealth as fast, or at all?
Are the rich crushing all opportunities for the poor? Or is government imposing itself on their opportunities?
I think there’s more to this story than simply “speculation evil, speculation akin to feudalism.”
Rothbard first spelled it out, and we can view and understand Australia through this lens.
Interesting link, but it seems be missing the basic premise of land value taxes. Firstly, the value of the residual can be separated from any improvements made. Second, unimproved land would trade at a near zero price only because the liability of the tax would roughly equal the asset value of future income net of capital investments on the land. Rent wouldn't be zero. Third, in practice there many land value taxes that work fine.
I think the big criticism for me is that it doesn't change the rent of locations, and hence unless land value taxes are part of broader redistributive efforts, won't change the fact that lower income household have toruble renting in accessible and high amenity locations.
Your question: Why hasn’t another lower-tier Aussie city risen economically to rival the major cities?
Answer: Because planners/governments do not have the wit to see that this would be highly beneficial.
Loved most of this, but I’ve got some beef with this sentence: “The same is true for urban land, with the invention of cars and elevators allowing people to use land more effectively.”
Cars are a fantastic way of using land less efficiently. Huge amounts of parking lots and garage space could be housing instead, if we built out more sensible (space-efficient) urban transportation systems.
From the article, "Twenty or thirty years in the future, you liquidate the capital by selling the land. You have added no value, taken no risk, or capitalised any company that employed anyone; you have simply extracted wealth from society." OK, so let me get this straight, you're saying, no one has ever lost any money in the 'real estate' game? Everyone who invests (buys) real estate makes money without any risk, no thinking, no effort, and never, ever loses money? Does the author make these amazing declarations based on personal experience in property investment? Just curious, because my personal experience doesn't support this 'guaranteed/can't lose' doctorine. Maybe it's just me.
Do you think anyone who bought land in any major Aussie city 30 years ago has lost their money? Sure, they may have made more money elsewhere, but clearly owning land (though perhaps not buildings, especially if you don't know what you are doing..) in major urban areas has been the safest bet for centuries.
This is directly linked to the nature of land and property. The capital gains in property (more than any other asset class over the 20 year credit/business cycle) are a function of under taxation and
inelastic supply. This was just as true 200 years ago as it is now.
Thus you need major tax reform if you want to bring mortgage lending into the real economy: Current mortgage lending in the current tax system guarantees unearned profits from simply occupying a piece of land for 20 years. Unlike owning a stock or bond (which has risk and capitalise real business) freehold land ownership has no social value. It simply skims off social created economic value that crystallizes out in increased land values. These land profits (it's the land that increases in value, not the building) need to be paid back to society and not privatised to the rich who can afford land.
No tax reform means land will always be the best speculative asset over the long term and thus bank lending will always shift to it across the business cycle, creating bubbles and busts. Even if there is no overall increase in credit in the economy, the amount of mortgage credit will expand and thus there will still be a mortgage driven 20 year business cycle.