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Date: Thursday July 23rd
Time: 6.30pm
Venue: Frank Halkyard Library, 1/27 Hardware Lane, Melbourne
Speaker: Bryan Kavanagh, Research Associate, LVRG

Greenshoots? How bad WILL the Global Financial Crisis be? Why did our economists fail us? What’s the future of real estate? Come and hear Bryan Kavanagh dissect “The Anatomy of the Global Financial Crisis” and explain where it all went wrong.

Kavanagh, a valuer who worked in the Australian Taxation Office and the Commonwealth Bank before co-founding his own valuation practice in 1997, has the runs on the board. He forecast the GFC in the British journal “Geophilos” in 2001, and published a study of Australia’s real estate cycles, “Unlocking the Riches of Oz”, in 2007.

Come and hear Kavanagh’s latest interpretations in the warm atmospheres of our Hardware Lane abode.

RSVP appreciated
Gold coin donation to cover drinks and nibbles

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photo credit: julkastro

Britain looks westward for tips on tarting up its towns

As published in The Economist

ACRES of flourishing weeds adorn derelict docks and warehouses on Edinburgh’s northern shoreline by the river Forth. Two years ago city planners were busily drawing up 30-year projects to build 30,000 houses, as well as hotels, offices, shops and parks on the waterfront. Then the credit crunch hit. Now plastic sheeting shrouds a bankrupt developer’s half-built luxury flats. Forth Ports, the docks company, has written down the value of much of its extensive landholding to zero.

City bosses, however, think they can get things going again. Their immediate problem is finding the £484m ($799m) they reckon is needed to build roads, schools and other public facilities. In the boom years, local authorities routinely demanded and got a big slice of that money upfront from property developers. These “developer contributions” have now disappeared, and recession means that Edinburgh, like most councils, cannot sell surplus land and property to fill the hole.

The city’s solution is to copy a 50-year old American approach: the unlovely sounding tax-increment financing (TIF). The idea is to draw a boundary round an area, borrow to pay for basic infrastructure and repay the loan from the increase in property-tax revenues inside the redeveloped zone as private firms start building.

Edinburgh hopes to test out TIFs on a square kilometre in the suburb of Leith, borrowing £50m to build roads, a dock for mooted cross-river ferries and a new pier for the former royal yacht Britannia, now a tourist attraction moored behind a modest shopping centre. Dave Anderson, the city’s development director, hopes that 2,200 houses, plus shops and offices, will follow. PricewaterhouseCoopers, an accounting firm, reckons all this will pull in an extra £280m in business rates (property taxes) over the next 30 years, more than enough to repay the loan.

Scotland’s devolved government is keenly interested in these TIF plans and so is Alistair Darling, Britain’s chancellor of the exchequer. After he intimated in April that he would entertain the notion of TIFs (business rates are collected nationally and handed back to local governments, so the law would need amending), lots of city councils have come up with ideas for them. Newcastle wants one to build a “science city” geared towards commercialising university research. Leeds hopes a TIF will accelerate growth as it tries to create 20,000 jobs in its Aire Valley business park. Birmingham, thinking big as usual, plans to raise £1 billion for seven road and rail schemes across the West Midlands.

The bravura of this last vision suggests how TIFs can get out of hand. Chicago now has 158 such zones, covering 29% of its land and 13% of its property by value. Mike Jasso of the city’s community-development department says that businesses were leaving Chicago’s Loop before it became a TIF district in the 1980s; now the zone is thriving. Others are much more sceptical, contending that many successful TIF schemes are in areas that would have attracted investment anyway. Rachel Weber, of the University of Illinois at Chicago, thinks TIFs make Chicago’s “dysfunctional system of quid-pro-quo politics more dysfunctional”. Every local politician wants a TIF in his district, and developers are eager to contribute to campaigns in the hope of securing support for their projects. In April the city council passed a measure that will, at the very least, increase transparency.

Mr Darling, whose officials will be discussing TIFs with developers and councillors before long, is likely to worry that TIFs are just another way to increase ballooning public debt. Most preliminary studies assume that, because banks and investors are leery of investing in property these days, the loans will have to come from the government. Having bailed out HBOS, an overextended property lender, just last year, Mr Darling may hesitate to plunge further into that line of business. Recession itself could also prove too big a hurdle: in Chicago, TIF-district tax revenues are slowing, and so is building work. Tempting though it is, borrowing against future revenues may not be the magic wand that Britain’s city bosses are hoping for.

Comment: Chicago’s example shows why a blanket Land Value Capture reform is better across the whole community. Projects then develop in areas with the highest need, rather than those with biggest brown paper bags. Reduce Payroll and Stamp Duties, increase holding charges on land, whatever they are called - Site Rental, Land Value Capture, Land Tax, Council Rates or TIF’s.

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photo credit: er1danus

Julian Lewis writes in the Age’s The Inescapable Crunch of Taxing Times

From prostitution to Pringles, tax officials want their bite.

GERMAN tax officials recently proved nothing is sacred when it comes to taxation, laying claim to half the $17,900 earned by a teenage student who auctioned off her virginity last month to an Italian businessman who paid cash for a weekend of sex.

It was not even a moral standpoint, said an official in Berlin, “but a fiscal one”, as they regarded the 18-year-old’s act as prostitution — which is not illegal in Germany but is heavily taxed.

Although the Romanian-born student’s visa allowed her to work in Germany for 90 days — even as a prostitute — one tax expert admitted that “she would have been better keeping quiet about this strange transaction”.

She may also be liable for a GST bill, which in Germany works out to 19 per cent, resulting in her only making about $6100 from the deal.

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photo credit: jimjarmo

Ross Gittens displays a neo-classical economist’s spectacular lack of understanding in today’s article Land Tax reform rehouses a flawed focus on rational.

As every politician understands, people’s “revealed preference” is to have tax extracted from them in ways they are less conscious of and so feel less pain and resentment about.

From this perspective, conveyancing duty is a tax people don’t greatly object to paying. The tax is dwarfed by the price of the property, and in return for paying it you get the different house you fancy.

By contrast, land tax is highly unpopular because it’s so visible. Every year you have to post a large cheque to the government, but get nothing in return.

You get nothing in return? Land Tax is one of the state government’s biggest income earners. This helps fund the wages of teachers, firemen and nurses. It funds road and infrastructure building and maintenance too.

We must recognise that these developments make a community more desirable. This in turns adds to land values. Wherever a new road is resurfaced or a new school gym built, the surrounding property takes the windfall gains for private profit. Land Tax is the best way to share those community funded benefits with the people that paid for them.

Because Land Tax is so small and ineffectual (as it is presently administered), key resources such as schools are surrounded by vacant land, sprawling our travel times and carbonising our kids future.

Unfortunately, due to the fallacies of commentators like Gittins, this perspective is rarely discussed. If it is, the property lobby will direct something quickly to the press to shoot it down. Isn’t it interesting that the week after the Henry Review experts talked about the need to move taxes onto immovable assets, both the Herald Sun and the Age have front cover stories trying to shoot down holding charges on land?

There are over half a dozen think tanks representing the property lobby in Victoria alone. We have 2.8 people and a growing number of volunteers. We’d love your help!

To debate Gittins other key points - yes Land Tax is visible. That reflects transparency. Public education is needed to show how much pain the layer upon layer of taxes we face in running a business or paying for goods effects the economy. These are called compliance costs and deadweight taxes.

Local Councils now send out public information documents showing what your council rates pay for. Why doesn’t the State Government re Land Tax?
Continue reading this article…

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photo credit: arvindgrover

Letter to the Age 29/06/09
The ups and downs
Bryan Kavanagh
Glen Waverly

Re your page 1 headline about State land tax (Age 27/6). Our forecast in THE AGE Opinion Section on 11 March didn’t take long to materialise, did it? We said that the same property ‘investors’ (read speculators) who got land tax concessions for themselves as our real estate prices headed skyward will put their hands out for more when they start to collapse.

Wow! That would be some quite result in comparison to all other taxpayers, wouldn’t it, getting tax reductions for yourself both on the upside and the downside of the real estate bubble?

Bryan Kavanagh
Research Associate
Land Values Research Group
Melbourne

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