Prosper Australia

by Bryan Kavanagh

As featured in today’s Business Age, 28/03/08

WHEN it mattered, the US Federal Reserve, US banks and rating agencies failed the risk-management test — in much the same way that Australia is now failing it.

This is because none of these bodies comprehends the manner in which the real estate market leads the economy. Many considerations flow from this, because businesses and individuals borrow against the value of their property assets. So when real estate bubbles burst and banks and mortgagors are left exposed, analysts flounder with such hogwash as “business cycles and recessions are a natural part of the financial landscape”. Another knee-jerk reaction to systemic failure is simply to blame banks and borrowers. It seems anything will do, rather than tackle the fundamental flaw in risk management.
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Last night saw SBS’s excellent Insight program tackle housing affordability under the title Out of Reach. Over 270 comments have been posted since the event, giving warrant to the excellent comparing host Jenny Brockie does each week.

As probably the fourth panel type forum seen on non-commercial TV over the last year, this one was the best. Julian Disney pushed for the kind of hard nosed reform that we prefer - wholesale tax reform. Though he was hesitant to go as far as we do, he did state that negative gearing be abolished and capital gains on property be captured.

Ross Gittens, economic commentator with Fairfax, even surprised by stating that Commonwealth Rent Assistance only leads to higher rents. In effect it is a subsidy for the landlords. To see ALP Minister for Housing Tanya Pliberseck agree was of interest. A cursory knowledge of economics and the law of rent should see her applying this to virtually every other ALP housing policy as well.
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Negative Gearing provides cream for nation’s wealthiest

Our topsy turvy tax system sees commentators claiming: “In most businesses, losing money is frowned on. In this one, however, it has become the spirit of the game, with landlords writing off their claimed losses against tax, and effectively using the savings to subsidise their property investment.”

So with an annual $3 billion subsidy provided by negative gearing, a record house & land price boom and governments at all levels bending over backwards to assist the property lobby, why do we still have a massive shortage of housing?
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With financial turmoil building daily, we have asked leading financial commentator Stephen Mayne to dissect the spreading credit crunch. Bear Stearns, Carlyle, North Rock, RAMS - who is next?

Also joining us is Mairied Sullivan from the ‘Save Tara’ campaign on one of Ireland’s most sacred regions - Tara hill. We will hear the background story to a rampant development. The motivations behind such sprawl are revealing!

Hope you can tune in Wednesday’s from 5 - 6 pm on AM 855 or via www.3cr.org.au.

With the recent passing of the highly respected Georgist Clyde Cameron, we feel it is timely to look at the wisdom of his core beliefs:

EXTRACT FROM AN ADDRESS BY THE HON.CLYDE R. CAMERON A.O.

But now it is an oversimplification to say that the lessons of the Maritime Strike of 1890 were the sole reason for the formation of the Australian Labour Party in the following year. In South Australia; the seeds of discontent were sown on 28th December 1836, when the first white settlers came ashore at Glenelg. Among them were unemployed working men in search of work in the new colony.

South Australia was the only Australian Colony that did not at any stage rely upon transported convicts for cheap labour. And yet the real cost of employing what passed for free men was very much less than the cost of housing., feeding and guarding convict laborers in New South Wales, Victoria, Western Australia and Tasmania.

South Australia was able to prove that wage slavery can provide cheaper labour power than any other form of slavery. Slave owners have the responsibility for feeding and housing their human beasts of burden and of keeping them healthy enough to perform a full day’s work.
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Monday April 21st, 7pm, Prosper Australia rooms, free

Inspired by the gammut of short sighted housing policies dominating the press, Prosper Australia has invited our resident expert Leo Foley to discuss the role of Community Land Trusts in assisting housing affordability. Leo will discuss how CLT’s have become a successful model for CoHousing cooperatives in the US. Examples from the Opal & Burlington intentional communities will be discussed.

From this an overview will be given on how this form of community management of the commons is superior to present land monopolisation. An understanding of how ‘community’ can be incorporated into economics will then be possible.

Make sure you book in Monday April 21st to attend
RSVP appreciated
Venue: the Prosper Australia rooms.
Free, 7 - 9pm

Tune into www.3cr.org.au from 5- 6pm today or listen via good ole AM radio - 855 AM on the dial as hosts Karl & Rayna interview Steve Keen about his upcoming presentation, “Deeper in Debt” (tomorrow night in the Prosper Offices - book soon as places are filling fast).

Steve will be asked to explain the role debt is playing in our economy and whether the Australian banking system has engaged in the same slippery financial product development as the US (ie Credit Default Swaps & Adjustable Rate Mortgages). We can’t resist - we must ask who is dominating the creation of money supply in Australia - the Reserve Bank or the commercial banking sector?

Has the deregulated banking sector benefited the Australian people?
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The front cover of today’s Herald Sun has a huge photo of Horse Stud owner Steve Spiteri (looking hard done by!) with a caption: ‘Thanks Premier: Steve Hits Paydirt’. Yesterday’s announcement to rezone all land residential within Melbourne’s 2030 boundary has made landowners, typically land bankers and the occasional farmer on the edge of the sprawl, rich overnight. Mr Spiteri bought his property for $375,000 twelve years ago and with the new zoning is now estimated to be worth $11 million dollars.

How much money will Spiteri make when he sells the property? Lets give him a million dollars for council rates, real estate commissions and to cover the next few years Land Tax (about $330,000 p.a). If we assume he pays capital gains tax at 30%, he will take home over $7 million dollars. This equates to more than 122 years income for the average wage earner.

That’s as if he’s earnt $11,217 per week for the last 12 years. Staggering!
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Prosper Australia today applauded the State Government’s announcement for taking housing affordability more seriously. However, questions must be asked about who benefits most from this announcement.

“Today’s declaration of residential zoning has made Victoria’s land bankers more money in a day than many earn in a lifetime.”

“Questions must be asked why the government is releasing 90,000 blocks of land when the property industry swallowed up at least 38,000 sites in just one year, as reported in the Age (22/09/07).” stated Prosper Australia spokesman Karl Fitzgerald.

“The property industry has dictated all housing affordability policies at both state and federal level.”
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Here we can see 2 examples of former Commonwealth land being released ‘to the market’. Snapped up by a developer, such large ‘land banks’ are manipulated such that the building of homes is kept under control to ensure the supply of housing does not push down housing prices. Is this the sort of level playing field we should be happy with? Kevin Rudd’s plan to release more land will result in the similar trends. It is only when a decent holding charge on land is implemented that housing prices drop. Why? The higher holding cost for land ownership will see the main component of an auction price - the land - pushed down through added supply. Land bankers will become land (& housing) builders. Spinoffs include benefits to the poor when GST and (in time) income tax are abolished by the transition to holding charges on land through a Land Value Capture tool.

The Central West land banking has been going on for over 4 years, with a handful of building teams limping the supply of auctionable houses along. One can see this by looking at the top right hand and bottom left hand corners to see many vacant blocks of land. Future home owners are being held to ransom by a tax system that encourages wasteful use of our most precious resource - land.

• Central West Land Bank



























• Laverton Land bank