Prosper Australia

photo credit: rsepulveda

The property industry lobby’s reliance on ‘friendly valuations’ is often a source of contention in the valuation industry. The Australian today raises issues with Experts Question Boom Lending

Property analyst Michael Matusik yesterday joined the chorus against the proposal yesterday.

He said it was unreasonable for taxpayers to be forced to bail out property developers — many of whom had made enormous profits during the boom.

“Property development is a risk,” he said.

“What has happened in global financial markets may have been unforseen but it’s still an element of risk.”

Prominent property researcher Bill Morris, author of the Midwood Investment Report, said the proposal was “throwing good money after bad” and could further exacerbate an acute oversupply of commercial property.

This is the big sleeper! With over $2.6 trillion in goodwill on US balance sheets, one wonders how much investment property has also been over-valued to assist balance sheets and leveraging. Friendly valuations enable moguls to borrow more money to buy more land. Now these blue sky predictions have turned sour and developers have stretched themselves to breaking point, we the TAXPAYER, are asked to bail them out.

How those committed to market principles can turn so quickly to assist those who donate such huge amounts to their campaigns is astounding. Lobbyocracy is threatening the existence of both the financial and environmental life support systems we so rely on.

The point of contention is that the property market has over-supplied, based on inaccurate figures aimed at marketing scarcity to provide what is really pursued in property – capital gains rather than sustainable yields.

Land prices need to fall back to affordable levels before the economy will kick start again. Bailing out those with massive commercial properties lying dormant will only constrain the economy further. Funding them to build even more property is a short term solution to a long term headache.

An occasional commentary on the economic depression # 3

5 January 2009, New Year Insights

There’s amazing synchronicity in the centenary year of the “People’s Budget”, delivered in the UK under the Liberal Prime Minister Herbert Asquith, that never so much since as now has the world needed fiscal policy capturing a greater part of our annual land values if we are to correct out-of-control economies.

Although the principles behind David Lloyd George’s 1909 “People’s Budget” were better understood and overwhelmingly supported by the British people than they are now, they were strongly resisted by House of Lords aristocrats, despite the fact that it had been accepted practice since the 17th century that the Lords would not reject house of commons budgetary measures. Nevertheless they vetoed the chancellor’s land ‘tax’ budget ….the government be damned! The land tax proposal was withdrawn, but preparations to devise a land tax valuation base continued. Meanwhile, Winston Churchill and Lloyd George were quick to use the people’s wrath against the upper house’s action to stop the power of the House of Lords from being again misused.

Militarism was already in the air a century ago when Germany began to overtake Britain industrially and pose a threat to her markets. The aristocracy of both countries saw war as appropriate and almost inevitable, perhaps also offering a useful way to finally resolve politically vacillating imperial boundaries. Lloyd George didn’t accept this fatalistic logic. He tried to countervail militaristic bravado by proposing a cut in expenditure on Britain’s new Dreadnought battleships, reducing their planned number from six to four. However, the Tory opposition, with illicit support from First Sea Lord Jackie Fisher, mounted a formidable campaign (“We want eight and we won’t wait!”) which saw Lloyd George defeated on the matter within his own cabinet. War was thereby ensured.
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# 2 12 December 2008

Ineffective demand: a picture of a tax-induced economic depression

In the 2nd of this most important series of commentaries warning of the looming depression, Bryan Kavanagh interprets one of his most important graphs. Mr Kavanagh lists the reasons why the GFC has occurred via an overview of recent tax trends. Essential reading.

What’s wrong with this picture?  

There’s nothing wrong with it – except for what it portrays. It depicts Australia’s gross domestic product descending into an economic depression because a badly-designed tax system has finally choked off effective demand - almost completely. This unique portrayal separates earned incomes from unearned incomes and closely approximates what has taken place in other economies.

Why is it ‘unique’? Because it at last assesses the extent of rent within the economy. In economic terms, rent is the annual value of a nation’s land. It’s literally a natural source for revenue, because no individuals have created it. It’s the value that the public and community infrastructure gives to the land as we work away at our jobs each year. Although it is a surplus value (because it’s community-generated, not a production cost), we capture only 12% of it to the public purse (less than $40 billion of $325 billion) in Australia. The graph shows that rent is now sufficient to replace taxation at all levels of government. i.e. If we were to collect it all, there would be no need to tax (or fine) labour and capital for working!  

Although it would do away with the taxation of labour and capital were we to capture our land rent rent for necessary government, we’ve permitted landowners to retain 88% of it, even though they’ve done nothing to earn it. And, of course, those who get the greater part of our rent are those who own not only the most land, but also the most valuable land. People who rent their homes receive no rent from society at all, although their presence did help to create it (not as individuals, but as a group). So, it is unfair in the extreme that rent – being generated by everyone – is collected only by the wealthier segments of society.
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photo credit: Derek Farr ( DetroitDerek )

Earthsharing Australia, our sister organisation, had its I Want to Live Here report quoted today in the Age article Agents accused of hyping up real estate crisis.

Social justice group Prosper Australia analysed residential meter readings over six months and found more than 7 per cent of properties used less water than is required for one person to survive.

Study author Tohm Curtis said the findings suggested that many investors could not be bothered with the upkeep and fees associated with owning rental property.

Prosper Australia’s Karl Fitzgerald said low auction clearance rates meant the rental market should be easing, and the REIV survey was the “last desperate call to dupe young home buyers into purchasing at the top of the market”.

Some of the hard hitting statements you need to read in the report include:

“The suburb of Carlton alone has sufficient vacancies to house all 220 reported homeless students at Melbourne Uni” said Mr Curtis.

“Last week the Housing Industry Association tried to claim that land supply is the cause of rising housing prices. Yet the 90,000 blocks opened up by Brumby earlier this year, on top of the 38,000 existing empty blocks of land held by Australia’s 6 biggest developers, have done nothing to curb rising land prices. Obviously there is another factor at play and our report demonstrates that it is speculation.” stated Project Coordinator Karl Fitzgerald.

The I Want To Live Here report calls for genuine tax reform as the only means to ensure long term housing affordability and ensure future Boom Bust cycles are avoided. Higher and flatter holding taxes on land should be implemented to balance out the advantage that property speculation has over all other forms of business.

photo credit: funadium

Over the next few posts we will bring you a series of reminders about how we and our colleagues have been warning about the impending financial peril for many years.

The Depression
An occasional commentary
(for Australia’s federal politicians)      #1
4 December 2008

ASTONISHING EVENTS?

At last night’s Lowy Institute lecture in Sydney, the former governor of the Reserve Bank of Australia, Ian Macfarlane, said that he found the events of the last year to have been quite astonishing.  Astonishing? But we foretold of this asset price deflation three and a half years ago!  In THE AGE of 15 June 2005, we warned the RBA not to increase interest rates because Australia was “primed to tank into a deflation” and “in the current deflationary environment” the next adjustment of Australian interest rates would more properly be down.”  

The RBA chose to ignore the warnings provided by this index though.  Also ignoring the looming price drop, it ratcheted interest rates up 1.75% over the next three years (seven times by 25 basis points). Now the RBA’s “seeing is believing” approach has witnessed it move into panic mode to lower interest rates by 3.00% in just three months! Surely this hopelessly dilatory action is the real ‘astonishing’ event, Mr Macfarlane?  It is a damning indictment of the very body whose raison d’etre is to maintain full employment and to protect Australians and their currency. By whom has the RBA been advised? Did the Bank take any cognisance at all of the Australian real estate bubble that we defined and quantified for it? No, it used its ‘experts’.

The Land Values Research Group (LVRG) hereby challenges any commercial economic forecaster, analyst or credit rating agency to match our economic forecasts. Alan Kohler noted in Secrets and Lies” on 2 December that Goldman Sachs admits to tailoring the truth a little in delivering it’s economic prognostications, because it is a commercial organisation, and, well …. it just has to! The LVRG isn’t a commercial organisation and we and our colleagues at Prosper Australia don’t have to ‘doctor’ any of our studies – so we’ll stick to telling people the truth about what they reveal.

OK, so Ian Macfarlane seems to agree with Christopher Joye and other bubble-deniers that people like us and Steve Keen are incorrect – that even though our real estate bubble may be bigger than all the others, ours isn’t about to burst next year.  Want a bet?

There are workable solutions to this horrible financial implosion.

Bryan Kavanagh
Land Values Research Group
Melbourne

Fred Harrison’s latest

If you think economics is boring, you haven’t met the real pirates of the Caribbean yet. Phil Anderson’s recently published book The Secret Life of Real Estate is both exciting and timely. It provides detailed insight on how the addiction to land speculation became the foundation of the United States of America, as we know it today, the only country in the world where land title is not exclusively ‘owned’ by the government or crown – except in Australia, where Aboriginal people can have “native” title to their traditional lands. It is an excellent follow up to Kevin Cahill’s monumental book Who Owns The World

Phil is brilliant at connecting the dots, telling the story and making it real. I majored in American history, but we never saw how the “New World” was settled, especially from the point of view of the speculators in land – the enclosure of the North American commons.

Today, we’re still practicing a kind of economic self-flagellation. The mad dependence on making profits from the sale of land, our common habitat, is entrenched deep in our psyche, to our shame. And we should be ashamed because this arcane process only serves to privatize profits and socialize debt, and cause chaos in the process.

We simply have got to get over greed ‘addiction’. We can be inspired and energized by the fact that there is much more elegant way to move forward. Phil’s book provides the context for understanding how a major part of classical political economic theorem has come to be.

Buy Phil’s book at our bookstore.
Phil will be presenting at a Prosper Australia event on Thurs March 19th. More details.

Review by Maireid Sullivan

Following another reference to our history via the boardgame Monopoly on ABC radio (originally named the Landlord’s Game), John Poulter of the Henry George Club called and was soon interviewed on the origins of the Single Tax.

John sums up the principles behind our movement in a few short minutes.

ABC Interview

photo credit: Cayusa

Following on from the excellent ANP short film featured yesterday, George Monbiot recently wrote about the link between colonial interests and tax havens entitled Pin Striped Pirates:

Over a quarter of the world’s tax havens are British property. More than half of Britain’s colonial territories and dependencies are tax havens. Strip out Antarctica, the military bases and the scarcely-habited rocks and atolls, and of the 11 remaining properties, only the Falkland Islands is not a recognised haven. The obvious conclusion is that Britain retains these colonies for one purpose: to help banks, corporations and the ultra-rich to avoid tax.

Last month the British government announced that it will introduce new laws to prevent piracy: the armed forces will be allowed to detain ships and arrest suspected robbers on the high seas(4). Yet the same government offers an attractive portfolio of tropical and temperate islands in which pinstriped pirates can bury their treasure.

This authorised theft, of course, affects us too. We are robbed twice by these gangsters: once when they avoid the taxes the rest of us have to pay, again when the tax havens’ secret banking arrangements cause the crises which oblige us to rescue the banks.

Having met George Monbiot at a conference a few of years ago, he was very supportive of our work in identifying the natural wealth of the earth’s resources and how this should fund the government rather than our hard work. With this in mind, it is frustrating that one of the world’s pre-eminent minds keeps overlooking the biggest pirate act: the privatisation of land rent.

Listed should have been at least six examples of robbery by pin striped pirates:

1. the taxes dodged by the elite via tax havens (thwarting the social contract)
2. the taxes contributed by the poor at regressive rates (via growth of indirect taxes)
3. how these taxes fund the infrastructure and community services that make land more valuable
4. how this community created land value allows property owners to expand their leverage on these assets to buy yet more land
5. how the resultant speculative vacancies hold society to ransom and force working families to live in the sprawling suburbs, robbing them of time and adding to their carbon budget.
6. how this process of leveraging leads to a speculative bubble that once every 18 years leads to a bankers bailout.

The whole boom-bust process would be avoided if taxes were switched onto an immobile asset base – land.

The plot thickens. What policy would deem tax havens irrelevant?