3 Comments

1. 

   frustrated on August 31, 2014 at 4:15 am

   Thanks for the article. And not to mention the ability to refinance/remortgage their properties, often encouraged by the availability of negative gearing.

   I’m in no means an expert in any of this, but here’s my 2c, and I would appreciate if anyone can correct me if and where I am wrong:
   Whilst I recognise that they are taking a higher debt and, therefore, an intrinsically higher risk themselves, the obvious end result is that these speculators/investors do often get the upper hand in receiving a higher leverage to accumulate a larger property portfolio that will contribute in pushing house prices even further. The debt they can end up with is mind-blowing, especially at their expectation that “oh, the rent from that property will pay itself off” (what if you can’t secure a tenant there??!).

   To me, it’s risky business for themselves, and it’s just as miserable for people like me who are trying to enter the increasingly propped-up market. While being on a higher-than-median salary, I find that trying to desperately save up for that initial deposit is a rat race in itself, whereby the deposit I need to get a modest initial dwelling is increasing ridiculously faster by the minute.

   Although this is only really one of the many factors driving up property prices, isn’t it?

   1. The mainland Chinese occupying our land, the increase of immigration (I marvel at how it was seemingly so difficult for my beloved ex-gf at that time to get permanent residence here in contrast to the seemingly increasing numbers of immigrants now)
   2. The almost impossible (and, useless enforcement) of the FIRB (come on, it’s quite easy hearing from mainland Chinese friends regarding the amount of loopholes they can use. Even then, $85,000 penalty only? This is nothing to the mainland Chinese. Especially when they can expect to make that money back in less than a year on the property, and then some)
   3. The analogy of the late monopoly player comes to mind, where all the properties are pretty much already in the hands of the previous generation. Sure they are happy to sell you the property at the price they got it for — plus some interest of course, but when the Chinese guy next to you is able to offer them something 3 to 10 times that amount, who am I to deny them of that sweet profit? (I mean, I would too!) The obvious solution then, is to expand the monopoly board and consider places in the outer suburbs, by which, we would be the ones pricing out those local butchers and grocers who work hard to afford the price of dwellings in their own areas.

2. 

   James Webster on August 31, 2014 at 9:18 pm

   Henry George discovered the solution, abolish taxes on the fruits of effort and investment in productive capital and use the unimproved value of land as the basis of the revenue source for the community. That way individuals cannot collect the increase in value of the land and retain it in private pockets; the value of the land flows beautifully back to it’s source, the community. The fruits of working are retained by those who work, unadulterated.

   One factor (noted by George) is that speculation of greater (future) increase encourages people to hold onto land for longer than they can use it, to ask for a higher price than it is currently worth, and perhaps as you have noted, when looking to buy to be willing to pay more than it is currently worth (in the expectation of future capital gains beyond the net present value leading to a windfall profit – ie no investment in improvement of the land, but an increase in value just by holding onto land as the community progresses).

   If George’s solution was adopted, people from anywhere could have possession of the property, but it’s increase in value would flow to the community, payable regardless of how it is used (or not used). There would be no benefit in just buying and holding land as increases in the unimproved value would belong to the community, you could take a return from investment in productive capital, but ‘investment’ in land itself would provide no personal return. Volumes of good land now held out of productive use by speculation would then be released or put to better use. There could be no intergenerational monopoly-building as the remittance of the unimproved value of the land would continue to benefit the community annually as opposed to being reflected in capitalised land values arrogated to individuals and passed on through inheritance.

3. 

   Karl Fitzgerald on September 1, 2014 at 1:10 pm

   HI frustrated,
   we certainly feel your exasperation. The key difference for the housing (read land) market to any other market, is that no matter how much investment, foreign or not, we cannot (easily) make more land. More money on a fixed land mass = higher prices.

   Our economic policies are enacted as if we live on a flat earth.

   Thus we try to stay systemically focused. Even if foreigners were taxed away, they would still find willing locals to buy property in their own name. A fairer system would see a reduction in income taxes for all Australian citizens and an increase in taxes on land.

   Lets channel the naturally rising property bubble towards its original purpose (as economists of Adam Smith’s ilk believed – check this lead quote), to that of funding government. Read the Total Resource Rents of Australia report for an indepth insight.

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