Prosper Australia

photo credit: the|G|™

Written Oct 16th
Raising interest rates will do little to address underlying economic issues, says visiting US economist Professor Michael Hudson. “The market factoring in 7 interest rates rises spells danger for the Australian economic miracle” warns Professor Hudson.

“Governments must use tax policy rather than monetary policy to address asset bubbles. Burdening the whole economy with land price overheads penalises manufacturing by pricing the products of Australian labor out of global markets.”

“Higher interest rates will provide a windfall for arbitrageurs to borrow at about 1% abroad and lend to Australia at 3.25%. This inflow into the A$ will bid up the exchange rate. This will make Australian exports more expensive, slowing new manufacturing investment and employment while eating into export revenues across the board.”

Prof. Hudson says that “this is the same phenomenon that is happening in Canada. It represents a sacrifice of the real economy of production and consumption to the financial sector.”

“Raising interest rates will hurt government finances in three ways,” Prof. Hudson explains. “First, the government will have to pay more money to bondholders. Second, mortgagees also will see their interest payments rise. This will reduce the income they have to spend on goods and services. Markets will shrink, and so will tax revenues. Finally, the rising exchange rate will reduce business profits, reducing corporate revenue.”

“If the government really wants to slow the property bubble, the appropriate tool is fiscal policy. All they need to do is apply a windfall gains tax. This is like the excess profits tax that countries passed in times past.”

“The beneficiaries of higher interest rates are the banks, not labor and industry. Giving tax preferences to the FIRE sector (finance, insurance and real estate) rather than to industry and consumers limits the ability of economic growth to benefit most Australians. By cutting the capital gains tax below taxes on wages and business profits, the government is encouraging speculation, benefiting wealth and raising the price of property against labor. This means that consumers need to go deeper and deeper into debt to afford rising land and housing prices.”

“Rising interest rates accentuate the housing affordability crisis by rewarding speculators with negative gearing write offs whilst penalising first home owners.”

“Limiting asset bubble policy to raising interest rates makes billions of dollars for bankers in the carry trade, whilst penalising the manufacturing and export sector. Governor Stevens aggressive commentary on the likely prospect of rising interest rates shows his policy conundrum. He has indicated that speculators can make a gain on the rising A$ against foreign currencies ­and falling government bond prices. This seems a circuitous way to counter the price rise inhousing. He should look at keeping a lid on land prices via the use of a Land Tax. This tool should be incorporated into the RBA’s powers. Then it can be properly implemented without the limitations of political lobbying.”

In addition, Prof. Hudson observed, “The Treasurer’s announcement earlier this week that the government will expand its guaranteeing of mortgages shows that it has learnt little from America’s experience. Giving a public guarantee runs the danger that banks will simply give their loan officers bonuses on the number of mortgages they can write, without much care as to whether the borrowers can pay their debts or not, because the government will bail out bad loans.”

“This gives bankers the confidence to make as many loans as they want because the tax payer can always bail them out. The bonuses to bankers will continue as they load the economy down with debt. That is what Alan Greenspan called wealth creation.”

“The everyday person has been conned into believing that borrowing more and more money is the best way to get wealthy. This is the first time in history that going deeper and deeper into debt is seen as wealth creation” stated Professor Michael Hudson, touring the country warning on the epidemic of re-inflating asset bubbles.

photo credit: wellurban

The Brumby-Madden announcement to increase Melbourne by the equivalent size of Canberra is exasperating.

100,000 vacant sites already exist in Melbourne in areas already serviced by infrastructure (according to the recent census).

The government has failed us economically.

The have failed us environmentally.

The have failed on inter-generational equity too

The social costs in hours of commuter time will rob young families from the quality time they need.

And to think this is headlined Delivering Melbourne’s newest sustainable communities

With over 225,000 rezonings announced in 2008, why haven’t housing prices fallen significantly with the combined effect of the GFC and this added land supply?

Reason – any land supply is drip fed back onto the market to maintain profits.

We call on the government to explain why the massive rezonings from last year have not assisted affordability.

We believe that our land use policies are to blame because they promote land hoarding. Capital gains are prioritised over affordability. The Managing Director of Mirvac, Nick Collishaw, admitted this on public record (The Age, 18/02/09).

First home buyers are being held to ransom by such monopoly powers.

Young people are being used as the funders of a bailout for property speculators. This inter-generational theft is unacceptable and immoral.

The Brumby-Madden plan will cost the community $40 billion in unnecessary infrastructure production above and beyond that collected by the unjust and inefficient GAIC tax.

We call upon the Brumby government to abolish the GAIC and Stamp Duty and replace it with a higher and flatter Land Tax.

Read the Press Release

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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Media Release 01/02

Prosper Australia is elated to hear that the Brumby government is returning to its senses by recognising Land Value Capture as the most efficient way to raise public revenue. However, the progressive tax tiers need to be rolled into a flat tax.

“Land Tax is the most efficient of all government revenue raising systems as it incurs the least deadweight costs on economic transactions,” said Prosper Australia spokesperson Karl Fitzgerald today. “This is widely accepted by economists. However, it is not very popular with those who like to engage in asset protection, otherwise known as tax dodging.”

“The progressive Land Tax rates can be flattened as location naturally captures the higher incomes associated with proximity to services.”

“The government needs to recognise calls from business for a reduced tax burden and less red tape. By offsetting the higher tax take with the removal of payroll tax, the government will help develop Victoria’s competitive advantage.”
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Property lobby pushes all the usual red herrings whilst ignoring the speculative causes to affordability pressures.

Demographia International’s new report on housing affordability again pushes the “unending sprawl forever” mantra. Report author Wendell Cox rolled out all the usual criticisms of land rationing, infrastructure charges and bureaucratic tape.

“The effect of unending sprawl is to stretch government finance such that public infrastructure suffers throughout the city. The resultant doughnut development sees slum pockets develop throughout the city, breeding crime” stated Bryan Kavanagh from the Land Values Research Group.

“Cities that may have affordable land on the fringes suffer greatly from a lack of services that every respectable community deserves. Few of the leading cities in the Demographia survey rate well in the World’s Most Livable Cities indices for a reason” claimed Mr Kavanagh.

Of concern is the fact that ‘land banking’ is never mentioned in any property think tank related report. The heavily criticised ‘land supply’ issue is a diversionary tactic from the large tracts of vacant land that speculators have accumulated. Speculative vacancies act to enforce scarcity and push up land prices.
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ALP policy will continue to subsidise developers over first home owners. The ALP’s new housing minister should look at freeing up the supply of privately held land (aka land banks) by using a Site Rental on all land.

In response to the housing industry’s recent call for the freeing up of land, Prosper Australia’s Karl Fitzgerald said “The only thing free about the ALP’s housing policies is the subsidy it will give land bankers.”

The recent I Want to Live Here report found that there was a substantial supply of land currently being wasted by speculators within the inner city, in Bluestone ward, Maribyrnong.

“In a period where we are constantly reminded of record low vacancies, the release to the market of speculative vacancies would see an extra 1058 people living in just one small community” reported Mr Fitzgerald.

430 properties were found vacant in Bluestone Ward, 93% of which were vacant blocks of land. Taken at current auction rates, this would double the supply of auctionable properties in the area for one year.

“With land prices having increased at 4 times the rate of GDP and dwarfed wages growth since WW2, it is time the ALP had a hard look at the economic fundamentals that sap any gain union wage demands deliver.”
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‘I Want to Live Here’ report release

Earthsharing Australia today released the first I Want To Live Here Report, demonstrating the extent to which speculative vacancies are the key hidden issue in the housing affordability debate.

The ‘I Want to Live Here’ report found that 1058 people could live on vacant sites within the Bluestone Ward (City of Maribyrnong).

"Housing affordability debates focussed on government controlled land supply were today dispelled" stated Karl Fitzgerald, the report’s author.

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Speculators rub their hands with glee at prospect of further tax write offs

“Today’s interest rate increases have rewarded the wrong people. Speculators will today be able to increase the amount of tax they can write off” said Prosper Australia spokesman Karl Fitzgerald.

“The Reserve Bank’s policy tool box is empty when it comes to housing affordability. Higher interest rates hurt first home owners but reward speculators.”

“Today’s Interest Rate increase will see $300m handed to speculators in the form of extra negative gearing tax write offs”

“Higher interest rates allow a privileged few greater tax write offs via negative gearing.”

“Why are those who already own the planet encouraged to own even more?”

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Visiting housing affordability expert Frank de Jong said ‘the Census shows 830,376 vacant dwellings in the country. This demonstrates that it is the private supply of land withheld by speculators, rather than the need for more urban sprawl, that is hurting the housing market’

‘Census figures confirm this by showing that housing has grown by 1.5%, and population growth only 1.2%. So where are all the extra houses disappearing?’

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Strong Link between Vacant Land and Housing Affordability Crisis

Leader of the Green Party of Ontario, Canada, Frank de Jong today launched Earthsharing Australia’s ‘I Want To Live Here’ campaign. The campaign targets the under use of existing vacant land and will record statistics on the real vacancies of land, housing and apartments. Earthsharing Australia will lobby the government to encourage greater efficiency in the land market.

Mr de Jong said, “Vacant land is an avoidable tragedy in our cities and towns. It is not the shortage of land, but lots kept vacant by land speculation that increases the cost of housing.

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