12 January 2012

Prosper calls for timely, rigorous and transparent statistics on property sales to be collected by the ABS.

“Property is the single largest asset market in Australia – worth around $5 Trillion,” Prosper Australia Campaign Manager David Collyer said today.

“It is of profound importance to individual and national prosperity. The lack of peerless sales and volume data is gamed by active players and diminishes us all.

“The property industry shrouds its work with privacy arguments, yet sale prices are a matter of public record – eventually.

The existing ABS data is of very good quality. It comes from state titles office or Valuer General data when title is transferred at settlement, typically 90 days later. It is then collated quarterly, compounding the delay.

“By the time the truth comes out, the spruikers have already walked the ground into mud and the ABS is simply providing an historical record, not information about current activity.

“I call for the federal government to mandate the Australian Bureau of Statistics to create a fresh statistical series based on Sale +3. This tramples on state obligations, but the states have shown no interest in providing their citizens with timely property sales information. Worse, NSW, TAS and NT have contracted to sell their data to private organisations – access is denied unless one is prepared to pay for it,” Collyer said.

This initiative would require agents to notify ABS the day the buyer’s deposit has cleared the bank (Sale +3 days). A handful of these sales will fail – itself an extremely useful indicator – but allowing for this is well within the capacity of the ABS. They would obscure by aggregation individual transaction data until settlement is completed to protect sensitive current negotiations.

Given the ABS already collects un-timely data from the Titles Offices, additional costs would be minimal. The sole obligation on agents would be to send one email to the ABS when the buyer’s deposit clears at Sale +3 days. That would cost about $5.00 per transaction.

“Current falling property prices only redouble the need for clear information about prices and volume.

“Despite the myriad private providers who offer data for a fee, I am amazed at how hard it is for both buyers and sellers to build a view of the market and current values. Weak vendors consistently sell too cheaply and naive buyers overpay – putting money in the pockets of stronger counter-parties and making the lives of agents a breeze,” Collyer said.

“This issue is not going away.” ENDS

Media comment: David Collyer david.collyer@prosper.org.au

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise to capturing the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.

Make a Comment

The Australian property market ended 2011 on the ground in a foetal position after a serious assault by Harsh Reality.

Symptoms include:

• A year’s supply of unsold houses on the market
• Low and falling building applications
• Low and falling finance approvals
• Failing auctions nationwide
• First home buyer indifference
• Universal consumer deleveraging

This year will see a major downward re-pricing of Australian real estate. Further, the rate at which it is falling will accelerate.

Negative gearers will abandon the unsound strategy of subsidising tenants to rent their properties, substantially increasing the volume of stock available for sale.

For twenty years, betting on property price rises was a winning strategy. Gains were multiplied by gearing – the bigger the leverage, the bigger the profit. The instinct to home ownership has been sorely abused. Price falls will erase the investment dream of an entire generation.

Risk of government intervention with a First Home Vendors’ Boost remains only moderate. Such an initiative would fail: price falls will continue as few FHB’s take it up. Those encouraged to buy with a small deposit would quickly enter negative equity and be trapped with high repayments in unsaleable homes. This cohort would become lifelong enemies of any political party responsible for such an outrage.

Steady quarter per cent interest rate cuts that trail price moves cannot spark investor interest. The RBA has learned its lesson.

Prosper called the bursting of the Great Australian Land Bubble in April 2011. We affirm our forecast that land prices will halve in real (adjusted for inflation) terms over five to six years.

The hardest hit in percentage terms will be prestige suburbs – Double Bay NSW, Toorak VIC, Peppermint Grove WA – where selling prices were driven hard by stellar demand and absolute land scarcity. Poor returns in the sharemarket and non-mining business crimped the pool of prestige home buyers.

Prosper has been encouraging potential homebuyers to stand aside from the market ahead of future price falls. We advocate buyers instead save an outsize deposit as an equity cushion and avoid exchanging renting a house for renting money via a mortgage. Anyone acting thus in the last year has substantially improved their personal financial position compared to those who took the plunge into home ownership.

2012 is merely one year in a five to six year correction. We speak of ‘bubbles’ which suggests overinflated prices are corrected with a ‘pop’. Reality is more insidious, more brutal. The process is more like a steady leak where profit and recovery hopes are dashed again and again, year after year, until mortgage repayments equal or better rents.

It can be argued the US housing market has recently crossed this rent/repayment divide, six years after their house prices turned. Yet the vast overhang of US properties in foreclosure suggests further price falls ahead.

Land prices inflating then falling causes enormous economic hardship to smallholders. If instead, we taxed land and untaxed wages and business, the boom would have been muted and the coming costs a mere fraction of what we will be obliged to endure.

1 Comment

16 December 2011

MELBOURNE:- The number of properties offered for sale and unsold in Melbourne continues to grow.

In the last 30 days ‘Stale Stock’ has risen 4.2 % to 94,467, after 6.2% growth last month. This follows a 20.4 per cent rise in September and an 18 per cent rise in August.

“Supply and demand are disconnected,” Prosper Australia Campaign Manager David Collyer said today. “This is very sad news for sellers hoping to exit at last year’s prices.

Prosper tracks Melbourne’s ‘Stale Stock’ figures – property on the market for more than sixty days and unsold – as a quick indicator of change to the supply and demand equation and as a price change predictor. The raw data is from SQM Research.

“Buyers who previously leap into purchasing the moment their sums added up are holding back. Why should they buy? Property prices are falling. Anyone who can read knows about the devastation in the US housing bubble burst.

“At say $450,000 per house, there is now $43.4 billion tied up in depreciating assets.

In the widest Melbourne and environs, the 94,467 unsold houses are up from 90,659 last month, 85,313 two months ago, 70,856 three months ago and 60,045 four months ago. In eight months ‘Stale Stock’ in Melbourne postcodes 3000-3207 has exploded from 19,800 properties to 61,514.

Notable hotspots include postcode 3021 St Albans (1163 stale properties), 3023 Caroline Springs (1399), 3024 Wyndham Vale (1454), 3029 Tarneit/Truganina/ Hoppers Crossing (3641), 3030 Point Cook/Werribee (4838), 3037 Sydenham (1151), 3064 Roxburgh Park/Craigieburn (2129), 3076 Epping (1408), 3175 Dandenong (1255), 3199 Frankston South (1421), 3337 Melton (2696), 3338 Melton West (1594), 3754 Doreen/Mernda (3103), 3805 Narre Warren (1243), 3806 Berwick (1148), 3810 Pakenham (2796), 3977 Cranbourne (3504), 3004 Southbank (1025) and 3000 Melbourne (1564).

‘Stale Stock’ has risen in every Melbourne postcode without exception.

“The volume and price trends are entirely consistent with Prosper’s prediction land prices will halve in real terms over 5-6 years, of which nearly a year has already passed. Don’t Buy Now!” ENDS

Media comment: David Collyer david.collyer@prosper.org.au

About Prosper: Prosper Australia is a tax reform lobby group and think tank that is now 120 years old. It seeks to move the base of government revenues from taxing individuals and enterprise to capturing the economic rents of the natural endowment, notably through Land Value Tax and Mining Tax.

2 Comments

Australian land prices are falling. They will continue to fall until their fundamental economic link to incomes and rents are fully restored. Many with large mortgages will be crushed by these towering liabilities when their equity is erased.

This claim is bitterly resisted by the politico-housing complex and most homeowners, who see the exponential land price rises of recent years as proof of their skill and judgement. In truth, all boats were lifted by that king tide of optimism.

Economic growth based on debt expansion is exhausted and can go no further – consumers have outrun their capacity and willingness to borrow. Australians have flipped into energetically paying down old debt and are not taking out new loans.

The contraction of credit – also known as saving – is shrinking aggregate demand. Retailers are struggling as spending on discretionary items is deferred, and deferred again.

A sudden big rise in unemployment is imminent, as housing construction has effectively stopped. Construction employs over 8 per cent of the workforce. With few new housing starts, those jobs are simply gone.

The retreat from debt-fuelled consumption is a long hard journey. This is the rocky path taken by Japan for the past 20 years, and the US and most of Europe for the last five.

Japan lost two decades, propped up by government borrowings of staggering size that prevented collapse yet gained only the cold comfort of stagnation, with an ageing population and rigid economic settings.

The US spent billions – actually trillions – saving their banks. Those banks merely continued their vicious and greedy rent-seeking, now reinforced by a very dangerous sense of entitlement. Meanwhile, unemployment, poverty and economic misery have reached levels not seen since the 1930’s as each month’s statistics show no end to America’s funk.

If Australia continues as it is, this will be our fate too.

We cannot stop land prices falling, but we can limit the damage imposed on those with hefty mortgages. They are your neighbours, your family, your friends.

Adults injured in the depression of the 1930’s spent the rest of their lives collecting string and brown paper, terrified of risk and avoiding debt on any terms. The scars were life-long, crippling their thinking and behavior. Most are dead now. Their example and the lesson died with them.

How may we help?

By lifting the burden of taxation from labor and business, so citizens have money to spend or to clear their debts as quickly as possible. Dr Ken Henry in Australia’s Future Tax System wants to eliminate 125 energy-sapping expensive-to-collect taxes. To pay for this bonanza, he suggested many minor adjustments and two new taxes: a Resource Super Profits Tax and a federal Land Value Tax.

Both measures capture what are known as economic rents – the bounty of nature or the community. These gifts are so valuable they could replace all those 125 repulsive taxes, and more.

Productivity cascades from quality tax reform. Our economy could flourish even through the massive deleveraging ahead.

We now have a weak version of the mining tax in place, which sadly will not deliver the revenue that would enable big tax cuts elsewhere.

There is no sign of a federal LVT – despite the clear benefits and the advocacy of Treasury. The Gillard government lacks the intestinal fortitude to stare down the rent-seekers, even though this failure commits us to become one of the defeated nations we see around us.

Fitch Ratings have just upgraded its ranking of Australia’s federal government debt to AAA. They cited our high value-added economy, strong political, civil and social institutions and flexible policy framework.

Do not doubt Treasury and the Reserve Bank are massively engaged in addressing how to maintain aggregate demand while households refuse to spend and grimly pay down their debts. The first broadside was the Henry Review. Expect to see the bureaucracy push government very hard indeed to implement major structural and tax changes to fight these bitter enemies of prosperity.

Now is the time to use these great national strengths for some heavy lifting, to undertake this tax reform. It would save us from the harsh experience of Japan and the US. And we would protect two generations of our citizens from a lifetime saving string and brown paper.

Richard Koo of the Nomura Research Institute, Tokyo explains the dilemma of ‘balance sheet’ recessions in this paper, which I commend to all.

9 Comments

 

 
The City of Boroondara craves more parkland. Council wants open space within 500 metres of all residents without crossing a major road. This is a worthy objective that will improve the health and wellbeing of all, and every local government should embrace the idea.

There are a few problems.

Boroondara will have to buy land from private owners over the next 15 years.

The map of areas needing additional parklands is a speculator’s happy hunting ground. In many areas, Council will have to buy land from private owners.

Anyone with a compass could narrow down Boroondara’s buy options to a handful of lots. Buy and hold. First prize: compulsory acquisition at triple the market price. Second prize: own land next to the brand new park.

Wasteful and behavior-distorting as that process may be, the really, really dumb part is where the money is to come from.

Boroondara intends to fund the purchase from developer levies.

Council says: “Most subdivisions will be expected to pay a cash contribution toward acquisition and development of new open space on behalf of the forecast population, or else to upgrade existing open space that will be used by them.

That sounds grand. Someone else – not ratepayers, not existing owners – is paying. The devil is, Boroondara foresees less than a thousand additional new private dwellings each year. Most will be single home redevelopments, not ‘subdivisions’. So the pool from which ‘developer levies’ can be sucked is very small.

“The estimated residential population of Boroondara in 2011 is about 168,000
persons. This is forecast to grow to about 184,000 persons by 2026, a 10 per
cent increase of around 16,000 people. More than 9,000 new (private) dwellings
are forecast to be added to Boroondara’s housing stock between 2011 and 2026.”

Perhaps they plan to peel the dollars off commercial developers? No that sector is tiny too:

“Between 2011 and 2026, 170,000 square metres of additional commercial and retail space is forecast to be constructed, that would result in an increase of about 7,000 employees across Boroondara.”

This is poor economics but the political benefits are simply fabulous.

•  A small number of developments will fund parkland for all.
• Multi-unit construction will be stifled.
• The rebuilding of Boroondara’s ageing housing stock will be deflected to single-dwelling construction.
• Extra parkland will enhance Boroondara’s leafy green reputation.
• Speculators will flock to invest in parkland-deficient areas.

Existing property owners will love the City of Boroondara for keeping density down and enforcing scarcity. Every consequence of Council policy lifts land prices. All this from announcing a simple parks program.

[Highly detailed maps to plot your speculative purchases and an extensive explanatory commentary are available at
http://www.boroondara.vic.gov.au/your_council/your-say/open-space-strategy ]

3 Comments