Tax System Encourages Asset Bubbles

Property bubbles creating unaffordable housing and recession

A study of 34 years of the Australian property market has resulted in a 28 page report, Unlocking the Riches of Oz: A Case study of the Social and Economic Costs of Real Estate bubbles (1972 to 2006).

Bryan Kavanagh, Director of the Land Values Research Group (LVRG) has identified that rises and falls in the economy follow those in the property market by 12-24 months. (pg 14).

The revelation makes it possible to forecast economic booms and busts and puts pressure on government and industry bodies to curb the excesses of the property market.

The LVRG has been the only body in Australia to have aggregated national real estate sales figures since 1972. Its analysis demonstrates the role of taxation in inflating unsustainable real estate bubbles.

The report suggests that high land prices and taxes are undermining Australia’s social and physical infrastructure, and the LVRG’s barometer of the economy indicates major recession by 2010.

“Greater land value capture and less taxation would keep the lid on property bubbles, which have a habit of bursting,”

“It would also discourage speculation and provide cheaper residential land for developers and home buyers,” said Mr Kavanagh.

The report suggests that the deadweight costs of high taxes and land prices have created a false wealth effect whilst shaving $1 trillion off 2006 GDP.

The LVRG’s barometer of the economy identifies Australia’s economic problems and points the way to more affordable housing and sustainable economic growth.

“We should be examining the revenue option of greater financing of government from the rapidly increasing fund of publicly-generated land and natural resource rents.

“Property booms and busts are not a stable environment for businesses, individuals, developers, nor GDP growth. We need a stable property industry,” he said.

Unlocking the Riches of Oz: A Case Study of the Social and Economic Costs of Real Estate Bubbles (1972 to 2006) is available for $10.00 (inc-GST and postage) from Prosper Australia, 27 Hardware Lane Melbourne.

Phone (03) 9670 2754 or e-mail office@prosper.org.au with address and credit card details.

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https://prosper.org.au/2007/05/29/tax-system-encourages-asset-bubbles/