Housing Affordability- How will the crisis end?

Alan Moran from the Institute of Public Affairs (IPA) touted earlier this year on ABC’s Difference of Opinion that Australia should subdivide more on the urban fringe to free up land and bring prices down, but according to the Land Values Research Group (LVRG) this will bring increased crime to Australian suburbs.

St Louis, Missouri, the model for the IPA’s recent recommendation to subdivide further urban fringe land, has the highest crime rate in the USA.

“We need to adapt the tax system to keep the lid on property bubbles”, Mr Kavanagh said.

“We can end the housing affordability crisis. It is achievable, if people and the government are actually willing to make changes,” he said.

“Since 1970, rates and land taxes have been constrained relative to taxes on productive activities.

“When this is coupled with the incentive given by negative gearing on the land component of investment properties, we can see that the tax regime actually encourages real estate speculation and drives land prices up,” said Mr Kavanagh.

The LVRG is the only Australian agency to collect national real estate data, and its latest report, Unlocking the Riches of Oz; A Case Study of the Social and Economic Costs of Real Estate Bubbles (1972-2006) shows that the land component of all real estate sales has escalated from 25% in 1970 to 70% now.

“We need to capture more annual land values by way of rates and reformed land taxes. It would act as a ‘holding cost’ to chase away those investors only seeking capital gains out of the market.

“Other taxes such as stamp duties, payroll taxes and even the GST need winding back to make the exercise revenue neutral, but greater public land value capture would keep the lid on escalating land values, making housing much more affordable for young people and future generations,” 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.