Palatial Profits

Speculator - Madrid Abierto
Creative Commons License photo credit: eb0la



An interesting read in today’s Age: Palatial Spreads Kept Empty? That’s Rich

Ghost mansions and land banks are sometimes held by those planning a tennis court or swimming pool. Other people are waiting for their children to grow up. Many are speculating that the price of Toorak land will only rise.

“Some of the houses we look after, they don’t even want to rent them,” Mr Savas said. “They don’t want the hassle of a tenant.”

And that’s the rub of it. The capital gains are so great, the economic incentive to rent out the right to a roof over our head is written off. The defensive maneuver to snap up a neighbouring property is also a deft tax shelter. Titles are merged and as principle places of residence are exempt from Land Tax, the tax gain the Solomon Lew’s of the world benefit from is more per annum than what many earn in a year. This is manifested in a higher land valuation for the property.

From this comes the ability for investment loan re-financing as the leveraged value of the location increases. Thus the wealth gap. Thus the urban sprawl.

“As far as investment goes, land in Toorak is as good as you are going to get, and it’s probably the only suburb you see land banking except for in outer Melbourne.”

Talk about a defensive move by the real estate lobby – take a drive through most major new developments or any former government land sold to developers to ‘improve land supply’, and you will see vast tracts withheld to drip feed to the market such that land and housing prices are kept high.

Imagine if a restaurant could remove 1/3 of the food off it’s menu and force people to beg prices upwards? Land is the only monopoly where this can happen.

Why does the tax system actively support this?

2 Comments

  1. jmills14-07-2009

    Vacant housing is pretty common in Australia. The ABS stat’s from the census show 9% of all homes are vacant, or 830 000 homes say and average of 2 bedrooms that equates to housing for 1.6 million people. Holiday homes are not that common as it would equate to 20% of the population has a holiday home.

  2. Karl Fitzgerald16-07-2009

    Well said! It’s great to see more and more people focusing in on the speculative vacancies. How do we usher them onto the market? check http://www.prosper.org.au/2009/02/12/a-betterment-levy-a-cure-to-current-ills/

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https://prosper.org.au/2009/07/14/palatial-profits/