Property Supply Magic
As published in yesterday’s Online Opinion
As if out of thin air, a magical 46 per cent more property was offered for sale in February than a year earlier. Like the heavens opening after a long drought, desperate first home owners must have been thanking their lucky stars.
Let’s repeat that. Forty six percent more property appeared on the market, according to SQM Marketing. This is a staggering fact. We have been led to believe time after time that there is nowhere to live. Suddenly, almost 50 per cent more properties have hit the market in a few weeks. Where did this mystery supply come from?
The speculative hotspots of Darwin, Perth and Melbourne showed the largest increases in auctionable property.
Point Cook in Melbourne’s western growth corridor sold 780 properties for the whole of 2010. At present, more than double that amount (1596 properties) have been on the market for over two months in that suburb. Craigieburn, another growth area, has 624 properties that have been on the market for two months or longer but only 550 properties sold in 2010.
In Melbourne, the Valuer-General conservatively estimates that the well-educated markets of South Yarra fell 28.8 per cent and Hawthorn 24.6 per cent in the September 2010 quarter. Less savvy first home owners, unaware of the changing market conditions, willingly paid prices 47 per cent higher than just 3 months earlier at Williams Landing, west of Laverton.
The divergence between wages and land prices is crucial to the affordability question and the reality of what to pay. Compared to GDP, wages fell 1.4 per cent while land prices rose 20.8 per cent in just the last year according to Dr Gavin Putland of the Land Values Research Group.
Those in the know knew that the market was turning and rising prices could not be afforded forever.
With conditions changing quickly, Prosper Australia launched a Home Buyers Strike warning now is not the time to buy a house. With young people in racked up to their eyeballs with HECS, car and credit card debt, they don’t need to enter the Great Australian Dream just as it turns into a nightmare. For middle aged workers who have spent even longer locked out of the housing market, the importance of buying at the right time is compounded.
The Buyers Strike took off like wildfire on housing bubble blogs and in the GetUp community, where it quickly became the people’s number one campaign idea. It’s not hard to see why.
In April 2000, the average First Home Buyer’s loan was $134,000. By January 2011, this had all but doubled to $266,700. We can thank the halving of capital gains tax, the first home owners grant (the seller’s subsidy) and negative gearing for this abrupt price distortion.
The monopoly nature of land is forcing both husband and wife to work 25 years to pay off a mortgage on a low quality ‘starter’ home.
Recently Dr Bob Birrell announced that only 30 per cent of urban fringe lots were in the affordability range.
But one can drive through any decade-old estates like Caroline Springs and still see vacant lot after vacant lot. They sit there innocently on most streets as battlers drive past them in a mad rush to get to work.
Some say the Australian housing bubble is different because China is hand delivering billions in export earnings. Some of the highest returns for property investors have been in mining towns, forcing locals out and ensuring that mine workers pay upwards of $2000 per room per month.
Nobody is spared the power of the landlord to extract their pound of flesh.
In 2007 Prosper started evaluating genuine housing vacancy rates. By 2008 we were analysing land usage via water consumption figures for 6 monthly periods. At the time the public was told that there was a 0.9% vacancy rate in the Melbourne CBD. This widely quoted figure compares advertised rental property to total housing stock.
Our I Want to Live Here report found a 7 per cent genuine vacancy rate (2008) by including speculative vacancies. With possible rental returns at $17,000 but capital gains jumping $100,000 in some years, there was little motivation to put a recently renovated property on the market to risky renters.
A similar study by the State Grid Corporation of China surveyed 660 cities, finding more than 65.4 million residences had electricity readings of zero over the past six consecutive months.
One suspects that our China based mining boom has shaky foundations. Our iron ore is being plundered to build Chinese apartments whose prime purpose is for speculative Ponzi trades.
Lloyd’s Bank, bailed out after the 2008 Global Financial Crisis, has recently inspired 5 British local councils to offer £70,000 handouts to new property buyers (a la the First Home Owner Grants). As has been widely observed, if everyone gets £70,000 then the price of land goes up at least £70,000 – in effect a sellers subsidy.
Does anyone care about those young people who take the bait and sign up to a 25 year mortgage at just the moment land prices are turning? Have our business leaders, those for whom the public so trusted with massive bailout packages in the north, learnt anything? Has our government done anything to curb the same behaviour that destroyed so many lives in Europe and America?
Economics is barely taught at the secondary level. For many it is too confusing to understand. That is exactly the plan. Young people need to be warned about the market forces that have commandeered their life’s investment, the land upon which their house stands.
Up to 500,000 people protested in London (26/3) over the cuts to public services imposed by the Cameron government. Many were incited to protest when a report from www.thisismoney.co.uk/havens came to light showing the widespread use of tax havens.
BHP uses 24 tax havens, Rio Tinto 18 and Xtrata seven tax havens. These were just some of the many to dodge paying their fair share of the tax burden. The euphemism used by the tax industry is ‘asset protection’.
The Henry Tax Review pointed out that in an internet savvy world, capital flight is only a click away. The one thing that cannot be hidden is nature’s bounty; land, the minerals under it and the electromagnetic spectrum above it.
State and Federal governments must reform the tax incentives layered around housing investment. That vile impost – Stamp Duty – should be abolished for a higher and flatter Land Tax with a zero threshold. Negative gearing should be abolished. Capital gains tax on housing investments should also be reduced in favour of a better Land Tax, improving the velocity of the land market. The FHOG should be banished, never to return.
Land Value Tax is impossible to evade, minimise or avoid. Secret bank accounts in Bermuda are of no help.
Land Value Tax on a quarter acre block in the inner west of Melbourne costs barely $300 each year. When capital gains are in the tens of thousands of dollars a year, the motivation to put land to its highest and best use pales against a little lazy land hoarding. A land banker can afford to simply go to sleep and wait until buyers come knocking.
Take 25A Edwin St, Croydon, Sydney. The property has been on the market for over 1000 days. In that time the demand for housing in Sydney continues to go up and the vendor has increased his price from the original $898,000 to $1,120,000. In any other market, sellers would have to reduce the price to sell it. In land and property, the seller can with-hold it for as long as they wish at little cost.
The land of plenty for some; 2 minute noodles for the rest.
This is not the free market we were brought up to believe in. Don’t Buy Now. Join the Buyers Strike.