Saul Eslake has hit the press (p3 of the AFR – paywalled) with his submission to the Senate Committee on Housing Affordability. The submission is largely based on his 122nd Annual Henry George Commemorative dinner presentation.
Saul again reiterates his key point from the speech:
While political parties and governments professed to care about first home buyers, the reality was that they preferred to garner the votes of the 5.8 million households who sought policies that would increase house values.
With a survey last week indicating a significant change in sentiment, for the first time finding more people see rising housing prices as a negative, the change Saul is looking for is nearing.
The number of boomers taking out mortgages later in life is rising, whilst a fall in ownership levels amongst the young was a key point in the recent census.
Rising property prices place us all in greater debt. However, for too long the government has placed the policy reforms needed in the too hard box. We ask – if paying our weekly rent is our first financial priority, why isnt’t it the government’s first economic priority to keep rents low?
Eslake again mentions the need for a broad based Land Tax. Whilst not his only policy prescription, it is good to note how far this term has travelled in economic analysis. Many people have now heard the point enough times to be investigating what this magical tax can do.
At present, neither party advocates the tax code so elegant it can reduce inequality, mitigate poverty, stimulate productivity, prevent asset price bubbles, stem community-shredding gentrification and drain the distended Wall Street cabal of its ill-gotten gains – in just one tax.
In short, Land Tax ensures that our most precious resource, land in prime locations, is used for productive (rather than speculative) purposes. It is simply a holding charge on land. If a Land Tax is implemented at a significant rate, the highest and best use of land occurs.
However, the reality is quite different. With the low level of taxation upon the windfall gains in land, it is no wonder that investors constituted 38.5% of housing loans in Nov 2013. This is significantly higher than the 12% average in the mid 80’s. The encouragement this provides to investors leads to thousands of empty homes held for speculative gain, as our Speculative Vacancies report has continually identified.
A significant cut in income taxes could be offered if those concerned by rising debt levels and the expanding wealth gap were willing to talk more vocally about the need for Land Taxes. That day is nearing!
The Senate deadline for applications is March 25th. Here are the terms of reference.