Submission to the Standing Committee on the Environment and Planning

Inquiry into the proposed long-term lease of land titles and registry functions of Land Use Victoria

June 22, 2018

To Mr. David Davis (Chair):

Prosper Australia is Melbourne-based not-for-profit engaged in research and advocacy. Our primary focus is on the political economy of land and natural resource monopolies, as well as natural and public monopolies. Our mission is twofold: to advance equality of opportunity by the appropriate regulation and taxation of monopolies; and, to ameliorate market failures and inefficiencies due to monopoly.

Potential for price gouging

It is our strident position that the privatisation of natural monopolies adds to the cost of doing business. The registry function of Land Use Victoria is a natural monopoly. There can be no market competition to the service they provide. For the private operator, there is little incentive to innovate. Unregulated monopoly power is more than sufficient to increase prices and profits.

Statements to this effect have been made forcefully by the Australian Competition and Consumer Commission Chairman Rod Sims in recent years. We support the Chairman’s conclusions that privatisation of public monopolies without appropriate regulation inevitably leads to price gouging and higher prices.

Cost of data

For organisations such as Prosper Australia, accessing large real estate datasets (i.e. valuations and sales) for public interest research is already prohibitively expensive. Any fee increases resulting from privatisation will compound this cost.

Whilst individual title searches may be regulated, what provisions are made for multiple title searches in the name of non-commercial research or journalism? Will a public interest component to any possible privatisation be permitted? Can the government guarantee continued access to spatial and title data for public interest research?

Interstate experience

South Australia and New South Wales have privatised their land title offices via long term leases. These states demonstrate potential consequences for costs and services levels of commercialised functions.

In NSW the asset sale profits were maximised at consumer expense by increasing fees several hundred percent before sale. The register was leased at a 5% yield.

In South Australia operations and data commercialisation were outsourced to a private operator in exchange for an annual service fee .The government retained the revenue stream, fee setting, and related policy controls. The lease was granted for a lengthy 40 years.

South Australia ensured the following provisions were maintained by the government:

• Continue to guarantee indefeasibility of property title, supported by the statutory assurance fund
• No change to Torrens Title or other legal status of land
• Key legal, policy and regulatory functions and responsibilities
• The Registrar-General, Valuer-General and the Surveyor-General continue to act as statutory officers
• The Government continues to set regulated fees and charges with no changes other than the standard annual increases applied
• The Government retaining ownership of titling and valuation data and associated intellectual property.
• Stringent service delivery standards, data security and privacy protections – with penalties, up to termination of the contract, for breaches
• Maintaining existing terrestrial and online access arrangements, including the Adelaide office of the LTO and over-the-counter services.

Additionally the government receives a 12.5% royalty from any profits resulting from commercialisation.

The SA deal also included a monopoly option to bid for the potential future privatisation of the motor vehicle registry and all other government registries. The provision requires either an additional seven year extension or a repayment of $80m with 10% interest per annum for a total of $104m.

South Australia’s model appears appears to be a better deal for the public (aside from its excessive length). In some ways the deals seems too good to be true. We do not know why exactly the SA government received $1.6bn for their registry, an extraordinary amount relative to the NSW deal. No information on the fee charged relative to the amount paid for the asset appears is readily available. Any other provisions and particulars cannot be scrutinised by the public due to commercial in confidence.

International experience

In Ontario and Manitoba (Canada) privatised land titles offices are run by Teranet. Land title costs soon increased by 30% to cover management wage increases. There appears to be no supporting evidence to suggest these Land Titles Offices are better run than public Land Title Offices in Australia.

The bottom-line

On the available data, the economic case for privatisation is limited.

The Victorian Land Titles Registry (LTR) brings in over $300m in revenue every year for the Victorian Government ($382m in 2016-17). It has yet to be revealed just what percentage of overall revenue is derived by the core registration and information services’ departments. We expect it is the vast majority.

Estimated revenue from privatising the LTO is roughly $1.5 – 2bn. We assume $300m in revenue and a sale value of $2bn. This puts the yield of the LTR at 15%.

To borrow an equivalent sum ($2bn) at the 10 year bond rate (3%) would cost the Victorian government $60m per year in interest. Were the government to borrow the $2bn and retain the LTR’s $300m per year revenue stream, it would save $240m per annum.

There is no fiscal rationale for privatisation; the Victorian government would be $240m a year better off if it retained the land titling function as a profitable public monopoly and issued bonds to finance spending.

Victoria should not only cease its planned sale of the Land Titles Registry. It should be buying them off other states foolish enough to sell them!

The NSW land titles register was leased at at 5% yield relative to the government’s much cheaper borrowing rate of 3%.

Prosper strongly urges the committee to recommend against the privatisation of any function within Land Use Victoria. Or if folly is to be entertained, to model the contract on the South Australian example, with shorter terms and greater transparency.

Stephane YAICH