It must be a drag to be irrelevant. The GFC has actually passed.
The property bubble isn't a bubble its a long term problem created by our failure to develop satellite cities to our major cities.

WTF?

With a 0.4% Debit tax all other forms of taxation could be eliminated.

Regional consolidation would definately have helped - but would need to have been accompanied by interventionist industry policies aimed at creating jobs to sustain communities.

Urban consolidation within capital cities could also have made a difference. Already, for instance, there has been a surge of new people making the Melbourne CBD their home...

But this would need to be accompanied by policies supporting 'hubs' surrounding the city centre... In the case of Melboure again - think, for instance, of Box Hill...

To work, though, this also requires investment in infrastructure - especially public transport... And intervention/incentives to encourage development within these 'hubs': not just the city centre...

If this was accompanied by massive generational investment in public housing (think maybe $15b or more - I don't have solid figures to draw on) this would have a significant effect on housing supply... The most vulernable could have quality housing. And other Australians, excluded because of skyrcoketing prices in a tight market, and following on from a speculative bubble, would find that it was finally affordable to provide a roof over their heads - and for their families...

But all this requires active industry policy, and massive investment in infrastructure, including public housing... Even Labor's not likely to come up with the goods, here - but we have to pressure the Federal government and state governments to have a hope... And we won't succeed if we don't try...

WTF?
I have said this all along, only, I call it a 'transaction tax'. But, as usual, big business just won't cop it!

"WTF" and "rehctub": The best thing about the debit tax or transaction tax is that it has absolutely no chance of being implemented, because even mainstream economists understand that it's a dud: http://www.prosper.org.au/2005/11/07/critique-of-the-debits-tax-and-turnover-tax/ .

Tristan Ewins: Housing is unaffordable because the tax system rewards property owners for hoarding land but punishes them for building dwellings and seeking tenants or buyers. It should be the other way around; see http://www.prosper.org.au/2010/03/10/opportunity-has-a-name-its-called-land/ . The same reform would give governments the ability and the incentive to invest in infrastructure, especially public transport, because (at least) some of the uplift in land values caused by the infrastructure would be captured as public revenue; cf. http://lvrg.org.au/ .

If urban property owners (i.e. most voters) are to tolerate higher density, they will need to see it as a magnet for infrastructure that enhances their property values. But this in turn requires a viable method of financing the infrastructure.

grputland>> Housing is unaffordable because the tax system rewards property owners for hoarding land but punishes them for building dwellings and seeking tenants or buyers. It should be the other way around;

I think you may be confussing 'property owners' with 'developers' as, if a property is purchased and not producing an income, then there are no allowable deductions, including interest payments as 'deductions' are offset against income received.

Now if you are referring to developers, just be thankfull that they have the balls to take massive financial risks, otherwise, there would be no land available at all.

One major problem facing developers who 'land bank' is that they face the risk of having their land 're-zoned' and effectively 'locked away' by some government wanting to be seen as a 'greenie'.

Now if a 'land banker' has say 30% of his stock 'locked away', then he must recoup his losses by charging extra for what is left.

Increase the risk, the price goes up.

If the government, or any other interested body wants land preserved, then BUY IT!

I have seen first hand where farmers have worked land for 30 years, thinking one day they can develop and retire, only to have the government put some 'urban footprint' over it, essentially making it worthless.

Now as for the transaction tax, I will read your link when I get time.

Your erudition is impressive, Mr. Kavanagh! Perplexing though is that you make a living out of real estate exchange and your business is a determinant of what you coldly call Global Financial Crisis.

You are at one with the army of estate agents who under the command of the ‘Real Estate Institute of Australia’ constitute the greatest burden that has pushed and, unabated, continues to push this country into Financial, Cultural, Social and Moral decline.

You are at one with the bureaucrats of the Australian Competition and Consumer Commission to whom nobody has yet told who pays their salaries and why.

You are at one with the prevailing political corruption that pervades every institution we depend on.

You are at one with the media barons who continue to make packets serving the property speculators.

You are at one with the bankers who care little of what their profit making cause to all of us.

Mr. Kavanagh! If estate agents had continued in their independent business, and Monopoly of service had been denied to the Real Estate Institute, could they have driven us into the present degree of homelessness?

Can you imagine, Mr. Kavanagh, what this army of estate agents that for thirty years have wasted their energies wrapped in expensive suits, driving luxury cars and pushing old people from their home into a bank account could have done to their life and to the life and people of Australia, if they and you had worked in productive jobs?

They and you would have spent a saner and more rewarding time and this country would have been a fair one.

"rehctub" wrote:

"... if a property is purchased and not producing an income, then there are no allowable deductions..."

Wrong. You can claim negative gearing on a vacant property as long as you pretend that it's available for rent. The 50% discount on capital gains is even easier to get.

"rehctub" then defends land bankers as if the availability of land depended on them, when in fact the land existed before land banking was invented and will continue to exist if every land-banker goes belly-up. Why does the land have to be banked? Why can't it simply pass from one use to another? Why shouldn't developers be rewarded simply for development? It doesn't, it can, and they should.

Land banking, if it has any effect at all, is just another example of locking up land.

"skeptic": Your diatribe against Mr Kavanagh proves only that you don't know the difference between a real estate AGENT and a real estate VALUER.

As a valuer, I carry no brief for real estate speculation or land monopoly, Sceptic. For that matter, I'm not sure that all real estate agents are as you paint them, either. The problem lies with a tax system that fines doers and rewards speculators.

You seem to miss the point that if we were to revolutionise the tax system by a switch in emphasis from taxes on productivity, employment and thrift to the holding of land - by higher taxes on land values - we might finally put paid to these repetitive real estate bubbles that inevitably lead to recession.

IMO, we'd also arrest the drift to the big cities that was mentioned earlier. As the annual land value tax (LVT) payable would be lower in regional cities and towns, we might actually reverse the drift, in much the same way that Tasmania recently attracted population growth during the bubble by having relatively cheaper land prices than most mainland locations. An annual LVT would greatly emphasise this effect.

With LVT as a more significant revenue base, the government would find it had a far greater commitment to infrastructure projects which it could fund by capturing more of the increase in land values that these projects would endow. It's quite wrong that private interests are currently allowed to capture virtually all of these publicly-funded uplifts in land value.

WTF?
grputland’s link refers mainly to a turnover tax – this is essentially a GST and not a debit tax.

grputland’s link also reveals this little gem; “a debit tax encourages further avoidance techniques such as paying cash, avoiding purely financial transactions, and processing transactions through offshore financial institutions.”

Just as well the GST did away with paying cash for goods and services – no cash economy now.

Barter systems do exist as a fringe economy – always has always will.

It’s 2010 – the computer age – legislate against the use of offshore financial institutions as a tax avoidance measure.

grputland link takes us to an article that he is the author of and implies that he is therefore a “mainstream economist” - which he is not

Dear "WTF",

You mentioned debit tax. "rehctub" mentioned turnover tax as if it were the same thing. My article (http://www.prosper.org.au/2005/11/07/critique-of-the-debits-tax-and-turnover-tax/ ) mentions both and explains the difference. What's the problem?

In any case, a turnover tax differs from a GST in that the former taxes turnover and the latter taxes value added. Both enter into prices, but in different ways, with different distortionary effects.

My article does not suggest that the GST does away with the cash economy. It mentions the GST only once, and only in connection with the influence of tax on prices.

However, the article DOES use arguments that mainstream economists would use. That's why I mention mainstream economists. Introducing the article with a put-down like "...even mainstream economists understand..." makes it sufficiently obvious that I am not myself a mainstream economist -- unless you are determined to misrepresent me any which way you can.

And while it may be possible to "legislate against the use of offshore financial institutions as a tax avoidance measure," there is no need to legislate against exporting land as a tax-avoidance measure.

grputland >>
Wrong. You can claim negative gearing on a vacant property as long as you pretend that it's available for rent. The 50% discount on capital gains is even easier to get.

You simply can't rent a 'vacant house block' and, considering your comment was aimed at 'housing affordabillity', this must be the type of land used as a reference.

As for 50% CG discount. There are no secrets there.
>>rehctub" then defends land bankers as if the availability of land depended on them

Land banking is a term used by developers which essentially involves the purchasing of large areas of land, then waiting until progress allows for 're-zonning'. Usually requires 'large kahoonas'.

The problem today is that nobody can predict what changes our 'cash strapped governments' will make tomorrow, let alone in five or ten years time.
Furthermore, many developers prefer to buy land with 'DA's in place', hence, the rising costs of developed land, as thier acquision costs are much higher.

>>Why does the land have to be banked?
Refer to the above.

>>Land banking, if it has any effect at all, is just another example of locking up land

You are very ill informed.

>>rehctub" mentioned turnover tax as if it were the same thing

Wrong, I mentioned a 'transaction tax', which is a tax impossed on all financial transactions, they being, any 'debit/credit' into a financial institution.EFTPOS included. Nothing like a GST.

Now as for the GST, well, this tax actually strengthened the 'cash ecconomy' as many tradies, rather than doing a job for less for cash, simply deduct the GST which means less need for negotiation on thier part.

Now if the average punter could claim the GST, or at least a reasonable portion of it on all repairs to their home/appliances/car, I think this would do away with most of the 'cash ecconomy' and force many of the 'dodgy tradies' to pay taxes, both income and the GST.

Who knows, we may be better off in the long run.

Apologies for misinterpreting rehctub. Reasonably or unreasonably, I mistook "transaction tax" as synonymous with "turnover tax". So my comments on turnover taxes are irrelevant.

Unfortunately rehctub has also misinterpreted me. In my statement that "You can claim negative gearing on a vacant property as long as you pretend that it's available for rent," a "vacant property" must include a vacant dwelling; otherwise you obviously can't pretend it's available for rent. That meaning is perfectly consistent with my concern about housing affordability, because the failure to put vacant houses on the rental market is part of the problem.

Re "many developers prefer to buy land with `DA's in place'", and the effect on acquisition cost: If the current owners had to pay more land tax, they'd be in more of a hurry to sell, and the developers would get the land cheaper. And then the developers would be paying the land tax, so they'd be in a hurry to develop and sell, and housing lots would be cheaper, even if home owner-occupants remained exempt from land tax. (What if they paid land tax too? Then there'd be a trade-off between the land tax and the [interest on the] purchase price.)

But I'm glad we agree that the GST doesn't stamp out the cash economy and that evasion could be reduced by allowing retail customers to claim some sort of deduction; see my last article on OLO (http://www.onlineopinion.com.au/view.asp?article=9813&page=0).

grputland
Housing affordabillity is really linked to 'availability of vacant building lots', sure, there are those 'empty houses', but in reality they account for a very small %.

Now as for 'land tax'.

My land tax bill was about 1.45%, which, on the grand scale of things is 'chicken feed' when developers are holding land at say '$1000/ac' with a view to returning up to $400K per 300m2 lot. It is simply another expense that gets passed on to the 'eventual buyer', which in turn makes affordabillity more of a problem.

Now if governments were to develop 'crown land', then allow people to 'rent' this land, at a moderate rent and, build their home on it, then we would go a ways to addressing the affordabillity issues.

Remember, this rental income to the government would go on forever and a day, as the homeowner never owns the land, only ever the home, which they can sell, so the land remains an 'income producing assett' for the goverment and never gets sold.

Many people can afford $150K, $200K, or even $400K, for their house, but it's the $200, $300 or even $600K for the land that breaks the camels back.

A quick calculation is say $20K per lot to develop (red tape removed) and, at $2000 per year rent, that means a return of 10% and the land is paid off in 10 years. After that, it's just about all profit.

Perhaps some money can be taken from the 'future fund' for this?

10,000 lots at $20,000 =$2,000,000,000. Is that $2 billion? To many zeros for my small brain.

Now after ten years, we receive a healthy income of about $20 million per year, without indexation.

Can this work?

Dear "rehctub":

Yes, empty and unavailable houses are a very small percentage of the overall stock. But if (e.g.) 1% of dwellings are empty and available for rent, and if (e.g.) another 1% are empty and unavailable, forcing the latter onto the rental market would double the vacancy rate, making a big difference to renters.

That said, the percentage of empty dwellings can be much higher in particular suburbs. For example, the statistical distribution of per-property water consumption indicates that about 29% of properties in Carlton South are unoccupied (http://www.earthsharing.org.au/2009/11/25/i-want-to-live-here-report-2009/) -- and presumably that 29% isn't all "bombsites". (Unfortunately the methodology doesn't automatically distinguish between vacant lots and vacant dwellings.)

Yes, the present land tax is only a small part of the system. But no, the land tax paid by the developer isn't passed on to the buyer, because (a) it reduces the price initially paid by the developer, as a tax on holding land reduces the attractiveness of holding it and therefore reduces the market price of acquiring it, and (b) in any case, you can pass on a cost in a sale price if delaying the sale delays the cost (as with sales tax), but not if delaying the sale causes the cost to keep accumulating (as with land tax).

Now concerning your most interesting suggestion:

Yes, a system in which you own the house and rent the land from the Crown can work, at least in the economic sense. And while I think you have one-too-many zeros, such a system automatically pays for infrastructure in new residential estates, because any infrastructure worth building increases the value of the land by more than the cost.

[Continued...]

[...Continuing]

The problem is whether the home owners would tolerate such a system in the long term. Initially, the rent on the land will be much lower than the interest on the price would be. But in the long term, the rent rises whereas the interest would shrink. In a system in which government is entirely funded from the rent of land, the owners would readily tolerate the rising rent because they wouldn't have to pay tax (which, like the rent of land, tends to grow as a percentage of GDP), and because their rents would not be inflated by the effects of land speculation. But when a land-leasehold system is imposed without such wholesale tax reform, the rent is payable on top of tax, and it all gets a bit hard to take.

A politically acceptable solution would be a system in which some people pay rent to the government but not tax, while others pay tax but not rent, with reasonable mobility between the two groups. Whether that could be made to work is a question for another day.

grputland,
You are missing my point. The land costs 'nothing', the 'red tape' can be watered down to nect to nothing. The net result would be lots at around $20,000.

Now with CPI increases, on both the lot value and wages, there is simply no way the taxes/rent on these lots could become unafordable, as they are costed at about 7 to 10% of market value and always will be.

10% interest on $20,000 is next to nothing compared with having to buy freehold land, then build a house. I am sure the government could borrow money at 5%, then earn 10%.

Now my calculations show that without increasing the $2000 rent and, keeping the intrest on the borrowed funds at 5%, then the land would be paid off in 15 years, then for ever and a day these lots would be making money for the government and helping first home buyers to get started.