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.