The real issue forcing land prices up are the huge economic rents available to land speculators. The constant attack on State Land Taxes ensures a continuing trend for such taxes to be weakened, sending the signal to the marketplace that hoarding land is appropriate. With Jeff Kennett’s move away from Site Value rating to Capital Improved Value (CIV) rating, land speculators can invest in land, sit on it and wait for property to naturally grow in value. The combination of these 2 factors has seen a growth of vacant land in inner urban areas in Melbourne. The reduced supply of land from this speculative trend would apply greater pressure than Melbourne’s 2030 boundary. The huge upward trend in land prices happened well before the 2002 announcement of 2030.

This trend surely started with the 96 Negative Gearing reforms and was enhanced by the halving of Capital Gains (2000). A combination of these policy changes have given speculators free reign around Australia. A decent holding charge on land is needed in the form of a well designed Land Value Tax, as Julian Disney recently commented on. Why should investors be encouraged to make ‘unearned’ speculative gains rather than profits from productive activity? Who really gained from the First Home Owners Grant? Removing Developer contributions, whilst not an ideal policy, would further enhance those already dominating Australia's Top 10 wealthiest.

More urban sprawl with such trends in petrol pricing? Is that what we really want? Philadelphia's phenomenal turnaround is evidence of how effective a decent holding charge can work in encouraging infill development

My first home was puchased for $11,000.My income was $60 per week and I had saved half deposit.
Three years later I purchase a second home for $20,000. within months that home was worth $25,000
The reason for inflation was international spectulaters.
To day the federal government is forcing prices up with negative gearing plus allowing overseas investors into the market

Property in Australia is over valued by far leaving a massive drop to be felt when the time comes. At this time, the earth will break open leaving many people falling down an abyss of created by greed.

One can blame governments for the price of land but not fully. The baby boomer generation have gone to all lengths to buy up one property after another. They ways they go about this should be illegal.

For example, I was speaking with a fella in late 2004, said that he was thinking of no longer being in the Rent/Buy system of houses. He said that he buys cheap houses but due to Sydney investors, he can nolonger compete with them as they offer about $50,000 on top of the going price without even looking at the house.

This has driven up the value of houses in Central Queensland by so much that many who were saving to buy their home, can nolonger afford to. Instead, are forced to stay in the rental market which has also begun charging exorbitant amounts.

There are also those who are now dipping into their retirement investments to survive this market that Howard tells us is fantastic. My Landlord has to sell this house now because of the local council who increases the rates massively every year without returning anything, the increase in interest rates, other expenses going through the roof.

When this bubble bursts, the fall will be bigger than that felt by Keating's "recession we had to have". It is only being held back by the increasing welfare payments being handed out to the middle class for without it, the middle class would become the lower class or homeless.

Alan Moran is partially right. He correctly claims there is a disparity between supposed wealth levels and savings levels, most of which is due to a monstrously artificially high price of land.

However he is incorrect to assume that this is entirely due to stringent zoning rules which reduce the supply of land. This does indeed play its part. But the other factor has been the ill-considered reductions in land tax by the State government and moves from rates derived from site rental to capital value by local governments.

Both of these actions punish people who are productive, constructive,
improve their homes and provide employment. They encourage investment in land over labour and capital, with not one new job created or one new good or service from these so-called investments.

Who can seriously be surprised at the results?

This notion that high home prices due to state goverment land rationing is gaining a lot of traction is conservative circles.

It's misleading. Federal policies are more important to house prices than state policies.

House sales are dominated by established housing, and new houses are a small factor in the overall market. The proportion of new homes bought and sold and their relative scarcity is not an important factor in house prices - it's old houses that are the main game.

House prices are subject to rise and fall, but the long term trend is a rise in excess of CPI. Why? It's because Federal government taxation policy encourages private property investment, contributing massively to demand and forcing prices up = largely at other taxpayers' expense.

The latest steep rise in house prices on the eastern seaboard from 2001-2004 can be traced directly to 3 Federal Government policies - the halving of capital gains tax in 2000, the introduction of the 1st home buyer's grant, and the maintenance of negative gearing tax advantages for private property investors. This led to the situation where by 2003, there were an unprecedented 1 MILLION property investors in Australia. They included taxi drivers, cleaners, people who could not really afford it, helped into the market by low interest rates and urged on by the burgeoning investment advice industry telling baby boomers how to plan their retirement.

Result - overheated market reaching unaffordable levels resulting in inevitable stagnation and decline in prices. People mortgaged to the hilt, unable to get out without a loss, now being attacked from behind by interest rate rises fuelled by Howard's ill-advised tax cuts. First home buyers still priced out despite the grant which has done nothing but help fuel price rises.

No wonder Howard and his apologists want to blame Labor state governments for the mess that is the property market - but if you want to lay blame and look for a solution, look to the Feds first.

Land releases are a small and insignificant cause of rising house prices.

There are three vastly more significant causes, all the fault of the federal government:

1) Ridiculously generous CGT benefits for housing investors/speculators.
2) Negative gearing, even for existing houses.
3) Interest rate increases.

1 and 2 completely distort the allocation of capital whilst 3 increases the cost of capital.

1 can be fixed by removing favoured status of capital.
2 can be fixed by allowing time-limited negative gearing for new homes (say 3 years).
3 can be fixed by voting out the Howard government.

Skellett - you said much the same as me, but more succintly. Thanks - a lesson for the verbose like me.

There are some well-informed comments in response to my article. Brock and Lev PK and Skellett point to factors other than government created land shortages, in particlar changed income taxation arrangements.

I agree these have had a major impact but such changes have been seen elsewhere. While they may reduce some people's real cost of investing in housing, houses like other commodities only exhibit price increases if supply cannot be increased. The reason why places like Houston or Atlanta have not seen massive house price increases in the face of very substantial increases in population (especially in Houston where the influx from New Orleans was absorbed without a real estate boom) is because there is plenty of land available for housing. The authorities in these municipalities do not ration land available for housing or try to impose their own preferred development patterns, preferring instead to allow consumers to choose.

Alan,

Your statement that, "commodities only exhibit price increases if supply cannot be increased" is only true if demand increases.

My point is that the federal government has artificially increased demand, and therefore generated price increases, by implementing policies that favour speculation in housing - particualarly existing homes.

We should focus on the big factors that affect housing affordability - the CGT, negative gearing, interest rates - and hold the Howard government accountable for its failure in these areas.

Once these factors are addressed, we can then think about land allocation.

Skellet,

I have no difficulty dressing any market distortion (though I don't agree all those you name are distortions). The point is that increased demand only has an effect on prices if supply is restricted. Because there is a range of regulatory regimes in the US it provides comparative data on which this can be tested empirically. A study by Glaeser, Gyourko and Saks found that a 10 per cent increase in demand led to a $5000 increase in house prices in those areas that did not ration land Australia-style but $60,000 in areas that do have rationing.

Alan

Land tax has gone down? You're joking right? Last 8yrs my land tax assessments have nearly quadrupled, sans additions.

Scarcity of land drives up land values? "Buy land, no one's making it anymore." Its not land per se that drives land values, rather the creation of habitable building allotments. When a house gets dozed and replaced with say 3 units, 2 new titles have been created and added to supply. When a 100 unit high rise goes up on a vacant site, that has just increased supply substantially.

Main driver of rising property prices is... easy credit. Central banks are pumping money supply with cheap and easily accessible credit. Had to do something lest the house of cards come crashing down when the schlock market melted down in 2002/3.

Property market driven by credit. Increase supply of money and that increases demand for property (and almost everything else that isnt cheap, easy or commoditised).

Its inflation... which is not rising prices (effect) but rather the expansion of money supply (cause).

Global trend for a couple decades is away from urban sprawl towards increased urban density. Chopping up old cow paddocks 30km out from the CBD puts large and expanding pressure on ecosystems, infrastructure and budgets. More sewerage, drainage, run off and polution place much pressure on urban communities. Its unsustainable.

Established metro areas werent built to cope with the increased demands created by medium to high densities. There's congestion, pollution, flash flooding from all the extra run off going into 100yr old drains not rated for more than 1 in 5 yr flooding.

Bit of a mess out there.

3% rental yeilds are pure madness for investors and marginal for speculators. Great for renters tho. Cost 2-3 times as much (interest, outgoings, maintenace and repairs) to own as it does to rent. Renters are sitting pretty as owners are subsidising them in the hope of price growth.

Methinks, Howard is flagging possibility of bringing foward land release for rezoning to residential. Might be time to go sniffing about the metro fringe for a potential windfall.

Alan Moran “The excessive costs are purely due to government rationing of land. Many areas around the world, including some of the fastest growing municipalities like Houston, Atlanta and many other US cities as well as some slow growing areas (most German cities) have no such rationing. The outcome is flat real land prices in these places.”

Good observation Alan.

Skillet

“1) Ridiculously generous CGT benefits for housing investors/speculators.
2) Negative gearing, even for existing houses.
3) Interest rate increases.

1 and 2 completely distort the allocation of capital whilst 3 increases the cost of capital.

1 can be fixed by removing favoured status of capital.
2 can be fixed by allowing time-limited negative gearing for new homes (say 3 years).
3 can be fixed by voting out the Howard government.”

1 Wrong, the calculation for capital gains tax on housing is the same as any other form of investment.

2 Wrong, the calculation for income tax and consequent negatoive or positive gearing outcome on housing is the same as any other form of investment.

3 Vote for labour and interest rates would be going up a percentage point at a time, not a ¼ point.

Oh and since state land planning is a matter of state planning decision / policy and since state governments are currently in the hands of incompetent socialists, voting out the labor dullards will more directly impact the housing market without change to our superb team of federal liberals and nationals.

Finally, the “allocation of capital” should be left as a decision of the individuals whose capital is at risk. Like
Alan Moran stated, where socialist meddling in land supply is absent,” The outcome is flat real land prices.”

Col Rouge, you seem to miss the point that investment in the private property market is distorting the market in which owner occupiers are also competing. This kind of effect does not occur in other sorts of capital investment as far as I can see. Therefore, the Federal Government's CGT and Negative Gearing policies DO have a critical effect on the cost of land and housing for home buyers, by encouraging property investors, as Skellet and I quite properly point out.

If, as you say, the allocation of capital should be left in the hands of investors, presumaby you would support removal of tax-favourable status for all investments so that investors can take their risks without the support of taxpayers. It's a form of welfare for the wealthy, isn't it? I speak as an investor myself.

Alan, it should be possible to sort out who is right about the effect of government policy on property prices. Make a graph of Sydney property proces since 1980 and plot along it interest rates, changes to CGT, immigration rates and land releases. That should do it. I suspect that Skellet and I will be proven right about the causes of this latest property boom 2001-2004.

“The excessive costs are purely due to government rationing of land.”

Not “purely” by any means Alan. What do you expect governments to do – not ration land? Should it be a virtual open-slather, with as much land being released and transformed from bushland or farmland into housing estates as is required… with no end in sight?

Governments SHOULD be progressively making it harder for new urban areas to be developed, so that an overall limit to the size of our cities can be reached, instead of a continuous unending sprawl.

What about the other half of the deal here – the thing that drives the demand for more residential land?

Population growth - both our very high immigration and the ridiculous bribe to raise our fertility rate can be just as easily blamed for rising property values as the tightening up of land releases. We need to work on reducing the demand for land and houses, not just increasing the supply.

Now if governments weren’t in bed with developers, they could very easily implement the right sorts of policies that would see the hording and profiteering from land outlawed or strongly disincentivised, and would bring house and land prices down to a level that is equitable. In recent times we have seen policy shifts in the wrong direction, which have favoured the rich and have come to severely disadvantage not only the poor, but also the average income earner looking to secure their own home.

The core of the issue is twofold – the absurdity of high and endless population growth in this time of heightened awareness of sustainability and resource-stress issues, and the terrible lack of independence of government, especially from the big end of town.

Treating property investments different to other investments? Some consistency and basic equality in financial markets is necessary to avoid 'distortions.' Why an investor shouldnt be able to claim a loss against other income, like evertyhing else, is baffling.

Investors arent being subsidised by way of negative gearing... renters are. Owner carries most of the load. Taxpayer carries the rest (up to owners tax rate). Investors tip in a large up front tax by way of stamp duty and ongoing council rates.

When the property is sold... more tax to govt. Sounds good, on the surface, that CGT gets a 50% exemption. Its not so good for long term investors (majority) as it only takes about 15 yrs before inflation eats into the exempt component. Around 3%pa inflation for 15yrs before the old indexing system gives better result. Ignoring doctored CPI and looking at actual bills, its about 10 yrs before inflation punishes the investor on a post CGT basis in real terms. General exemption eventually conspires to rob the punter thru inflation... favourite trick of govt to reneg on its obligations.

Investors driving price distortion? 70% of property is bought/sold by owner occupiers. The remaining 30% by investors. Investors are generally pragmatic, avoiding emotional decisions, with notable exceptions like speculators (distinct minority). When prices go haywire, its not so much investors who fall in love, get toey at missing out, bring fwd buying decisions, over-extend and bid up prices. Owner occuppiers fall in love with the kitchen and the triple brick garage/workshop, sending prices toward heaven.

As an investor, this is wot is most notable about buying competion... its the owner occupiers who go troppo, paying well over the odds. Investors mill around back of auction crowd, shaking our heads and sniggering at the bigger fools.

Property market being so heavily carried by owner occupiers is large part of what makes its appeal to investors, namely... long term stability with the occassional mum/dad buying frenzy to deliver quick windfall gains.

Ludwig,

You seem to consider there is a shortage of land. Only 0.3% of Australia is used for urban purposes. Even at the most optimistic(?), increases in population over the next century would not double the amount of urbanisation with or without zoning regulations. As for other uses, many times the amount of land being used for development purposes is being taken out of agriculture because it is becoming uneconomic.

Alan

It is not a matter of a shortage of land per se. It is a matter of needing to limit the scale of human expansion, with sustainability in mind. It is well and truly time to plan for limits to growth, in this land of stressed resource supplies and an ever-more degraded life-support system that is receiving ever-more pressure by way of a continuous rapid increase in the number of consumers and impacters.

What about some of the other points in my last post;

Do you think that land releases should be so abundant and automatic as to bring land prices right down? Or do you think that it is one of the fundamental roles of governments to tightly regulate land releases?

Do you think that population growth should remain high, by way of high immigration and attempts to raise the fertility rate?

What do you think about the lack of independence of government?

Could governments easily implement policies to make land and house packages affordable while at the same time keep tight reigns on land releases, if they didn’t have to worry about incurring the wrath of their rich and powerful buddies?

PK “Col Rouge, you seem to miss the point that investment in the private property market is distorting the market in which owner occupiers are also competing.”

1 A lot of people choose to rent rather than buy, the private investor addresses their market need.

2 We live in a democracy, people are free to invest their resources in whatever media of value they choose. Obviously, such investment decisions has a direct and lasting effect on the market prices which they find suits their needs. I see no merit in complicating the process by government, at any level, pretending they actually know the consequences of manipulating any market, be it housing, company share prices, futures options bond markets or hog bellies.

3 As Alan observes, it is the manipulation of the land supply by state governments which distorts housing costs. PK in terms of “missing the point”, that is what Alan Moran is saying and that is the point which has managed to fly so high over your own head.

Ludwig “with no end in sight?” the end is determined by the market, instead of being manipulated by the artificial agendas of small minded governments.

You can choose: cheaper housing or less housing,
Up the supply and the price stabilizes, limiting the supply will simply frustrate the unchanged demand, which will seek to force the marginal buyer out of the market. If you want to reduce the price, reduce the demand, although the only way to do that is to reduce the expectations of the marginal buyers (build more caravan parks and other ghettos but I guess, not next to your house).

Alan’s comments about the use of agricultural land are, likewise absolutely right – “You seem to consider there is a shortage of land. Only 0.3% of Australia is used for urban purposes.”

I hate to tell you this but the exact same rationale applies to water use. Metropolitan water users significantly subside the state coffers, through under-the-counter dividend charges whilst irrigators pay around 1% of their total operating costs and cannot pay for their own infrastructure

Col, the end will indeed be determined by the market, but in a very different way to what you envisage, I fear.

I fear that the market will just keep on dictating the opening up of more land, and the maintenance of high population in order to feed demand…. until it all comes crashing down in a huge heap.

We DESPERATELY need government regulation here. Yes governments have shown themselves to be pretty small-minded on this issue, but the answer is to work towards reforming them and certainly not to give the market a free reign.

Besides, what sort of market forces are we dealing with that can make the price of a basic house and land package prohibitively expensive to the average person….and which can feed exorbitantly high profits into the pockets of those who are already rich and powerful? It’s a gross promotion of inequality!

I think we all agree that property prices are artificially high. Well that in itself is a condemnatory aspect of market force rule, is it not?

The property market is highly artificial under market force domination. So what is wrong with inserting “artificial” government agendas that work towards restoring sanity in this market?

Ludwig "Besides, what sort of market forces are we dealing with that can make the price of a basic house and land package prohibitively expensive to the average person"

The same forces which determine the price of a loaf of bread, a sack of potatoes, a plasma tv screen or a car.

No mystery, no voodoo, simple supply and demand.

The real, deep seated problems have and always will occur only when the "market" is bastardised by governments who, in their inept and incompetent way, endeavour to be all things to all men and muck up the natural equilibrium of market forces. Just ask anyone who used a State government mortgage to buy a house in the 1990's whether they would be better off renting or going to a real lender instead of a "socialist daydream" lender who basically, financially raped them.

Alan;
any idea what proportion (if any) of the increase in land prices because of change in the requirements of what goes with a development block eg connection to sewerage, supply of electricity etc?

Is there any evidence that the price for house building is now increasing because of manadatory requirements for insulation etc etc.?

Col, as far as I can see, you are arguing from a party political viewpoint. That is, anything that Labor governments have regarding land/housing is 'bad', while Federal coalition policies that obviously affect the volume of investment capital in the residential housing market and hence the price, is not manipulating the market in your view. I haven't missed Alan's point, I have argued against the validity of it. I have challenged Alan to produce a graph tracking house prices and tracking tax policies, interest rate levels, immigration levels and land releases against it. Until someone does that, Alan's article is just a set of unsupported assertions.

Today the Sydney Morning Herald had an article about the fall in house prices in Sydney's west and south-west, and the fact that investors in that part of the market are suffering. If the State government were to release more land for housing, guess where a lot of that land would be? Yes, in Sydney's west and south west. Yet, prices have fallen here in the presence of Alan's 'land drought', while prices of houses in the eastern suburbs, inner west and north shore have risen. How would releasing land in Sydney's outer fringes keep property prices in these inner areas low? It's a different market as current price trends clearly prove.

The whole argument is a furphy that has been raised by the Howard government and supporters to deflect blame for housing unaffordability. Don't buy it, Col.

Col, you only quoted the first half of that particular statement of mine. I think the second half makes all the difference to your comments;

“…and which can feed exorbitantly high profits into the pockets of those who are already rich and powerful? It’s a gross promotion of inequality!”

Surely if market forces result in this sort of outcome, they can’t just be left to their own devices.

One of the things that pisses me off the most, after many years of promoting sustainability, is the flagrantly unsustainable nature of the property market, which promotes the open release of residential land when the demand is high, and then promotes the raising of immigration, birthrate and/or regional population growth when the demand is low (or all the time for that matter), thus creating an eternal spiral.

That’s what you get when the market rules the roost – something diametrically opposed to sustainability, or sanity!

Quite frankly, this market has been ‘bastardised’ by greedy and powerful people, with the help of politicians, which at the local level at least are often in the real estate game or closely linked businesses themselves.

Governments have been inept in dealing with this, but in a very different way to what you are saying.

Sorry to butt in, but can someone answer a quick question?

If houses are unaffordable, how come the prices are so high?

If they were truly unaffordable, the price would have to fall, wouldn't it?

Or am I missing some mystery kind of voodoo that enables people to keep selling their houses at unaffordable prices...

Pericles, I take it you haven't recently tried to sell a property on the east coast of Australia?

I presume, foundation, that you are pointing out that it is currently difficult to sell property on the east coast of Australia.

If I have the wrong end of the stick, please let me know, but quite frankly it makes no difference to the point I am making.

If it is difficult to sell a property, it is because the price is too high.

Soon, this market resistance will lead to a lowering of prices.

(And boy, won't there be a wailing and gnashing of teeth among the commentariat when that happens! They will tell us, to a man, that it is the end of civilization as we know it.)

Conversely, if it is not difficult to sell a property, then the price must be right - a buyer and seller are reaching agreement on its value.

What does the government have to do with this?

They can tax the transaction harder. This will have the effect of reducing the dollar amount that the seller releases from a sale, which will either make them more reluctant to sell, reducing the stock and increasing scarcity, or force them to up the asking price, which will increase buyer resisitance and reduce the likelihood of a sale.

Or they can reduce or eliminate any transaction costs, which will increase the seller's take, and encourage more stock into the market.

But whatever they do or don't do, the point I was making is that every time a house is purchased, it is by definition "affordable" - someone has "afforded" it. Therefore, except for a scenario where there are zero market transactions, every house is by definition affordable - to refer, as PK did, to "housing unaffordability" is logically false.

Preicles, normally I am prepared to bow to your superior grasp of wisdom and knowledge, but not on this occasion I'm afraid. The fact that one person can afford to buy a particular house does not make it affordable in the general sense. Many others who would like to buy that house or another like it may not be able to afford it. Extending that over an entire city, the number of people wishing to enter the housing market but unable to afford to do so fluctuates, but there is always an element of 'unaffordability' in that market.

At the moment, house prices remain high over much of the eastern seaboard, deterring buyers, and the sluggish market therefore deters many vendors. You have correctly observed that eventually the price of houses will fall to a level of more general affordability, and this has been occuring for at least 2 years. Then, however, interest rate rises push the cost of purchasing up, so the downward price movement takes longer to bottom out. There is already a lot of anguish about this, but from highly-geared homeowners, not so much the comentariat as you suggest.

I dunno, having read that, you might responde saying, yes but, my point is.... Well, my point is, there is definitely such a thing as housing unaffordability, explained both as above, and when looking at long term trends. It is taking an ever-increasing multiple of average income to buy a house in Sydney.

Ludwig OK “and which can feed exorbitantly high profits into the pockets of those who are already rich and powerful? It’s a gross promotion of inequality”

The easiest way to relieve the exorbitantly high profits from the already rich and powerful is to increase the supply (flood the market) thus addressing / meeting / satisfying pent up demand and watching prices full. How come the Victorian State government is being criticized for land hoarding when it is supposed to be the friend of the unwashed?

PK – what you “buy” and “don’t buy” is a matter of personal choice. It is the socialists who always insist on telling people what they are allowed to buy and not buy and where they are allowed to buy it. I speak from common sense and respect for individual rights, that those views are represented by only one side of politics is “coincidence”.

As for “It is taking an ever-increasing multiple of average income to buy a house in Sydney.”

And prices are falling in Sydney, so it must be getting easier for some somehow and the ever-increasing is in fact, diminishing.

Col

“The easiest way to relieve the exorbitantly high profits from the already rich and powerful is to increase the supply (flood the market) thus addressing / meeting / satisfying pent up demand and watching prices fall.”

Yes. But stuff that!!

The last thing we want is virtual open slather on land releases, for reasons explained in previous posts on this thread.

It’s well and truly time to head directly towards a sustainable existence on this continent, and that necessitates dealing strongly with the demand side of the equation and not just the supply side….with all sorts of issues.

So let’s start thinking about reducing the primary driver of housing expansion - population growth, implementing disincentives for those who wish to move into crowded or growth-stressed cities and regions, and various other financial arrangements to even up the balance of wealth between the first-home buyer and the developer/profiteer.

The last thing we should be doing is just freeing up land releases and ignoring the rest. If a bit of a freer land-release program was implemented as part of an overall strategy, which included measures to limit the extent of suburbia, then fine. But not in isolation.

Col, you have avoided answering most of the points I made in my posts on this thread, but that's OK. However I resent you taking my last point out of context. I was making the point that as a long-term trend, housing is becoming less affordable when compared to average incomes over the same long term. The figures don't lie about this.

You ignored the bit about the long term trend and tried to rebut my statement by relating it to the present short-term decline in prices. That kind of deliberate distortion is a cheap debating trick that you might be able to get away with when blustering away in person over a drink or two, but it's a bit bleeding obvious when you try it on it print, old fella.

PK, it's not a matter of wisdom or knowledge, simply of logic.

If a house is sold to someone, by definition it is affordable.

You have changed the argument a little by saying "there is definitely such a thing as housing unaffordability... It is taking an ever-increasing multiple of average income to buy a house in Sydney."

If you accept the general principles of supply and demand, you must also accept that where demand exceeds supply, prices tend to rise.

So what has happened here is that the populace has determined that it is a good thing to set aside an increasing percentage of their income for the purpose of buying a house. Over time, this voluntary activity, encouraged perhaps by a belief that property is a safe investment, will gradually ease up prices, and increase the income multiple you refer to.

Demand also has other faces than being purely volume-related. Increasing prosperity also plays a part. As people work their way up the ladder, they look for properties more in line with the image they begin to form about themselves - "better" suburbs, more swimming pools etc. - that put pressure on the upper end of the market. This end of the market also has some natural limits, like there are only a certain number of harbourside or bayside properties, which causes the prices to move even higher. This has a natural trickle-down effect.

All this happens without a skerrick of government intervention. So even if the government were to rescind all of its market manipulation, and simply leave it for "the market to decide", prices will continue to increase in line with the country's overall prosperity.

And all the while, every property that actually changes hands is, by definition and logic alone, affordable.

"So let’s start thinking about reducing the primary driver of housing expansion - population growth"

I was under the impression that there are currently more dwellings per head of population than at any other time in the history of Australia... but I could be wrong. I'll just have to wait for the preliminary results of the latest census, so that I can see whether the population of the average household has begun to rise again after decades of decline.

Affordable for who? Those already in the game can borrow on the increasing equity of their homes. The passing the parcel mindset of property speculators sees most making such big capital gains that it dwarfs the possible rental income. This trend over the last 5 - 10 years has been such that they no longer need to rent investment properties out. Instead, holding these properties out of supply forces rents & thus land prices higher. What a win win situation for some! A holding charge in the form of a Land Tax would penalise such speculators, increasing the supply of land. Just look at Melbourne's Docklands, at least 50% held by speculators. It would also prove a more efficient way to raise revenue than a GST, leading to its gradual replacement. The poor would then win with cheaper housing & cheaper food. Would the Aussie battler like that?

Pericles, I think I made the distinction between affordabability in the general sense and in the particular, but you do not seem to have done so. By your logic, the most expensive houses sold in Sydney, priced in the tens of millions, are still 'affordable'. While in the strict sense that may be true, it is not an example of what most of us would consider to be affordability. It's like saying Lear Jets are affordable. True perhaps, but irrelevant to most people who have to fly economy if they fly at all.

Of course I accept the general principles of supply and demand, but the drivers of price in the Sydney property market cannot be reduced just to that simple formula. My point is that Federal Government policy has induced demand, and that those policies are more important in the demand/supply equation and to housing affordability than state government policies about land releases are. That's the main thread of my response to Alan's article.

I don't accept your statement that 'all this happens without a skerrick of government intervention' etc. If the Federal Government rescinded negative gearing for residential property, reinstated a higher capital gains tax regime, removed the first home buyer's grant, kept cutting income tax and pursued other inflationary policies likely to cause interest rates to rise and severely restricted immigration, property prices would crash severely and stay low indefinitely. The scenario is highly unlikely to be tested anytime soon, however as a property investor myself, I am convinced of the truth of it

Foundation

Let’s not get sidetracked. The simple fact is that a constant high demand requires a constant high supply, or else prices will skyrocket. If it follows that restricting the supply causes higher property prices, then it must also follow that reducing the demand would do the same.

Continuous population growth, that is very considerable in some places, is thus the primary driver of housing expansion.

But there are all sorts of other issues. It is a matter of putting them into perspective and not letting them sidetrack us or cause us to ignore the really big factors.

PK “housing is becoming less affordable when compared to average incomes over the same long term.”

The “price” of housing is driven by “affordability”.

That means, regardless of the changing rate of interest, a key driver to determining housing “price”, affordability will diminish in times of high interest rates and expand in times of low interest rate.

Far from misrepresenting anything, the long term trend will substantiate that if / as we more to a period of relatively higher interest rates, the price of houses will fall. This is driven partly by buyers "budget balancing" and fostered by prudential lending rules which, basically, cap borrowings repayments, for most "average income earners" at roughly 30% of gross income (+/- 5% depending on family circumstances / dependants).

If interest rates increase, borrowing capacity diminishes (subject to some timing slippage / drag). When borrowing capacity diminishes people cannot afford to buy at current prices and thus, with fewer viable buyers in the market, house prices fall.

When interest rates fall, the opposite occurs - I guarantee it.

Ludwig. “Yes. But stuff that!!”

With all markets, supply and demand are always balanced by price. Governments piddling around with either supply or demand simply distort the market in the short term and create a problem for the future.

No one can protect the imprudent from their imprudence just no one can advance self reliance better than the self-reliant.

Like everything else in this world, those with the cash or those prepared to borrow against “risk” are the ones who are best equipped to decide how they should spend it.

Pericles “PK, it's not a matter of wisdom or knowledge, simply of logic.

If a house is sold to someone, by definition it is affordable.”

Of Course, I cannot see how some just do not “Get It”.

PK

>>I made the distinction between affordabability in the general sense and in the particular, but you do not seem to have done so.<<

That is because there is none.

>>By your logic, the most expensive houses sold in Sydney, priced in the tens of millions, are still 'affordable'<<

That is because they are.

The number of buyers able to afford such prices is clearly more limited, but by definition the houses are affordable.

The only way your argument - that there is some "affordabability in the general sense" - can be sustained, would be if every house, in every suburb, in every town in every State of Australia is affordable by every Australian. Any other definition will automatically exclude some portion of the community, and "affordability" once again becomes particular, rather than general.

There is no "general sense" of affordability. Take the apartment market in 1950's Moscow. Theoretically, rents were capped so as to be "affordable" by all. However, in order to qualify for a superior apartment you had to have a sufficiently important job.

In 1950's Moscow that job would be a major party apparatchik, whereas the Sydney equivalent today would be a manager at the Millionaire Factory, but the principle is identical.

"Affordability" in the sense it is being bandied around in this thread is an entire furphy.

Pericles:

Rubbish.

Enough said.

PK "Pericles:

Rubbish.

Enough said. "

I take that as your admission of surrender and defeat, as far as your spat is concerned.

Pericles, as you might guess....

I agree with your reasoning.

Dockland 50% held by investors... sounds like a disaster waiting to happen.

When things get bad (or less good), as they inevitably do in property cycles, l would hate to own one of those concrete boxes when everyones heading for the exit... at the same time.

Owning one after late coming chiken counters have stopped running around madly looking for their missing heads... that's another matter entirely.

The dockland is apparently going to add around 30k dwellings by the time its completed. Wounder if any urban type of slums will eventually pop up amongst those dank little laneways where the franchise operators look very un-happy behind the counters of those shops with unscuffed floors.

Col

“With all markets, supply and demand are always balanced by price. Governments piddling around with either supply or demand simply distort the market in the short term and create a problem for the future.”

But how does the notion of supply and demand always determines the price sit with the fact that land prices are highly inflated? Is anyone disagreeing with the 500+% increase in land in real terms in Perth over the last 30 years, or the nearly 700% increase in Sydney or the nearly 1000% increase Adelaide are grossly inflated prices?

If they are just market-driven, what does it say about market forces?

The real estate industry promotes populaton growth for its own gain. This is a distortion of the market. And it is a bigger distortion when governments do it as well, largely because the powerful real estate lobby and other big business people want it.

The fact is, governments and the industry itself distort the market. So government policy that would work to even up the wealth distribution between buyers and developers/profiteers would be no less of a distortion than what is currently happening.

No, Col, not an admission of defeat, just a recognition that the debate has reached a point of futility, if not absurdity. I'm not going to waste any more time trying to dispel Pericles' and your notion that anything that sells is by definition affordable and by the same reasoning there is no such thing as unaffordability in the housing market. I've drawn a line under it. Hang on your belief, your Liberal party loyalty and your delusionary triumphalism if that's what floats your boat.

My central point however, that the Federal government's policies, not the state government's policies on land releases, are the more important in gauging effect on property prices, stands.

See you on some other thread.

Well that was sad, PK.

No attempt to support your view, just a dummy-spit and a snide assertion that because I use logic, I must vote Liberal.

It is not my "belief" that I presented, but an observation based upon sound economic theory.

And it is certainly not "delusional triumphalism" to call it as I see it. What a strange phrase to use...

You may well be right that "the Federal government's policies, not the state government's policies on land releases, are the more important in gauging effect on property prices".

But given your overall approach to economics and cause-and-effect, I can't see myself automatically trusting your judgement on the issue.

Have a great day.

Pericles - my last email was aimed at Col, not you - especially the remarks of mine that you referenced in your post of last night, so apologies for unintended offence.

My problem with your approach to this thread is that it's a narrowly focussed view: 'it's a simple matter of supply and demand economics'. It's not. It's a debate about the effect of government policy on the housing market. You've tried to assert that supply and demand rule supreme despite government policy. That's tosh, as I believe is demonstrated by the last paragraph of my August 30 post.

You keep asserting that because houses continue to be bought and sold, they are by definition affordable (true in a narrow sense) and by extension, there is no problem with housing affordability. That's also tosh and ignores reality.

According to that view, the next time someone mentions to me the difficulty of getting a foothold in the Sydney property market, I should say 'I don't know what your problem is. Other people are managing to buy houses. And people in Point Piper are not having any trouble offloading their mansions. It proves houses are affordable. The problem must be you'.

And on the subject of Government policy, Mr Howard should not worry about interest rates rising. He should get rid of negative gearing. He can say to homeowners 'don't worry about the high interest rates or your house values falling as a result. It'll be OK in a few more years'. He can say to property investors 'well, you've lost negative gearing, but don't worry, hang on to your investments, they will eventually increase in value. Someone who knows something about economics and logic told me so'

Somehow I don't think any of that will wash, Pericles. You can post a reply if you wish, but I'll leave it there and keep myself fresh for another thread.

Ludwig "..fact that land prices are highly inflated?"

Are they? Maybe 20 years ago, land prices were seriously "deflated" and the market has merely found its equilibrium again.

Market forces are market forces, they are neither good not bad. As you would know in a "perfect market" no buyer or seller can exert a particular influence over the prices in the market.
Unfortunately, with state governments holding back land for political purposes (regardless of the excuse) such actins do have a significant effect on land supply which, faced with an increasing population and thus an increasing demand (people have to live somewhere), means the price will increase to levels which some would deem are now "highly inflated".

PK "I'm not going to waste any more time..." good, we will not have to bother correcting your erroneous thought processes.

As for your last post,

We live in a country which values individual freedoms. That freedom includes personal choices into land and property ownership and participation in the real estate market. That precept of western society means housing prices will always be a matter of "supply and demand".

Thank God we do not live where the "state" tells us where to live and decides no one is allowed to buy property. It has been tried in the past and found to be more corrupt and less efficient in delivery of housing to everyone.

I see no merit in making "special rules" for "housing" with regard to the accounting treatment of taxable gains and losses distinct from any other type investment or income generation (negative gearing).
Those who suggest such, invariably, lack insight into exactly how property returns are generated and how beneficial (or in fact, insignificant) tax influences are on a medium / long term real estate investment returns.

Col, you do have a point about inflated land prices, ie they could be interpreted as being deflated in the past, if you accept the current situation to be normal. So I guess we need to look at it on a relative basis.

But the fact remains; the market is and probably always has been seriously distorted by the ‘strategies’ of developers and governments, and I cannot see that it would be any more seriously distorted if governments were to introduce strong financial measures or laws to reduce the cost of house and land packages for first home-buyers and to discourage or prevent profiteering.

We agree that the much freer release of land would basically bring prices right down. But we strongly disagree that this is the approach we should take. I guess we’ve about reached the end of this discussion?

Market distortion?

Please explain?

Tradey

I see market distortion as anything that changes the simple supply and demand affect on prices, or anything that attempts to alter the ‘natural’ rate of supply or demand.

If real estate moguls push for high immigration or promote population growth in their particular city or region (which they do all the time), then I’d call it market distortion.

Ok, so there’s nothing particularly wrong with that. In fact you’d expect an industry to practice strategies to maximise its continued prosperity. But I’d still call it a distortion because it is not a neutral supply and demand situation.

However the really significant distortion comes from governments that pander to expansionist profit-driven agendas instead of doing what they should be doing, which is countering this constant pressure and looking after the long-term good of the community.

One of the greatest criticisms I have for my local council, which has been in place for many years, is that they promote rapid population growth and espouse it as being entirely positive when there are considerable downsides.

This is a massive distortion of the real estate market.

So no matter how effectively governments were to work in the opposite direction – towards stabilising population or towards making house and land more affordable, it could not be more of a distortion than this.

Hope this helps

'Neutrality' is often espoused to support of theoretical models requiring 'all things being equal'. Such an (inherently flawed) assumption is critcial to making the theories fly.

However, nothing is equal, no neutrality in reality. Its an intellectual construct (based on equality ideal) which doesn't exist. Philosophically... battle between the mind (illusions) and the physical (reality).

Humans, whilst we like to paint ourselves in cultured and civilised tones who transcend our place in animal world, aren't that different from the other beasts (we use deoderant). ;)

Major difference is capacity to think/rationalise... double edged sword. Good... yields many palpable things. Bad... mind looks for meaning where none exists, constantly re-ordering perception to fit ourselves (driven by self preservation at its most basic level), causing confusion by contriving complexity in the face of simplicity.

My perceptual framework... we're thinking animals, acting out of self preservation, adept at inventing molifying thought processes making for peaceful sleep.

To that end, your definition of 'distortion' strikes me as constructed to support political ideology, which appears to be socialist (l'm left of centre at times).

l dont accept idea of 'distortion' as... opposition to the concept of neutrality. In this context, it follows self interest. If something suits its not distortion, if it doesnt, then it is.

My view of distortion... external noise added to colour outcome.

Entirely natural to human behaviour. Markets are groups of people. Anything they do in agreement, of their own volition is a normal (natural?) outcome. Can be good, bad or ugly. If one person pays another a fee to swim in a pool full of swill, then thats a neutral outcome in my book. When someone who lives over the hill and far away chimes in and demands that this activity be banned or regulated because it offends his why-fors and where-hows, that too is normal distortion.

Its all colour. People find ways to order things to suit. Some lobby govts (developers, capitalists, greenies, socialists) to push agenda, others go around that, do what they can and avoid what doesnt suit.

waffle over...

cheerz.

I think you are quite right – distortion and normal market practices just run in together. It is extremely difficult to tell what is a distortion and what is just within normal practice at times. And yes neutrality is just about impossible in all but the most simple cases.

But that doesn’t mean we can’t recognise the major distortions as acts totally outside of practices just driven by supply and demand.

“To that end, your definition of 'distortion' strikes me as constructed to support political ideology, which appears to be socialist”

I do aspire to a degree of socialism in this matter, and to the overall distribution of wealth. Stuff the concept of a small number of people getting rich and powerful off the backs of the struggling masses. Stuff a democratic system if it is going to lead to a widening of the gap between the rich and poor and a stifling of our collective future….which is exactly what it is doing. Perhaps our democracy needs a bit socialistic adjustment.

“l dont accept idea of 'distortion' as... opposition to the concept of neutrality. In this context, it follows self interest. If something suits its not distortion, if it doesnt, then it is.”

Alright fair enough. So the self-interested antics of real estate and other big business people promoting unsustainable practices for their own profit is perhaps not a distortion. But again, the actions of governments that uphold that sort of thing certainly do amount to major distortions that are most definitely opposed to neutrality. But these distortions can be positive or negative.

So what I perceive as strong negative distortions by governments should be flipped over to positive ones.

Ludwig “I cannot see that it would be any more seriously distorted if governments were to introduce strong financial measures or laws to reduce the cost of house and land packages for first home-buyers and to discourage or prevent profiteering”.

As for first time buyers, they do receive “special consideration”, by qualifying for “first time owners grants”. Maybe the amount could be argued about but the principle of a benefit for first time buyers is real and already in place.

I am not sure what “profiteering” means, unless you are to suggest some form of “windfalls” tax which, itself will only “distort” the market. Such explicit manipulation, if applied exclusively only to housing (versus other avenues of investment) is the sort of corrupting and corrosive tactic which engender no benefit and by forcing investors away from housing will reduce the available rental housing
It will only victimise the most vulnerable, those who rely on cheaper rental housing. It is the negative response which promotes special rules to outlaw “negative gearing” – forcing “negative gearing” into “positive gearing” can only mean the investor charges a higher rent to the tenant.

Col, yes first home buyers have been assisted for a long time. So this financial incentive concept just needs to be developed a bit further in order to even up the wealth distribution between the home-owner and the profiteer. This ‘positive distortion’ doesn’t appear to have corrupted the market. In fact, I would argue that the market is still strongly distorted (?corrupted) in the opposite direction, ie towards the big end of town.

By ‘profiteering’ I mean reaping profit margins that are unfairly large, being driven by the profit motive above all else, buying up properties for the express purpose of selling or renting for profit over and above what one really needs to be comfortable, etc

Ludwig "even up the wealth distribution between the home-owner and the profiteer."

You are attempting to have enacted a subjective assessment of "what is fair and what is unfair".
This would require the basis of a financial return, is for some, deemed an action which represents "profiteering" instead of just “making a profit”.

When you can reasonably define and determine what is “Unfairly Large” versus what is “Adequately or Appropriately Large” you might be able to convince others of the merits of such laws.

Since neither you nor anyone else will ever find consensus on what is “unfairly large”, I don’t think you have much chance of ever finding such ideas passed into statute.

If I model the combined annual net incomes of an investment property which I might hold for say, 10 years, I make less return than if I sell it after 5 years (on an estimate of post tax net IRR). However, with the relative risk associated with housing even that IRR will be significantly less than if I were to invest/deal in commodity futures. Should commodity futures be subject to the same “rules of profiteering” as you would impose on the investors in real estate?

Finally “being driven by the profit motive above all else,”

We are all responsible for planning for our own financial security.

Tell me, what other motivators, other than to produce a secure profit, are there for “saving”?
- Especially if we consider that am free to choose to exercise my “altruism” in the way that suits me, not in the way which suits rental property tenants!

“You are attempting to have enacted a subjective assessment of ‘what is fair and what is unfair’ “.

No Col. We want the assessment to be as objective as possible. In just the same way that we assist first-home buyers, provide social security, have a sliding tax scale and take into account a whole range of factors when working out our tax, have a means-tested baby bonus, and so on, we can work out what is reasonably fair in terms of incentives to balance up the wealth gap in the property market.

Similarly, it should not be too hard to work out just what comprises a reasonable profit and what is profiteering.

All of this is highly objective. But of course like anything else, it would need to be kept reasonably simple, which would mean an element of unfairness.

“When you can reasonably define and determine what is ‘Unfairly Large’ versus what is ‘Adequately or Appropriately Large’ you might be able to convince others of the merits of such laws.”

I think this determination can easily be made. Why should the onus be on me or anyone who advocates a fairer system? Why shouldn’t the onus be on those who profit from the real estate market to justify the scale of their profits or else be required to put an ‘equalisation tax’ back into the government coffers in order to subsidise home-buyers?

John Howard is calling for the states and councils to stop restricting land releases. He wants prices to fall. Most people want prices to fall. Most people want homes to become much more affordable. Well, instead of opening up more land in order to do that, thus promulgating urban sprawl, let’s to the right thing and even up the wealth ratio by way of good-old government financial incentives and charges……oh, and by addressing the overall demand by greatly reducing immigration.

I can’t see what is in any objectionable to this philosophy Col.

Sorry to be slow getting back Ludwig,

Re –“ Why shouldn’t the onus be on those who profit from the real estate market to justify the scale of their profits”

No one is “liable: to justify their prices or profits to anyone else, other than the person they are conducting trade with.

but you are the one who wants to interfere in the free trade in housing based on some notion of “fairness”. Thus you are the one who needs to justify your interference.

I am happy to let the market run its course and prefer to see non-interference in the “market process” by government.

As for “equalisation tax” - historically they have never worked.
The social order is composed of those who fail to see or seize the opportunity and the astute who do. Pretending you can “equalize” everyone thought tax policy is a philosophy fraught with far greater dangers than those derived from inequitability in housing / housing ownership.

The issue with immigration versus population stabilization.
In Australia the building industry is a significant employer and thus cycles income, one basis of “wealth” into those employed in it.
Remove immigration and you will reduce the housing demand and reduce the economic impetus generated from migrants needing somewhere to live.

That said, playing with peoples lives and “even up the wealth ratio” can only be done by disadvantaging / creating a disincentive to work against those who take the risks and fund the activities which create the jobs which employ others.

About 80 years ago, Stalin murdered all the Kulaks who grew "comparatively wealthy", despite the “leveling” policies of Lenin. I do not think you are suggesting tax-policies should be so extreme but they will have the same overall effect, a general degradation of society overall, as the “incentive to achieve” is outlawed.

Col

“No one is liable: to justify their prices or profits to anyone else, other than the person they are conducting trade with.”

I think that profits need to be justifiable to the general community. Surely the community and government have every right to request a reduction in fees or profit margins if profits are deemed to be too big. Huge profits can be seen as a sign of free enterprise tunning wild, a promulgation of the gap between the rich and the poor, and a lack of government protection for the little guy.

“…you are the one who wants to interfere in the free trade in housing based on some notion of ‘fairness’. Thus you are the one who needs to justify your interference.”

Yes I advocate ‘interference’ in this ‘free trade’ in the interests of fairness. This interference is easily justified. It’s what this thread is all about – house and land becoming too expensive for the first-home buyer or the average income-earner, while those at the big end get rapidly fatter. It is about unnaturally high prices.

“I am happy to let the market run its course…”

I am not happy to let the market run its course, because it would mean endless growth (human expansion), the freeing up of land releases and/or the continuation of a mortgage stranglehold on the average person, in a time rising interest rates, rising prices of basic commodities and falling job security.

“As for ‘equalisation tax’…”

An equalisation tax, or what ever we may call it, would amount to incentives that would lower prices. In other words, it would only be a small way along the spectrum towards complete equalisation, or communism if you like. It is the same principle as current first-home-buyer assistance, just a bit stronger… and drawn from those who reap the profits rather than the whole tax base.

I don’t know, it would probably just result in a further raising of prices to compensate. But the point is; governments should undertake some form of levelling. Much better this than a large-scale freeing up of land.

Regarding immigration versus population stabilisation…

The building industry certainly is a significant employer. But we have the same wobbly ‘Keatingesque’ argument here (from our politicians and business community in general); the notion that more people are needed to keep the economy strong rather than the notion of keeping the economy strong for the people. That is, treating the economy as the ultimate goal rather than quality of life.

When it comes to quality of life and society, surely per-capita economic growth is what counts. So a growing economy that is based on a growing population, in which there is no growth in average per-capita economic benefit, is just self-defeating.

The housing industry sits at the heart of this crazy upward spiral, that promulgates continuous growth and an ever-bigger economy and total scale of human operations on this continent, without contributing to real economic growth above population growth.

Real estate market forces and indeed business forces in general, push for ever-bigger demand by directly lobbying for high immigration, and in doing so exert unnatural pressure on the market. Any financial equalisation or any reduction in immigration or any measures to direct us towards sustainability undertaken by governments would be no more unnatural than this.

“I do not think you are suggesting tax-policies should be so extreme but they will have the same overall effect, a general degradation of society overall, as the ‘incentive to achieve’ is outlawed.”

I am not understanding why you think along these lines Col. The dole, the old-age pension, the sliding scale of taxation, and everything that is subsidised, are all equalisation measures. They sit at the heart of a healthy democratic society. They directly enrich our society

Ludwig – ‘Huge … free enterprise turning wild”

“Free enterprise” will see more participants on the supply side, greater competition and thus reduce prices profits, except for monopolies / oligopolies / cartels, which are outlawed by our competition laws.
Most examples of monopolies in Australia have been government run and have been progressively and rightly, sold off and forced to compete freely with independent competitors, Telstra, CBA and Qantas as classic examples.

“Yes I advocate ‘interference’ in this ‘free trade’ in the interests of fairness.”

“Fairness” is a subject quality which cannot be used as a foundation of law.

“I am not happy to let the market run its course, because it would mean endless growth”

What would you prefer, endless recession?

You cannot have it both ways Ludwig. Government given the authorative power to interfere is a dictatorship in waiting.

“An equalisation tax,”
Such a tax removes incentive from society. It makes us all equally miserable.
It has been tried and has failed.
It is never going to produce any social benefit because all it does is stunt the benefits derived from the innovation and genius of the individual.

RE “quality of life and society, surely per-capita economic growth is what counts”

No – most of the factors which contribute to “Quality of Life” are not measurable on any economic scale. Typically
The sense of self worth and self determination we derive from making decisions for ourselves.
The pride and relief a parent gets from watching their children achieve for themselves.
The right of free association and the gift of friends.
The right to choose where to live and what job to do.

I trust you get my drift.

“The dole….. and everything that is subsidised,”
Such subsidies only “meddle” at the edges.

They do not “directly enrich our society” they shuffle the available resources from the able to the less able, an action which can be achieved by individual philanthropy.
Btw I am not knocking the dole, it is and should be seen as temporary subsistence and not as a right of the chronically unemployed

“ ‘Free enterprise’ will see more participants on the supply side….”

Free enterprise, with apparently healthy competition, does not stop the large banks from making obscenely large profits, resulting in very strong calls for reductions in fees. It hasn’t seen more participants on the supply side, and it is quite amazing that any smaller banks have become established in the last couple of decades. And banks are just one example.

“Most examples of monopolies in Australia have been government run and have been progressively and rightly, sold off and forced to compete freely with independent competitors…”

I strongly disagree that public utilities should be sold off. While they may gain efficiency by way of competition, they lose efficiency by way of being run with the motivation of maximised profit, and with that money being skimmed off rather than turned back into the business.

“What would you prefer, endless recession?”

I don’t understand why you are apparently completely against any government actions in the market. Surely the sorts of things we are discussing here are fundamental to the role of government… for the express purposes of making the whole economy more equitable and less controlled by the big, greedy and ruthless. We would surely fall into recession if we just let the market run its course untempered by government regulation.

“You cannot have it both ways Ludwig.”

It’s not a case of having it both ways; it’s a case of finding the point on a spectrum at which enough government intervention is a good thing. This point will vary with different circumstances. It’s shades of grey, not black and white stuff.

“No – most of the factors which contribute to “Quality of Life” are not measurable on any economic scale.”

Aha! Maybe this is the core of our differences. Quality of life is most definitely measurable on an economic scale and most definitely relates to average per-capita economic growth much moreso than to gross domestic product. But it is not always clear high-correlation relationship.

continued

Let’s look at your four examples;

“The sense of self worth and self determination we derive from making decisions for ourselves.”

As our whole society becomes bigger, the population grows, the stresses of this growth such as traffic congestion and air pollution increase, and it becomes apparent that a still rapidly growing economy is not helping the little person at all, our sense of self-worth and our ability to make decisions for ourselves is bound to decline. An ever-bigger economy premised on an ever-bigger population is certainly not going to help the vast majority of ordinary people.

“The pride and relief a parent gets from watching their children achieve for themselves.”

Again, on average, the ability for children to achieve for themselves is not going to increase as our current economic regime and continuous-growth paradigm continue.

“The right of free association and the gift of friends.”

I can’t see that this would be much affected, although the stresses of an ever-growing and not-improving-at-the-personal-level economic regime will mean more civil strife and may well lead to restrictions on who we can associate with or should be see to be associating with.

“The right to choose where to live and what job to do.”

As population pressure continues to mount in Sydney, SEQ, etc, it is very likely that our ability to choose where we live will be strongly compromised. The more the pressure in these areas, the more likely governments are to implement incentives to get people to do other than what they would do of their own free choice under a free market-force regime. Clearly, it is so-called free market forces that have led to the problems in SEQ and Sydney, and strong government initiatives are needed to counter the continued momentum.

So I guess we really do see things quite differently Col. But then, that is good. It has made for a good discussion.

Cheers

Ludwig "So I guess we really do see things quite differently Col. But then, that is good. It has made for a good discussion."

I guess we might find a consensus if not limited by the word and posting constraints of OLO.

None the less, for all our disagreement, we have maintained respect for each other, which is always the better way.

I enjoy our exchanges, engaged in without acrimony.

Sincere Best wishes to you Ludwig

Col Rouge