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