"daggett" wonders how speculation on VACANT land can be attractive, saying "the appreciation in property value would have to be scary to offset the rental income foregone..." Suppose that for the same amount of money, you can buy either ONE house-land package, in which the house depreciates and incurs management costs while the land appreciates, or TWO vacant lots, both of which appreciate. A higher land tax tilts the balance in favour of the former option, in which the tax is payable on one lot instead of two.

"daggett" also mentions crowding and infrastructure requirements. But isn't it better to have 1000 extra people living in your suburb than 1000 extra people driving through it? And isn't it better to have houses than fenced-off "bomb sites"? And isn't it cheaper to terminate the infrastructure network closer in than further out?

Country Gal wrote: "AND there is no negative-gearing allowed if the property is not available for rent. If its been deliberately withheld from the market, interest is not deductible (it will come into the CGT calculation, but its effect as a deduction is then effectively halved)." In other words, interest on the price of a vacant lot is deductible against the capital gain. But what if the interest exceeds the capital gain? Is it then deductible against something else?

In any case, investors who want negative gearing don't have to add to the supply of housing; they can, and usually do, buy an existing house. Only if negative gearing were confined to NEW CONSTRUCTION could it be defended as an incentive to supply housing. Such a reform, far from seeing "droves of investors leave the market", would stimulate construction, loosen up supply, and make rents and prices more affordable.

And if you dogmatically insist that there should be no discrimination between property and shares in relation to negative gearing, note that new construction in the property market is analogous to new floats in the share market. So negative gearing can be appropriately restricted in both markets.

Nic, the most speculation going on, is still with peoples own homes. IMHO
houses should be treated like any other investment, if we live in them or not.
That’s what happens in Europe.

Lots of “little people” are in fact benefiting from the housing boom.
My new neighbour, was offered a huge amount for his Perth property.
He took it, bought 100 acres, built a house and is still left with half a million
in the bank, all tax free. I’m happy too, he’s a great neighbour :)

A lot of people buying a string of properties, have in fact come unstuck.
Interest rates have risen, some housing values have dropped, those
you beut seminars did not deliver what they promised and a lot of people
got burnt. Some made a quid, but many have also lost.

Kevin 07 might yet deliver on your notion of a more egalitarian society.
I was impressed by an article in the Weekend Australian, where he visited
a few homeless shelters, before the elections. He is thankfully not pushing
for a welfare state, but a state where people are empowered to help themselves.
I go along with that completely and wish him well. I think that Kevin has the
brains, but have some doubts about the labour movement as a whole. Hopefully
he will dominate, if those are his policies.

As to the future, it might pay to read the latest edition of the Economist.
The US $ used to be the global reserve currency. The latest scandals have turned it
into a sub prime currency. The world is changing, Americans seemingly just
aren’t aware of it yet, apart from a few smart ones like Gates, Buffett etc.

"trade215" complains that taxation of increases in land values is a "sneaky way of transferring wealth of the people into the gubberments tax coffers." But the major mode by which gubberments increase land values is expenditure on infrastructure -- and the tax on the said increase is LESS than the said expenditure, which is why infrastructure is run down. Hence higher taxes on increases in land values -- even if initially offset by lower taxes on other things -- are the solution to the infrastructure problem.

Yabby wrote: "If the Govt wants cheaper housing, then don't limit land supply..." Yep, and the report shows that the chief limitation on land supply is speculative hoarding. Solution: Tax the hoarders out of business.

"vee" complains that land tax takes away the security of those who have paid off their homes. I answer: Only if it applies to owner-occupied residential land, and only if the owner-occupants can't pay it. The latter condition holds for any other tax and, for that matter, any other debt. In general, if you can't pay your debts, you go bankrupt and lose your house. But this is LESS likely to happen with land tax, because the tax is commonly allowed to be deferred until the property is next transferred.

"vee" also seems to think land tax discriminates against country and inland areas. Not so. Because the highest land values are in coastal cities, greater reliance on land value taxation would AUTOMATICALLY give much needed tax relief to struggling rural towns (without technically violating any constitutional strictures against discriminating between locations in matters of taxation).

Concerning Fester's remark about the two-income household: Any savings or additional earnings tend to be competed away in the land market. As soon as an earning measure (e.g. a second income) or a saving measure (e.g. no kids) becomes socially acceptable, it is on the way to becoming compulsory, because it gets built into land values. This problem cannot be alleviated except by reducing the intensity of competition for land -- e.g. by taxing the speculators out of business.

Yabby, I don't see how you can call it "speculation" when you're talking about your own home. But whatever, that's not what I'm talking about. It's those with a bit of spare cash deciding that a good place to put their money is into buying up existing properties, making no improvements to them, and renting them out.
They get all the benefits of negative gearing, are adding nothing to the supply, and are driving up prices over and above what young families trying to get into the market for the first time can afford.
grputland's suggestion of allowing negative gearing only on new construction makes a lot of sense to me, as long as that also applies to things like warehouse-conversions, and adding new rooms to existing stock.
Yes, of course there are risks even with non-value-adding property investment, and people have been burnt, but the risk-return ratio is still far more attractive than, say, investing in the stockmarket, which at least has the benefit of providing capital to enterprises that are then in a position to use it to boost their productivity, thus being able to boost the salaries they are able to pay to young workers - who are the ones needing money to buy homes!

Yabby,

You are quite right with regards to supplied land. I am not disputing that. The reports of the Housing Industry Association clearly show that land price over the past thirty years has far exceeded increases in housing prices. However, it is worth keeping in mind that not all land has the same value. Inner urban land is more expensive than the vast expanses of desert, primarily because of surrounding infrastructure. Without site rental/land tax it encourages land speculators to engage in meagre development and accumulate income without significant contributions to production. The number of single-story and two-story buildings (and even vacant lots!) in the Melbourne CBD is stark proof of the failure to promote efficient use of land.

Bottom line is we to open up the land supply AND increase land tax in lieu of taxes on housing. More buildings, less land speculation.

Vee,

Your assertions were well answered by grputland (a rather appropriate username in this thread). Read them carefully.

“but the risk-return ratio is still far more attractive than, say, investing in the
stockmarket”

Nic, the evidence suggests that you are wrong, but I grant you, many don’t understand the stockmarket
or how to approach it. Its easier to buy another house
which can actually be seen. OTOH yes,
we have a lot of baby boomers, who have been advised to provide for their own
retirement, as Govts will no longer do it for them, who buy another house or two.
Why should that be such a bad thing?

I cannot comment on the Victorian situation as I am less in touch with the rules
and regulations there. But certainly in WA, anyone with a block of land which
is not being used and has increased in value, will be paying a lot of land tax.

Its become a political issue, as lets say mum and dad bought a beach shack on
the coast, years ago. Due to the increase in land values and thus land tax,
they can no longer afford to keep the place for their weekends and are forced to
sell by high land tax charges. These are little people being hurt, not speculators.

The largest holders of large chucks of suburban land, are still State and Federal
Governments. Land held for the military, land held for other Govt depts and of
course large chunks of land held by the churches, often left to them in legacies.
They pay no taxes and charges, AFAIK, so can sit on land for as long as they want.

So the land issue needs to be approached from many sides, not just blame it all
on the so called evil speculators.

Mind you, given what is going on with the global money supply, I’d say that
the crunch might yet come here a little down the track and when real estate
values start to drop, due to more difficult to obtain and more expensive credit,
as usual there will be lots of tears. The wise, who did not overborrow or overpay,
will be the winners