For anyone out there who thinks that we are seeing problems with affordable homes or affordable rentals, I would suggest that in a few months time there are a lot of people ( home owners ) who are going to be losing what they now own and have fully paid for!

I unfortunately live in a country area of the "Smart State" and believe me when I say I am starting to smart!

I have recently been "forcibly" amalgamated into a much larger Shire, have just prior received a 100% Unimproved Valuation Increase. I am now hearing the New Amalgamated Shire Council Mayor apologetically saying that "unfortunately, due to State Government financial inadequacies" the Ratepayers of our "brave new Shire" will probably have to face "substantial" Rate Increases!( we are talking about Rate increases indirectly of 300%)

Now correct me if I am wrong,...but I have been led to believe that I am living in a "Democratic" and "Lucky" country and under this democratic system I can purchase and own a Freehold Property!....But apparently this "Smart State" jack-boot government can impose whatever laws and sanctions upon its residents, and as it has now been legislated, can "forcefully Amalgamate" residents into an entity suitable to its own selfish requirements ( to save money for this money-grubbing government!)

Having battled to purchase and own what I and my wife now own, we are being threatened with an untenable Rates Bill ( a bill for which we receive nothing in return - NOTHING AT ALL!)

As Old Age Pensioners we do not have the financial capacity to absorb or pass on this extra cost, and in light of the rapidly escalating price of everything imagineable can foresee the situation where we will be "sold up" for non-payment of Rates in the not to distant future!

PS: We could have lodged an appeal against the increased UIV, but in doing so, the onus is on us to PROVE that the increase was "Unfair. as compared to other properties in the area!"....an impossibility when dealing with this type of "politburo"!

'Property investors don't "provide" housing unless they build new homes.'

The opening line should be engraved in seventy-two point font on the office door of every housing minister so they can see it every day.

I see a lot of complaining in this article, but what I'd like to know is what sort of incentives people should be given to create new housing?

Clearly, it can't be all government provided. For one thing, the government has other things to spend money on (hospitals and education, just for starters), but also the government has finite resouces which needs to be spread across many areas. So the private sector needs to be involved.

But what sort of incentives?

The author states that the first home owners grant should be either bigger or only for new houses, but is that really going to create a surge in new houses? with FHOG being ~$7k, it's hard to imagine that it would.

I don't see a lot of positive ideas being put forward. It seems that people are more interested in complaining than proactively addressing the solution

Of course BN is right in saying that governments have only so much money to spend, and many things to spend it on. But this does not limit the capacity of governments to provide INCENTIVES, because "incentives" include not only CARROTS (subsidies and tax concessions) but also STICKS (taxes, and withdrawals of subsidies and concessions).

Consider the incentives that I suggested in the article:

* Confining negative gearing to new construction would
increase tax revenue. Ditto for the discounting of
capital gains. Making the discount contingent on
offering the property for rent would increase revenue to
a lesser extent.

* Limiting the FHOG to new homes would reduce public
expenditure.

* Deeming every investment property to be earning 4% of the
site value per annum would probably reduce tax revenue
from properties that are used to their full potential,
but would increase revenue from underused properties.
The reform could be made revenue-neutral by suitably
adjusting the deeming rate.

BN may also be right in suggesting that the $7000 FHOG is too small to stimulate much new construction. But if the FHOG reform were made revenue-neutral (instead of revenue-positive as above), the cessation of the grant for existing homes would allow a substantial increase in the grant for new homes.

My OLO article mentions only small sticks, namely withdrawals of existing subsidies and concessions. A bigger stick would be a new tax on vacant lots and unoccupied dwellings -- that is, a new tax on failure to provide housing (see http://www.prosper.org.au/2008/06/26/a-tax-on-your-vacant-houses-gavin-putland/). If it is respectable to say that welfare recipients should be hassled into looking for jobs (http://www.onlineopinion.com.au/view.asp?article=7532), why shouldn't it be equally respectable to say that owners of scarce residential land -- most of which has appreciated at public expense since it was bought or inherited -- should be hassled into providing housing or selling the land to someone who will?

BN concludes that the private sector needs to be involved. Yep, and the way to get it involved is through appropriate incentives -- not to be confused with free gifts.

Hey you lot:... Why are homes so expensive? Why are rentals so expensive? Simply because everybody associated with providing housing and accomodation has their own particular snout buried deep in the trough and aims to make a quick killing!

Look at the Development costs associated with turning a paddock of vacant land into housing estate.
Councils require a plethora of applications, fees and consent before the Developer can make any move to build a house.
The Developer at the same time expects and makes quite a handsome return on his investment.
The Local Government Authority can and sometimes will complicate the application for development and consent by requesting ridiculous amounts of conditions, building plans,Studies ( E.I.S and the like) that have to be met, before any subsequent consent can be given to the Developer to go ahead and organise building. ( Kerbing, Channeling, Electricity, Water and Sewerage).

The true cause of lack of affordable housing is simply greed for profit! Land prices are absolutely over the top! Councils Fees and Regulatory charges are over the top! Building costs and materials are over the top!

What is going to happen to all the homeowners who are going to driven out of their own homes by the greedy State Government and Local Government Authorities who in their own greedy quest for money are now placing unrealistically high rating structures on these little battlers who simply do NOT have the capacity to pay?

It is not worth the trouble for little battler to own his own home, because in reality he does NOT own it (and under our system he never will!) and can be rated out of it whenever the Government Authorities see fit to apply the screws!

How many little people have legally battled a Government organisation and won?.....I couldn`t even find a Solicitor to represent me to take a fight to Council.

I make a simple statement:.....I will NOT be driven out of my own home (that I have bought and paid for!)....I will fight to the death if that is what it takes!

Mr Putland,

I'm seeing lots of sticks here, however I'm not seeing any carrots. If we want private capital being injected into the system then some carrots are required, and given the invasions of private property rights that you're suggesting, those carrots will need to be significant if they're to work.

I hope that you'll concede that supply of property is part of the problem. If you agree with that then you must also agree then that giving people an incentive (read: additional reasons) to invest in new property is a way to increase supply, and must form a major plank in the solution.

However all I see are sticks in what you're suggesting. Why would someone want to invest in property with the suggestions you're making?

And for clarity, what are the new carrots you're suggesting? What are you proposing that will make new people want enter the property market and build new properties?

'Property investors don't "provide" housing unless they build new homes.'

The opening line should be engraved in seventy-two point font on the office door of every housing minister so they can see it every day.
Posted by Lev, Tuesday, 1 July 2008 11:19:03 AM

Correct me if i'm wrong but; If an investor buys an established property, then rents the property out, the original owner of this property has to live somewhere. Quite often in a new house they have had built. So in essense, there has been a new dwelling built it is just that it is not being rented as the owner is living there.

Some new owners of apartments get vacant possession and then leave them vacant.Surely some fiscal measures can be adopted to ensure that vacant land, houses and apartments are rated or taxed more heavily than occupied ones.Quite a lot of homeless people would then have a place to call home.If this problem is not solved then Australia will descend into a third world situation.Vagabondage and squatting will then prevail.

I'm with you Cuphandle, we are going to have to start to sit on these councils. A large part of our problems are the "planners". Every time they put pen to paper, we get some damn fool regulation, which does nothing to improve our shires, or their livability, but does much to waste our money, or restrict our use of our own properties.

Like you, I'm an older retired bloke, glad to have lived most of my life in an earlier time, when we did not have very much, but could enjoy what we had.

You would have to be mad to even comtemplate a rental property today. Apart from councils, & governments, trying to send us broke, the law is now stacked against landlords to such an extent that there are half a dozen trashed houses,sitting empty in my area. The law prevented the owners from removing deadbeat tenants, before the properties were vandalised.

This is a good article as far as it goes and I agree with Gavin's suggestions.

However, the article inexplicably omits two critical factors: population growth and the adverse affect that more subdivisions and housing development will have on our environment. This has been written of in the article "Melbourne 2008: Life in a destruction zone" at http://candobetter.org/node/628

As I have argued on may other discussions on OLO and elsewhwere, population growth is the driver of housing hyper-inflation. Land speculators and property developers have lobbied for population growth for the precise purpose of driving up the value of their investment.

Now that they have succeeded to the point of putting homes impossibly beyond the means of anyone with a normal income, they would now have us believe they want to solve the problem and provide affordable housing to the masses once again. (I have written of this in "Brisbane's housing unaffordability crisis spun by ABC to promote property lobby interests" at http://candobetter.org/node/610) To solve the problem, they are demanding of local Governments that they bypass all of the checks and balances that have, in the past served to stop development getting completely out of control.

Local Governments which have been elected to stop overdevelopment such as the Sunshine Coast regional council and the Redland City Council are now being over-ruled by an autocratic Queensland state government in the pockets of developers.

If they succeed, virtually all of South East Queensland will be covered with concrete and asphalt and rural communities to the north and west such as at Wyaralong and the Mary Valley will have been destroyed in order to provide South East Queensland with water, and the habitats of Koalas, squirrel gliders, flying foxes, the Mary River Cod and the Mary River Cod will have been lost.

daggett

While I agree with you about the use of population growth to drive demand, I believe that you are discounting the effect of government restriction. Were restrictions eased, both the housing and rental affordability crises would quickly be smashed, ironically by the same small property investors that the author of this opinion piece has sought to vilify.

No, the affordability and rental crises are not about small investors being given the same concessions accorded to any commercial entity. What it is entirely about is the removal of development rights from the same small investors. These rights are arbitrarily and opaquely administered by local government under a system inherently prone to corruption. The result is that corrupt government office bearers and their cronies profit greatly at the expense of Australia's citizens and future.

In order to address the regular failings of local government, nothing less than a judicial review of its role in the development process is required. Articles blaming everything from mad speculators to working women to negative gearing are a bum steer, and an insult to the publics' intelligence.

From the article “For purposes of income tax and GST, it could have deemed every investment property to be earning an annual income of, say, 4 per cent of the assessed site value”

So, suppose I get a rental return of say 6% (not an unreasonable expectation on any property which has been owned for say 5 years or is bought at a discount) - do I pocket the extra 2% income without paying the GST or being levied income tax on it? That sounds like a very generous incentive to draw investment funds into the housing market.

How do I fare with CGT?

A discount on that too?

“The Senators cited two submissions suggesting that negative gearing be limited to new homes, and one submission suggesting that the concessional taxation of capital gains be similarly restricted. I made both suggestions nearly five years ago”

Yes well, what can I say, well lets ask

When do “new homes” become no longer “New”?

Why should two identical properties, possibly side by side in the same street and 'occupied' on the same day, be assessed for tax on different rules simply because one was bought originally by an investor and is deemed “New” and the other sold originally to an owner-occupier who went belly-up and was hence purchased by an investor but is not classified as “New”?

As to your suggestions of five years ago, maybe others also made suggestions which were supported by better argued and more compelling reasoning.

Cuphandle “there are a lot of people ( home owners ) who are going to be losing what they now own and have fully paid for!”

Yep my daughter and I are both looking for some at the present time. Provided one is reasonably cashed up, there is a growing opportunity to purchase mortgage snatch-backs (opportunities abound in the area where I live) and turn one-time owner occupied properties into additions to the rental stock.

The cause of high house prices is demand out stripping supply.

The answer is either to reduce demand or increase supply.

As daggett has pointed out, the population is increasing, so too is demand. The only solution to reduce prices is to enable supply to exceed or at least meet demand.

The main constrictions on supply are the local councils whose political agenda is to protect existing owners, and whose policies delay new developments by an average of 2 years.

The proposed legislation to fast track development should help.

Dear Cuphandle,

If you're an ordinary home owner, and if your rising site value leads to a Rates bill beyond your income, you can usually apply for part of the bill to be deferred until the property is next sold or bequeathed. Failing that, you can borrow against your rising property value -- as others do to pay for holidays and plasma TVs.

If you find these suggestions outrageous, your agenda is not to stay in your home, but to pass it on unencumbered to your heirs at its full appreciated value -- and, by implication, cast off the tax burden onto others who, although subject to the same law of death and bereavement, will never be able to bequeath or inherit property.

Fact: The only people who are forced from their homes by rising property values are renters who can't afford the rising rents.

You claim that you get nothing for your higher Rates, but admit that the Rates increase is related to a 100% rise in your site value. Do you think the latter rise is "something"? If so, see my comment at http://www.abc.net.au/news/stories/2008/07/02/2291821.htm . If not, I hope you don't object to policies that would drive your site value down again.

In complaining about the costs imposed by governments on developers, you forget that the rezoning of land as residential, together with the provision of infrastructure headworks for new estates, increases the prices that developers can get for their holdings, whether developers hand back any part of that increase or not.

If you think the essence of living in a democracy is the opportunity to "purchase and own a Freehold Property", I hope you admit that the third of the population who don't have that opportunity are not living in a democracy. And if you respond by lecturing those people on how they should increase their capacity to buy property, I point out that if they all followed your advice, they would drive up prices further, thereby defeating their own efforts -- and making you complain even louder about your valuation and your Rates bill.

For those of you out there who obviously seem to have missed the point of the gist of my message, (or alternatively are just too thick to see the point,) I will reiterate:....what is to be gained by everyone concerned wringing their hands over the subject of insufficient affordable housing, when we have Governmental bodies who can simply jack up the Unimproved Valuations and aided and abetted by Local Councils can ultimately Rate people out of their own homes after they have spent a lifetime paying TO OWN IT!....again I ask what is the point of the whole exercise, or haven`t you people run up against this problem as yet? .....no doubt that when you do we might see a change in a lot of people`s attitudes!

I shudder with despair when I hear the word ANZAC and hear people and the establishment voicing sympathy over the loss of so many of this countries finest citizens in false-flagged wars, when in reality all those lives were sacrificed uneccesarily, simply for the appeasement of the Capitalist system and the preservation of the status of some of the worlds wealthiest citizens!

When we are being denied the democratic right to purchase and own our home outright, without fear of the cost of an ANNUAL (unjust) RENTAL charge being applied by ever greedy money-grubbing authorities, ultimately removing from our possession what is rightfully ours, we have to ask exactly what did all those diggers die for?....( and I am sure it was not to prop up dishonest administrations and corrupt politicians!)

I am sure that Mugabe would be eyeing off this country as the best place for him to retire and to carry on his nefarious and despicable activities, secure in the knowledge that those that will be around him here are just as despicable as he himself!

WE WONDER WHY SO MANY YOUNG PEOPLE ARE TURNING TO DRINK AND DRUGS?...time to take a long hard look at yourself Australia!

The government doesn't need to spend any more public taxes to entice people to buy , merely incentivise the system to achieve the desired outcomes -- taking a different approach they should gradually cut the capital gains/negative gearing to nil over the next 8-12yrs could consider housing in a broader perspective, along with access to public transport and access to amenities.

We need more sustainable housing in areas close to employment, not on the metropolitan fringes, new high-density homes could easily be built in the inner areas in place of existing low density housing. The combination of blind conservatist attitudes and inadequate medium density planning procedures are clearly not working, are unsustainable and should be abolished.

It would patently simple for the government to compulsorily acquire land (as they regularly do for roads), first survey all of the inner (traditionally working class) suburbs that have been neglected by underdevelopment and lower population density.
All sites would then be cleared of roads and housing for communal redevelopment into carefully masterplanned (ideally not by mindless developers) high-density cluster housing for new home-buyers. This kind of radical approach would be be hugely advantagous ecologically, socially and economically as well as solving the problem of the escalating demand for housing, which thus far outstrips all supply and vain attempts to combat ever-growing unaffordability.

In areas zoned as residential, all properties should be assessed for annual land taxes/rates based on their estimated value divided by their population density (for example, a $2M suburban house on 1000sqm with two registered permanent residents, tennis court / swimming pool, would be taxed ten times what a $1M 200sqm apartment with two residents in the CBD would pay). This more equitable solution provides an incentive for people to shift toward smaller housing (or live with exponential costs for their mansion), while putting a dollar value on unsustainable NIMBYism, and would help cut down on vacant rental property. Similar measures could be applied to vacant land.

Cuphandle -- you may be better off looking at Reverse Mortgages than risk losing your house.

grputland:
Why should we be faced with ever increasing UIV`s, after all is said and done, not all of us are speculators or born and bred Capitalists!

Whoopee that the increase in Unimproved Valuation makes my property worth so much more, but does that matter one iota if I have no intention of selling the place and just want to live as modestly as possible and be left alone!

Why should everybody be encouraged to Reverse Mortgage what they have spent their life achieving,....leaving little or nothing to be passed on to children or grandchildren purely to sate the appetite of the Local Government Authorities to accumulate surplus funds!....( and I believe that my Shire had accumulated in excess of $3 Million Dollars in the bank prior to Beattie`s "forced" Amalgamation!)

I think that we would be hearing you squealing if the establishment was virtually trying to take something away from you that you had spent a lifetime battling to "secure"!

I would suggest to you that one day you may be an Old Age Pensioner and have to try to survive in a world that seems to thrive on the principle that "Greed is good!"

BN:

I agree that people need an incentive to invest in NEW homes, as opposed to established homes. And if the reward for investing in new homes is to serve as such an incentive, it must be given ONLY for investing in new homes, not established homes. An "incentive" without a matching condition is not an incentive, but a gift.

My article proposes at least one new carrot, namely deeming every investment property to be earning 4% of the site value for tax purposes. That means that if your property earns more than 4% (e.g. because you have built housing on it and sought tenants), you pay less tax than under the present system.

Another possible carrot is described at http://putlandletters.blogspot.com/2007/07/labors-blind-spot-on-housing.html (3rd paragraph).

That said, carrots are not essential: a suitably selective stick makes a perfectly good incentive.

rehctub:

Yes, if an investor buys a home from an owner-occupant, the latter MIGHT then build a new home -- and might not. Giving the investor an incentive to build rather than buy increases the likelihood that a new home will be built.

Hasbeen:

If you own a rental property (site plus building), the risk of damage by tenants is one that you bear as owner of the building, not as owner of the site. It is therefore an excellent argument for taxing you ONLY on the site value -- not on the building value or on any rent that you get for tolerating tenants in the building. My deeming proposal does precisely that. Any other tax reform that encourages owners to seek tenants may also be understood as compensation for the risk of bad tenants.

Fester:

I accused the "property lobby" of "self-serving propaganda". That's what lobbies do. But how did I, and why would I, vilify small investors? The smallest investors are the most likely to have tenants, because they need rental income to help service their mortgages. My article calls for policies that would give all investors, including small investors, incentives to build new homes rather than buy established homes, and to seek tenants. Incentivation is not vilification.

Col Rouge:

Yes, I DO mean that if your rental property earns more than the deemed income, you don't pay tax on the excess. (I have previously floated the idea of a MINIMUM deemed income, which would be a stick without a carrot. But here I'm suggesting that the deemed income would also be the maximum taxable income.)

A discount for CGT is fine provided that you get it for building a home and offering it to let -- not for buying an established home (especially if you leave it vacant), and not for buying a vacant lot and doing nothing with it.

A "new" dwelling would be defined as one that hasn't been occupied. That definition was actually used for the Commonwealth Additional Grant, i.e. the temporary supplement to the FHOG. Of course any tax reform that favours newer homes over older homes will directly or indirectly stimulate construction. But to implement such a reform, you have to draw a line somewhere. And of course those who are just on the wrong side of the line will complain -- as in your "two identical properties" example.

kristo:

If you include values of buildings in your tax base, you'll discourage building.

Cuphandle:

If you really mean that you don't mind if your UIV falls, then your position is consistent and I respect it.

Mr Putland,

"That said, carrots are not essential: a suitably selective stick makes a perfectly good incentive."

Not quite - the assumption there is that people will invest in property no matter what sticks are in place. And that's not true.

If you put too many sticks in place then you will deter people from investing in that arena which will only exacerbate the current situation.

I'll have a read of your proposal in the link and see what comes of it.

Fester, whilst I am glad that you accept that population growth is the driver of housing hyper-inflation, I don't completely understand the overall point of your contribution. To argue that the property developers and land speculators are the sole cause of the problems we face would be only a slight simplification of the reality.

It is certainly far less a simplification than to suggest, as the Property Council of Australia does, that the problem is caused by local government red tape and over-charging. In fact, there is conclusive evidence that existing residents are subsidising housing developments and population growth. As American writer Eben Fodor has shown in "Better not Bigger" that if population continues to grow beyond an optimum size that has been exceeded long ago almost everywhere, either:

1. Rates and charges for government services go up, or
2. The quality of services declines.

It has to be one or the other or a combination of both.

This has also been confirmed by studies by the Local Government Association of Australia

Note how residents of Sydney, Redland City, Brisbane and the Sunshine Coast, to name just a few, are being hit with skyrocketing water charges and council rates to pay for the expansion of services necessary to accommodate population growth.

The water charges are openly for more expensive means to obtain water including fossil-fuel-dependent desalination.

If, instead, we had simply stabilised our population, none of these additional infrastructure costs would be necessary.

We are literally subsidising the profits of the property sector and Sunshine Coast Mayor Bob Abbot is resolved to stop this.

Whatever corruption and needless bureaucracy may exist in some local governments is trivial compared to that of state governments who are clearly in the pockets of the property sector. Read for example, for Queensland State Labor Parliamentarian Cate Molloy on how the Queensland Government in 2007 forcibly amalgamated many local governments at the behest of the Property Council of Australia as they had deemed the now abolished Noosa Shire amongst others as an obstacle to the realisation of their sectional interests at http://candobetter.org/node/249 http://candobetter.org/node/169

daggett

Thank you for your considered opinion. Yes, I agree that a growing population incurs huge infrastructure costs. I agree with you that the problem is not solely with the local tier of government. I agree with your sentiments about the motives behind council amalgamations (which backfired in the case of Bob Abbott) and overriding councils in the name of the housing crisis. Nonetheless, local government is the front line of housing, and the key to making housing affordable.

I have no problem with developers or speculators. What I do have a problem with is people having their rights curtailed. It is the curtailment and control of those rights that are the heart of the problem. Restoring rights to individual landholders would end much of the corruption in much the same way that illicit drug regulation (as opposed to prohibition) would destroy profits for criminals.

grputland

"But how did I, and why would I, vilify small investors?"

Somebody renting could read your article and resent small investors for supposedly preventing them from buying a property. To this extent you vilify small investors.

Why would you? Everyone on this thread is concerned by the affordability crisis. We differ in what we believe to be the causes and the means of resolution. Out of interest, would you think it a good thing for businesses to be denied tax deductability of mortgage payments for old commercial buildings?

Incidentally, I think it is great that you have put forth an opinion piece on housing affordability. This issue is raised far too infrequently in my opinion at least.

Population growth, in so far as it is controllable by governments, is mostly due to immigration. If immigration is driven by the property lobby, then presumably the property lobby and its stooges stand ready to attack anyone who blames immigration for unaffordable housing -- by calling him/her a racist.

Therefore, instead of accusing the property bludgers of supporting immigration in order to drive up property values, you have to accuse them of limiting the supply of housing in order to drive up property values, and say that IF we must have high immigration, then we need policies to ensure that housing construction keeps ahead of demand. Let other fools argue about the "IF".

In assessing the influence of developers, we must be careful to distinguish between those who want to increase POPULATION density and those who want to increase HOUSING density. The latter tend to increase the supply of housing and thereby improve affordability. They are opposed by owners of local properties (not to be confused with local residents!) who want to restrict supply in order to drive up their own asset values. The campaigns by "residents" involve some highly sophisticated hypocrisy. I have deconstructed one such campaign at http://grputland.blogspot.com/2006/01/little-people-vs-littler-people.html .

BN:

You wrote: "... the assumption there is that people will invest in property no matter what sticks are in place." No, the assumption is that people will make optimal use of LAND if there are sticks for failing to do so.

If you try to influence what people do with their money using sticks alone, they can take their money elsewhere or not earn it in the first place. If you try to influence what people do with their plant and equipment using sticks alone, they can take their plant and equipment elsewhere or not produce it in the first place.

[Continued...]

But if you try to influence what people do with their LAND using sticks alone, they can't take their land elsewhere, and can't bite back by refusing to produce it (because nobody produces land). At worst, they'll sell the land, in which case the sale price will be depressed so as to compensate buyers for the sticks, and the highest bidder will be one who plans to use the land in a way that escapes the sticks. For that bidder, the depressed price is a carrot!

Fester:

To the extent that small investors choose to buy established homes rather than build new ones, they stop other people from buying established homes. To state this fact apparently amounts to vilification of small investors, even if one only wants to give them an incentive to build rather than buy. Whatever!

You ask whether I think businesses should be "denied tax deductibility of mortgage payments for old commercial buildings".

If the suggestions in my article were extended to this situation, businesses would not be able to claim negative gearing losses on such purchases (of course such losses would be unlikely anyway), and would not be able to discount capital gains thereon, but would be able to claim negative gearing and capital-gain discounting for new buildings. This would encourage construction of commercial accommodation.

To go further, completely disallowing interest deductions on old buildings while allowing them on new buildings, would further encourage construction, but would also depart from the principle that expenses incurred in earning taxable income are deductible against that income. My suggestions don't attack that principle. They only seek to rationalize concessions and subsidies that go beyond that principle.

I guess that's a "no".

Mr Putland (or Gavin?),

Thanks for the link to "Little people vs. littler people" at http://grputland.blogspot.com/2006/01/little-people-vs-littler-people.html It shows that these issues are not black and white. I always wince when the question of loss of property values is raised as a valid reason to oppose overdevelopment.

Nevertheless, having said that, I still believe that "NIMBY" struggles such as that being waged by the West End Community association (http://www.weca.org.au) are worthy of our wholehearted support.

Certainly Brisbane Lord Mayor Campbell Newman's mad plan to have height restrictions lifted to 30 storeys must be opposed. This will do nothing but create a horrific unsustainable high rise slum. In a matter of decades these buildings will be unusable beyond 6 levels as the cheap power that enables lifts and air conditioning, etc, to work won't be available. In well under century they will start falling down, and it may well prove impossible to safely demolish them.

In spite of the superficially plausible argument that high rise saves, space preventing urban sprawl, they almost certainly end up doing at least as much damage to our environment anyway. As Canadian Brishen Hoff wrote:

"How is it “environmentally positive” to concentrate people into highrise apartment complexes where it takes massive energy inputs to treat their drinking water and sewage, run their elevators, maintain their multi-storey parking garages, power their artificial indoor fitness club environments, and bring them food and resources from distances that grow in proportion to their population size, giving them no hope of growing their own food to survive the new end-of-cheap-energy era?" ("How green is 'smart growth', really?" at http://candobetter.org/node/625).

I think some high-density housing as suggest by kristo above may have a place as long as fossil fuel energy is not required for the buildings to operate. That means that they should not be higher than three storeys at the very most. They should all be located close to arable land so that all the residents have the ability to grow their own food. I recall that some traditional villages in Italy have been built in this way.

grputland

Thank you for answering my question. The differential treatment of commercial and small investors was what most concerned me about your idea. The scenario I considered was one where small investors were forced out of the used housing market at great financial loss. But instead of the properties being bought by owner occupiers, they would be bought by commercial entities which would be allowed to negatively gear. This would lead to a corporate housing industry getting a leg up at the expense of small investors, which is something that I would not like to see. I guess that I have a bias against solutions which take rights from the little guys, but leave them with the big guys.

I hold the view that the little guys could solve the housing crisis but for having their hands tied. With less restriction, I believe that the large profits derived by a few from mass immigration at the expense of all Australians would dry up. I suspect that without a profit motive, the immigration rate would then be substantially reduced.

daggett

In Brisbane, a restriction was placed on how close you could build to the fence line. The restriction coincidentally blocked that most effective medium density solution, the terrace house. Was the restriction made to protect the public, or was it made to kill the competition?
(I am more optimistic about the ability of technology to deliver energy more cheaply than today.)

BN raises the highly important question of ensuring the correct incentive structures and asks, quite correctly, what can be done to make housing more affordable.

The price of housing comes from primarily from four sources.

- The market cost of building material, labour etc which, iirc, has been almost constant in real terms over the last fifty years.

- Extra taxes placed on goods and services related to housing.

- The location of the house (i.e., the site value) which is a natural monopoly in each and every instance.

- The demand for housing in general and location in particular.

Altering the fourth contributing factor, for example by reducing our total population, can have negative impact on economies of scale and net productivity. So I'll discount that one, albeit only partially (it is obviously possible to have too many people and not enough houses).

A more practical solution is a reduction in the taxes applied to housing and by this I mean the building of new properties or improving existing property (such as most rates). At the same time, I would likewise recommend an equal increase in the 'taxes' applied to unimproved site value (as, for example, a rating system).

There is an regrettable uneconomic incentive for people to hoard land, thus reducing supply and increasing price. It is very unsustainable, as the "sub-prime" crash and the UKs current housing woes clearly indicate.

By creating incentives to build high quality houses and maximise the use of space, affordable housing in useful locations becomes a reality.

Gavin

To my mind the most interesting evidence to the Senate Inquiry was the stuff from and about not-for-profit community houising associations and the models of community housing being developed overseas. For instance the evidence in the University of West Sydney submission (and the subsequent paper) looking at Community Land Trusts, limited equity cooperatives and deed limited mortgages.

Have you looked at these models of affordable housing in perpetuity - and what is your opinion?

... and what do you think of the ACT scheme where you can own the house but rent the land from the state for the first ten years or more...

It seems to me what all these models have in common is seperating the cost of housing (that is, the bricks and mortar) from the cost of the land - which is the inflationary aspect of housing affordability.

Interested to hear your views.

Oops -- apologies to Chris T for taking so long to reply.

Some background to the ACT Land Rent Act 2008 can be found on my employer's website at http://www.prosper.org.au/2008/05/12/canberras-policy-vision/ (and the links therein). My critique of the Act (or the Bill, as it then was) is at http://www.prosper.org.au/2008/07/23/insights-on-canberras-land-rent-bill/ .

To answer the rest of Chris T's question, I offer some views on land rent schemes in general.

If you were starting a country from scratch, you would privatize almost everything except the land. The government would own the land, charge rent for it, and finance public expenditure out of the rent, so that there'd be NO NEED FOR TAXES.

Access to land would be affordable because nobody would have to compete with speculators.

Anyone holding a land lease would obviously need to use the land productively in order to cover the rent. Hence they would need to invest in buildings and other improvements. The return on such investment would not be diminished by taxation, or by the need to purchase the land at speculatively inflated prices (at which the interest would exceed the rent). To facilitate construction, prospective leaseholders would be able to obtain lease durations comparable with the expected service lives of the proposed buildings.

Economic growth would be rapid and inflationary pressures minimal, because there would be no speculators tying up prime locations needed for productive purposes, and no taxes to distort price signals; rather, the recipient of one particular undistorted price, namely the rent of land, would just happen to be the government.

[Continued.]

[Continued.]

But of course we're not starting the country from scratch. We have allowed the rent of land to fall into private hands, so that governments are funded not by rents, but by distortionary taxes. Against that background, schemes allowing people to buy houses while renting the land under them -- e.g. where the land is still owned by the government (as in Canberra) or has been acquired by a community land trust -- do not get rid of taxes. Neither do they get rid of speculation, except among particular people (as in Canberra) or in particular locations (as with community land trusts). Such schemes allow participants to rent land for less than one would pay in interest on the purchase price. Unfortunately they also combine a disadvantage of buying, namely ownership of a depreciating building, with a disadvantage of renting, namely the need to pay increasing rent on an appreciating piece of land (without being compensated by elimination of taxation and speculation).

Community land trusts have a further advantage: If the trust covers a sufficiently large territory, it will be able to capture uplifts in land values caused by infrastructure within that territory, and therefore will find it profitable to provide and maintain such infrastructure. So the territory will be well serviced.

In short, land rent schemes and community land trusts have their advantages, but they are not satisfactory substitutes for financing government entirely out of land rents.

grputland said:
"...Unfortunately they also combine a disadvantage of buying, namely ownership of a depreciating building, with a disadvantage of renting, namely the need to pay increasing rent on an appreciating piece of land (without being compensated by elimination of taxation and speculation)."

I'm not sure this is the case - certainly not with the community land trust models I've heard of in the US.

As I understand it the land rent should not be going up (although it may be indexed) - that's the whole point of the community land trust being a not-for-profit community organisation.

Similarly the value of the house should not be depreciating - when the owner of the house decides to sell up then they get a modest return on their investment which is determined by whatever indexation-plus formula is build into the CLT.

The idea is to take out the inflationary aspect of the rising cost of the land so that a comparably affordable unit of housing is available and the relative worth of the initial 'subsidy' is preserved.

Similar rules apply for limited equity cooperatives and deed restricted mortgages.

Happy to email you a paper on this ...

Dear Chris T,

If you'd like to send me a paper, my contact details are at http://zero-tax.blogspot.com/2008/06/contact-me.html (the email addresses must be retyped because they're encoded to confuse spambots).

In the mean time, I make the following general observations.

If the land rent payable to a community land trust (CLT) is indexed so that it doesn't keep pace with the market value of the land, then the part of the market value that isn't paid to the CLT accrues (in kind) to the occupant.

If the occupant can sell the "house" for more than he/she paid for it, the implication is that some of the land price has become mixed with the "house" price. This is possible only if the buyer expects to pay less than the full rental value of the land over the life of the land lease -- as under the aforesaid indexing arrangement.

If the land rent is reassessed on each sale of the house, so that the outgoing occupant cannot sell the full capitalized value of his/her rent subsidy, then people will be reluctant to move out of the community -- unless the CLT moves out with them, acquiring the land that departing members want to live on.

The fundamental point that is not stated often enough is that land speculation and landlordism is essentially about one section of society taking unfair advantage of another.

Col Rouge's curious unashamed boast (#117450, 2 Jul 08), that he and his daughter are now looking to buy cheap properties that others, unable to cope with high mortgage repayments, have been forced to sell, is one illustration of this.

In another discussion "Housing affordability squeezed by speculators" at http://forum.onlineopinion.com.au/thread.asp?article=6697#103886 I quoted from an article by Noel Whitakker “Why Investing in Real Estate is so special” printed in Brisbane's Courier Mail on 23-Jun-06. Even though Whitakker is an enthusiastic proponent of the property sector, his article demonstrates my point almost better than I could have myself. He wrote:

"An obvious but often overlooked quality of real estate is
that … you can live in it and avoid paying rent. If you already
have a place of your own, you can rent your second home out and
it will produce income as well as capital gain."

Two paragraphs later he wrote:

"The next big benefit of owning your own home is that you control
it which provides security for you and your family. You become
free of the worry of a landlord returning from overseas and
wanting to move back into his own house or being evicted because
the owner suddenly decides to sell the house to raise money. You
have control of your own future."

Thus one group in the community (landlords) who enjoy security for themselves are able to profit by denying that security to others.

I think Whitakker has made an excellent case for altering the laws to make it as hard as possible for anybody to thus be able to take unfair advantage of anyone else. A good start would be to abolish the negative gearing rort.

---
Other articles of possible interest are:

"Property analysts again confirm immigration used to inflate housing prices" 3-Aug-08 http://candobetter.org/node/710

"Brisbane's housing unaffordability crisis spun by ABC to promote property lobby interests" 23-June-08 http://candobetter.org/node/610

"Rent gouging threatens Brisbane inner city retail community" 8-Mar-08 http://candobetter.org/node/360