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".