Increasing Land Tax simply increases rent to match. The effect is not immediate because property is a long term investment but Land Tax lowers the return on the property and deters property investors from purchasing the property.

Many houses in inner Sydney that were once rental are now owner occupied and paying no Land Tax. Rental prices in inner Sydney have increased rapidly the last few years because of stable demand and declining supply. Land Tax is partly to blame.

In an ideal world, the inner city houses would be demolished and replaced with high rise to utilize the high land value but in practice heritage and zoning rules make this almost impossible.

Hi Wattle,

Actually, as Adam Smith, points out increasing land tax does not mean an increase in rent to match. Why? Firstly, because the landlord is already charging the maximum market rate. A higher tax would mean no one would rent with the landlord in question and instead no one would be there *while still* having to pay the tax. He would either have to lower the rent or sell it to a capitalist. Secondly, on the supply side idle sites are brought into use (as noted, in just one suburb of Melbourne there are 1000 vacant sites). Imagine what that would do to prices. Thirdly, because the speculative element in hold sites - vacant or capital gains - is diminished, this reduces rents further. Hence, in Pittsburgh we saw a 30% decline in rents when LVT was introduced. Your views do not match the reality.

If I have misunderstood you, and you meant "higher rent" due to more infrastructure being built, this is true - but it is justified by *fundamentals* i.e. accesibility to the marketplace.

Secondly, you are right - LVT is partly to blame. Precisely because it is not high enough. First, we saw there are plenty of idle houses in the *inner* city. No one lives in them (see the above statistic). Second, 'the inner city houses would be demolished and replaced with high rise to utilize the high land value' is exactly what happened in Pittsburgh. This is called agglomeration (like services are in similiar areas - so industry are on the fringes, businesses in the centre and residential housing inthe middle: http://en.wikipedia.org/wiki/Agglomeration). Land tax encourages it. As I pointed out, construction, in Pittsburgh, increased by 68% in just one year and vacant buildings were demolished and put into productive use (hence: http://upload.wikimedia.org/wikipedia/commons/8/89/Pittsburgh_dawn_city_pano.jpg ). So "high rise" buildings were created (so the tax could be better paid for), vacant sites *in* the city provided houses for the homeless (idle sites were reinquished) and speculators stopped causing urban sprawl (in contrast, Calfornia, after capping its property tax saw urban sprawl explode fourfold within the decade).

Even if you are correct in saying that LVT increases rent (you've just rewritten economic history), it would imply that such increases, are justified by increases in demand due to market accessibility (eg transport services). In the long run, site rent cannot be passed onto the tennant because the landlord is already charging the market price ( hence why we *abolish* other taxes in the short run, to arm people in case there is an increase). Additionally, LVT cannot be passed on because there is now an increased supply of rental properties on the market. Tennants can now threaten to move if the landlord attempts to pass it on. When rent is collected on unimproved values, land will become much more readily and cheaply available. Many more people will have access to sites and be in a position to build their own houses and operate businesses. All you’d need to borrow, if at all, would be the current unimproved site value. Compare this to the gigantic burden of taxes&mortgages at inflated interest rates.

Like in Pittsburgh, many existing tenants would move and take up sites elsewhere. The law-of-supply-and-demand will reverse the current situation by forcing landlords to compete to attract tenants by; improving terms and conditions, carrying out building and internal improvements, undertaking promotional activities in commercial centres. In other words they would have to start renting buildings alone and forego the unearned income from the site itself.

Rents are run by a monopoly. Taxing a monopoly means that a monopoly must give up its power, accordingly. Landlords, especially smaller landlords, would ultimately benefit from Community Site Rent in any case, in that, although they would be foregoing the site rent as part of their income, they would be in the same position as other citizens in that the benefits from a move to Community Site Rent would offset and probably outweigh their initial loss.

In reality, Wattle, everything you listed is not empirically valid and everything you desire is actually achieved by a "betterment levy".

Cheers,
Steven Spadijer

“Why should the value of government windfalls and population growth be deposited to landlords…”

My question: why population growth to enrich landlords, builders and land speculators at huge cost to the rest of society and the Australian environment?

As a “cure for unemployment”, a cessation of population increase and gradual reduction to a sustainable level of 13 million ( Tim Flannery’s measurement before he got PC and started to blame ‘climate change’ for everything, while ignoring the claimed effect or population on climate and environment he wrote about) is the best and only cure.

The key to bringing the greedy to book, making rents and housing affordable in the driest country in the world – where most people have to cluster around the coast in eastern state cities – is to stop maniacal immigration to suit the greedy.

Sounds like and interesting concept to me Steven and I'm going to do some more reading on it.

I'm sure the doomsayers out there will jump on a 'tax' as just another cost without thinking through the long-term benefits. I'm also waiting for the 'but that's Pittsburgh and this is Australia, so it wouldn't work' argument to surface.

Too many people out there are fixed in their ideologies and unable to embrace different concepts - whatever the merits may be.

I am not sure how Land Tax works in Pittsburgh but in Sydney land valuation for tax purposes has increased steadily despite property being in the doldrums and consequently I am seeing my Land Tax bill increase about 10% a year. Over the same time the market rents have also increased.

Increasing Land tax simply favors the owner occupier over the landlord because the owner occupier is exempt. The next purchaser of my property will most likely live in it and pay no land tax. It is obviously a good policy to encourage individual home ownership but the rental market still has its place because not everyone is ready to commit to the purchase of a home.

In Pittsburgh they may demolish the old and build high rise but in Sydney we are more likely to demand the retention of the original streetscape and deny high rise. This policy results in low value properties (high heritage value) on high value land. The resulting property is uneconomic to let because of Land Tax so reverts to owner occupier. This is a great policy if you are looking to purchase a house but the renters have to go elsewhere.

An excellent article systematically spelling out the most important reform for our times. With the looming Keynesian failure on the horizon, it is time for policy makers to seriously consider land value capture as the policy platform for the Next Economy. This is particularly so with the increased mobility of capital and the scarcity rents natural resources of all kinds deliver.

The debt bubble, the global infrastructure deficit, the dominance of urban sprawl forever policies, the peril that carbon based decadence has placed future generations in, the list goes on.....leave little room for the leakages that today's 2 dimensional economics permits.

Ok I get the point there’s a lot of would be economics students out there all wanting to be heard, but has anyone got any explanation for the bailout packages to the finance and industrial sector that the governments of all nations are proposing. I say proposing because they really haven’t done a lot but propose except that this for America. Which brings me to the purpose of the promise not the validity of it?
It would appear that everyone wants to jump on the poor old USA as a scapegoat for the cause of this bust-boom-bust cycle that’s now developed into an uncontrollable deflationary spiral.
The invasion of Iraq and the subsequent oil boom (unrivalled speculation here) triggered off this crash. Don’t see the UK or Australia (the only agreeing countries into G Bushes WOMD argument) accepting any blame he here.

Wattle. Pittsburgh-has-very-little-exemptions. Thus, in-comparison, NSW-is-not-a-good-model-for-LVT. I-can-own-8-properties-and-pay-no-LVT. Why? Because-it’s-a-state tax. Also, you-can-be-exempt-if-you-use-the property-for-commercial-use, give-over the property to-your wife-or-kids or live-overseas. Given LVT is only-1.3%, prices rise to ridiculously-high levels as negative-gearing can offset LVT as does the demand from foreign investment into real estate cannot be managed by a tax that SMALL (billions-are –poured-into-Australia-for-“investment”-in real-estate, particularly-by-the Japanese-and-Americans)–indeed-LVT could increase the price because it forces small landowners to sell it to the big ones, cementing-monopoly power-even-further. NSW-only-has-the-tax to-get-revenue, not-stop-speculation. However, New-Hampshire-and-Louisiana-has-the-least-number-of homes with negative equity and-it-has-the-US’s-highest-land tax-to-stop-speculation. On the other hand, California-has its notorious Proposition-13 keeping-a-lid-on-property-tax (it has the lowest land tax in the country) and-has-the-worse-mortgage debt: http://www.nytimes.com/interactive/2008/11/10/business/20081111_MORTGAGES.html Pittsburgh-only-has-6% of homes-with negative-equity while California-has 27%. Clearly, LVT-signals to-people-to-investment-in-businesses-not-dirt. So-the-solution-is-simple: over time, increase the tax to make it unprofitable to keep properties idle or for capital gains and invest instead in *building up properties (e.g. renovations)* (a-property-developers-DREAM)-or-*creating-actual-businesses* while-phasing-out-all-other-taxes.

As-for-your-sacred-sites-point, due to their-historical-value, they-could in-and-of themselves generate windfalls-to adjacent sites (e.g. the-Opera-House, Botanical-gardens). It’s-a-public policy-issue-what-you-do with-them. My point is whether you keep the sites LVT can help keep-the-site- in condition, refurbishing it OR build-over-it-as “money is funnelled not into land, but onto land” to-build-high-rise-buildings. LVT is flexible. Also, you say: “This is a great policy if you are looking to purchase a house but the renters have to go elsewhere” – sorry, this sounds like a contradiction. *If* families go-and-buy-their-*own*-home (Pittsburgh home ownership is 90%-lowering prices) this generates less demand in the renting sector (an-increase in demand for housing only mildly raises prices as idle sites are sold on the market). Less-demand-in-the-renting-sector means-lower-rents. Sorry, I don’t get why renters have to look elsewhere. LVT does-nothing-to-those–who-are-NOT-willing-to commit to their own home as the tax cannot be passed onto tenants and could even encourage the landlord to sell the property – allowing him to take necessary steps to sell the land, if the landlord anticipates a *gradual* increase of LVT overtime, making more people landowners themselves (i.e. why rent for the *rest of your life*, when you can own).

Ps Under my model, if-you-are-over-55-you-pay-NO-taxes (unless you own more than three properties) and-PAYE-can-take-place-if-you-have-problems. Also-remember-LVT-would-also-increase-your-purchasing-power-by-40%.

Leigh: there-is-*plenty*-of-room-for-immigrants.LVT-funnels-the-increase-in-property-values-due-to-immigrants-into--public-coffers (its-part-of-the-“unearned increment”). This could fund the building of new houses for them in run down areas of the city! Luckily, in fact, there is PLENTY of room for them: as the “I want to live here” report found there-ARE-thousands-of-idle-homes-and-vacant, non-built up-areas-in-the-city-which-could-provide-housing. Hence, when speculative sites are included, the vacancy rate is more like 8%, enough to house an immigrant family of three. My point is that LVT-stops-*artificial*-scarcity-and-makes-more-EFFICIENT-use-of-land-*within*-the-city.

As for climate change, on the public sector front, would it not be better to being spending money less on welfare (as more people are employed) and a bureaucratic tax system with needs the size of the Amazon to administer (1 tax v 216 taxes like stamp duty and income taxes) and-*instead*-spend this money on climate change research? Scuffling-paper-costs-so-much! Imagine all the trees killed to administer our tax system! Moreover, trillions-of-dollars-are-poured into-speculation-in-real-estate, by locals-and-foreign-governments–this-is-a-*misallocation*-of resources. In 1992-the-government’s-own-reports-concede-this: “Australians-funnel-too-much money into real estate and-not-enough-into-genuine-and-long-term-business-investment”. With all other taxes abolished, Australians are richer as it increases their buying power and lowering their rents – with this extra cash around, this would also cut dependence on the state to fund things like Medicare, inducing a greater role of the private sector, and allowing money to be funnelled into scientific research. I also implied that a budget surplus, generated by building efficient, environmentally friendly infrastructure is-self-funded as the windfall-generated-by-the-project-is greater than the cost of-building-the project-in-question. This-surplus-be-*scooped*-off-into-climate-change-research-and-would-allow-for-increases-grants-into-scientific-research. On the private sector front, the 3 trillion losses in subprime and the 100 trillion dollar debt in mortgages worlwide-could have been better invested in-researching-climate-change-or-energy-efficient-businesses! LVT-also-halts-urban-sprawl, which-increases-the-demand-for-coal-fired-energy-due-to-longer-distances-travelled, emitting-even-more-carbon dioxide-intothe-atmosphere-and-bulldozing-the-natural-environment-as-speculators-buy-at-the-edges-of-cities-waiting-for-the-city-to-grow. Leigh, environmentalism-and-economic-growth-are-by-no-means-mutually-exclusive-forces,under-a-LVT-tax system, which-encourages-research-and-innovation-over-speculation-and-idleness.

Thomas, oil-did-NOT-cause-this-bust. What-caused-it-was-TRILLIONS-of-dollars-of-“malinvestments” into-housing-and-poor-monetary-policy-which-built-up-housing-debt-to-160%-of-GDP (look up the ‘greater-fool’-principle). Interest-rates-went from 1%-to-6%, which added to defaults, popping demand for housing. In-the-US, the-Fed-interest-rate and bank-interest-rates, however, rarely-match; they-are-often-higher-than-the-official-rate. The-purpose-of-the-packages-is-to-stop-deflation-banks-do-not-want-to-lend-as-they-have-lost-money (lower-real-estate-collateral-value-means tighter credit conditions-which-means-less-investment), reducing the demand–so government-steps-in-to-supplement-the-lowered-demand. Housing-wealth also–generates-a wealth effect which spurred on consumption, but that too is gone, something which oil stocks do (less people invest in oil-and-stocks increase consumption by 3 cents for every dollar, housing increases consumption by 4-8 cents for every dollar increase in your house, and houses-go-up-100000-more-dollars-than-stocks-do).

If-any-of-you-have-any-more-questions-email-me-at u4398412@anu.edu.au.

Dear whig98
I didn’t say caused, I said triggered. It would appear to me that the nations of America and Australia have similar problems and as such should suffer similar fates.
I agree that real estate was the biggest sufferer in this (now acute deflationary crisis) due to number of features, the prime factor being the reliance of the market system to be underpinned by the real estate market. The same thing happened in the great depression of 1930 and it’s the only time in history that this has reoccurred.
However that not what I asked or even implied.
I would like to know where the money is coming from to pay for the solution. Governments are bandying around monetary values that the ordinary person in the street can’t contemplate.
I don’t believe the government does either.
Also I don’t believe they have the money to begin with, let alone the policy to change it.
I might be inclined to think they had the potential to achieve what must be massive borrowing at a governmental level in 2004 at the peak of the boom and the peak of the treasury receipt s , however the period has changed and all governments are either broke or In deficit.
So what I want to know is where the money is coming from?

I found it unclear what you mean by betterment levy. You seem to be saying, correct me if I'm wrong, that's it's the increase in the value of land owing to government expenditure on infrastructure. How would you distinguish the tax on betterment from the capital gains tax?

By the way, there's another way to cure budget deficits: stop spending so much! Why is there this assumption that expenditure must be justified, and other people must be taxed to pay for it, for no other reason than that politicians decide to spend other people's money?

Thomas, caused / triggered – same difference, really. My point is bad MONETARY and bias FISCAL policy is what trigger/caused our present problems. Oil spiked in 1979 but did not cause a recession, it spiked in 1990 but it did not trigger a recession, it spiked in 1998, 1999 and 2003 – no recession. This is because land, not oil, drives the boom bust cycle. I suggest Fred Harrison’s “Boom Bust” which shows how land contributed to stagflation and the 1983 recession as well. Oil may have a indirect transmission effect, but it is the malinvestments in land which cause consumption and investment to slump.

As for your money question – it comes from several sources. First, “internal debt” i.e. government bonds, issued to corporations or the citizenry in OUR country’s currency and existing monetary stock; here, the government simply borrows money at a rate of interest from its people OR some financial institution (like the Commonwealth). Otherwise, securities are issued (i.e. assets owned by the government are sold or rented out e.g. Crown land or stocks). Internal debt lowers the risk of inflation as it does not print money *wildly* (hence, while printing money is easier, it has many side-effects). Second, government can borrow money from oversea banks i.e. “external debt”. Here, foreign borrower’s i.e. foreign banks, IMF, World Bank (all overseas banks). Of course, all this means we –the people – need to pay back the debt when the economy is productive again or government can simply *print more money* by pressing print on a computer. It’s that simple. Essentially, government funds itself the same way you and I do if we need money – through credit. Except, government can do what we can’t: force others, namely, taxpayers to pay back its debt. I recommend these sites: http://eh.net/encyclopedia/article/noll.publicdebt and http://en.wikipedia.org/wiki/Treasury_bills

Wing Ah Ling – the world is headed for deflation – not good! Hence, the spending. Mind you, I agree the spending should be less, at least here in Australia. The implied point is a betterment levy would mean no deficit - either because the boom bust cycle would be severely reduced, even eliminated OR there would be plenty of cash around (like in Hong Kong)to stimulate the economy without the need for a deficit.

As for your question, there would be *no* capital gains or stamp duties or any other major taxes under my model – capital gains would be abolished. The phrase "capital gains" is, of course, a contradiction. Capital does not gain. It depreciates. This is because land is not capital - try transporting a piece of land from Sydney to London! Anyways, I get what you mean. "Capital" gains which involve no work or effort on the part of the proprietor are taxed (i.e. the unearned increment due to windfalls). Not wages or profits. This was the way the Sydney Harbour bridge was funded - through windfalls. Capital gains in LAND I.E. THE DIRT, the soil is the result of the community (population growth, government projects and location, location, location, location) BUT capital gains on the property are due to owner (e.g building a big, modern house). LVT encourages the latter. The way to distinguish this difference is discussed in the article. We are talking about the land only. Community creates land values, owners create property value - this is why a vacant patch of dirt in the middle of Sydney - who nobdy owns or has a property builter over it - is worth more than a vacant lot of the same size in the desert, in the middle of no where.

Whig98
You are either obtuse or stupid. Semantic simianese is not a reply.
If you don’t know the difference between cause and stimulus what kind of economist are you? If In fact you have any qualifications at all other, than an obvious public circus background.
If I wanted a lecture on grade three economics I would ask my daughter.
Now let’s talk tin tacks.
The world is in recession (something I predicted, the author predicted and, you didn’t). Yet you blithely rave on about the revenue capabilities of the government, whilst their budgets are falling about their ankles.
The question was rhetorical. In case you don’t know what that means, in your submissions it means BS.
Don’t waste my time replying it obviously took you too long to try and weasel your way out of the last comment.

To AustralianWhig89,
You write an interesting article but please get your facts right. Land Tax "exemption for commercial use", in fact commercial users pay the bulk of Land Tax in NSW. Same applies to family members. Schools, church & rural are exempt. In NSW, the tax is 1.6% after a $368000 threshold.
In NSW, negative gearing is a dead duck. The stagnant property market makes it a loss maker. Also, the new rules to superannuation make salary sacrifice to super a better proposition than negative gearing for many people. Expect to see more properties purchased by self managed super funds which still pay 1.6% tax but miss out on the threshold.
I am wary of making comparisons between Australia and the US. America produced a massive oversupply of housing with very poor lending practices. Many people have now lost their homes and many suburbs remain unoccupied. The high home ownership and low rents in Pittsburgh were probably caused by the property bubble which has now deflated.
"Sorry, I don't get why renters have to look elsewhere". Well, I let two properties and half of my tenants are also landlords. Their properties are located elsewhere or temporarily inappropriate. Other tenants have left to buy their own property when they had saved enough. Others want to travel and don't want the commitment of a mortgage. Home ownership is a good policy but not everyone wants it.
The landlord wants to let and tenants wish to rent but the government intervenes and taxes the property to the point where it is no longer economic for the landlord and you say this is in the best interests of the tenants because the same tenant can now buy the property!

Thomas, semantics are a better reply than pointless ad hominems. It doesn’t change the fact bad monetary policy, not oil, triggered the bust.

I blithely rave on about government expenditure because all their policies will do is simply ignited *yet another* recession in the future. Infrastructure projects cause land value to rise, which emits price signals to banks, investors and speculators, which prompts them to OVERinvest in real estate. Who wouldn’t invest in something which has turnovers of 30% per annum? When the slump occurs, however, due to debt, investment plummets (due-to-falling-assets-and-collateral values) as-banks-won’t-lend-to-those-who-even-have-a good-credit history to maintain the integrity of their balance sheets: http://www.foldvary.net/works/geoaus.html As Prof Fred Foldvary notes, “John Maynard Keynes argued for .. public works to stimulate aggregate demand….government stimulus is needed to correct what they believe to be a "fundamentally flawed, non-self-correcting market economy” is IRONIC, since such public works (like Rudd’s), combined with credit expansion, so often induces speculation in the real estate market, with its resultant booms and busts. Every increase in government expenditure that has social value creates an economic shock in the form of a rapid increase in site values if it is not offset by a collection of the economic rent generated or expected.” Railroads and the canals of the 1830s are a classic example. These increased should be recycled and used to fund Rudd’s projects, NOT MY WAGES!

So, you say “If I wanted a lecture on grade three economics I would ask my daughter” – well yes – her views on economics would probably be as fallacious as those of Keynes, but still beter than yourself.

Ps. You say “the world is in recession (something I predicted, the author predicted and, you didn’t)” – erm, contradiction right there. *I am* the author of the piece – thanks for the compliment, but how can I have predicted the world recession and yet didn’t? My point is I use the 18 year land wave cycle to predict recessions. Hence, there should be another downturn around 2025, and a midcycle downturn around 2017-8

Hi Wattle,

When-I-said-commercial I meant private schools etc in-the-sense-they do-exercise-*commercial-activity*-on-their-premises, *but*-fall-under-one-of-those-cited-categories-(eg rural)-due-to-zoning-decisions-OR- write-down-the-value-of-their-properties-to-less-than-$368000. I’m sure-there other loopholes e.g. a-father-can-shift-a piece-of land-to his-a-wife. The ARE-HEAPS-of-other-loopholes.** LVT is very low: 1.6%. Hardly-enough-to-offset-increased-capital-gains-from-either-foreign-investment-demand-OR-population-growth-OR-infrastructure windfalls. As noted previously, I-can-still-own-8-properties-and-pay-no-LVT-*if*-they-are interstate. That's alot-for-one-person! Hence, the tax does not catch out clever-speculators.

Your-LVT-bill-will-plummet-as-land-values-plummet-further. However, 7 reports-found-that-LVT-alone-and-with-all-other-taxes abolished-(like the tariffs and GST would *don’t* see), people DO pay-less-tax: http://economicboom.info/empirical_studies.htm The higher the-LVT-the-more-cheaper-the-property becomes:a 100% tax on land would mean the capitalisation-price of *land*, NOT-the-property-though, would-be-$0. This-is-not-to-be-confused-with-the-*rental*-price-(the government levies on the land like your local rates). I-don’t-advocate-land values-falling-*that*-after-over-time.

Actually, Pittsburgh’s-and-New Hampshire’s-house-prices-went-up-only by 7% over the decade, not 100% nationwide, because of its high LVT-policy; monopoly influence are not around, hence no artificial scarity. These-two-states-are-growing, not-slumping - they-had-no-housing-crisis. The cited-homeownerships-rates-are-*ongoing*-i.e.-have-been-high-since-the early-1980s (so-that-dispels-your-property-bubble-thesis). It has more-to-do-with-affordable-housing. LVT encourages that idle-sites-be USED, increasing-supply. Under the-status quo-however-people overbuild-because as rents and values go up, they-expect-to-reap-huge-gains from such developments, as they lease or sell their premises. The market emits positive price signals. Hence-what-happened-in-America-today-&-in-Australia-during-the-1980s-commercial-property-boom. Eventually, builders-realised-they have-produced-too-much, raising-vacancies, reducing-rents. Rent-inflows-do-not-match-the-debt. Speculators-buy-when prices-are-low-and the cycle reignites. Under-LVT over-production-does-not happen. Why-not? Because *buildings-are-built-to-promote-high-demand-needed-for-legitimate-*commerce*, not because they expect to reap huge-speculative capital-gains on them, false prices are no longer factored into the equation; they-are-sucked-into-the-public-perse. This-reduces-bad-debt-&-malinvestments i.e. it-stops-the-creation-of-buildings-no-one-*currently*-wants. It makes construction sustainable (as money is funnelled, not into the home, but unto it) and not subject to erratic boom busts due to slumping land values.

I agree-not-everyone-wants-to-own-a-home(although *most* would like the “dream” of owning their own home;lower prices would make them *more* willing to take out a mortgage). My point-is-1) it is rational to own rather then rent-why-should-I-pay $170 p/w x 52 for 30 years when-I-can-buy-a-place-for-$100 000?-2) the tax,if high enough, cannot-be-passed-onto-tenants-and-3)even-tennants-won’t-loose out as rents will be lower due to the “substitution” effect–more people buy homes, hence lower-demand-on-renting-sector. Indeed, this is good for the tenant-the landlord would simply have less of a turnover (which in and of itself does not hurt wages or profits, in fact, my ownership would increase reduce-my-business-marginal-costs).

I-also-agree-superannuation-and-shares-ought-to-be-promoted-as-*A*-better-investment-than-real-estate. They-should-also-be-tax free, like-peoples’-wages-and-business-profits–at least they contribute to sustainable growth, via savings and investment which-is-not-funnelled into-dirt, but-output:http://economicboom.info/ability-to-pay.htm

ps-Dw-if you-are-over-55-you-won't-be-affected-and-would-pay-no-taxes. Remember, it's-a-generational-*change*.

pps-the-ABS-found-in-2004-that-24%-of-investors-bought-property-just-because-of-negative-gearing-it-does-INCREASE-demand.

** http://www.sro.vic.gov.au/sro/srowebsite.nsf/revenue/8315B358D3EEDA1CCA256FAB001FDF2F/$File/publication-LTX-005.pdf

http://www.dtf.wa.gov.au/cms/uploadedFiles/FACT%20SHEET-%20EXEMPTIONS%20RELATING%20TO%20PRIVATE%20RESIDENCES%20LT%20(07_08).pdf

http://www.dtf.wa.gov.au/cms/uploadedFiles/FACT%20SHEET-%20EXEMPTIONS%20RELATING%20TO%20PRIVATE%20RESIDENCES%20LT%20(07_08).pdf

It’s nice to see an author owning up to his work then using an aka to hack the results. Somewhat like Nic Xenophon in ethics.
http://forum.onlineopinion.com.au/user.asp?id=43478
We however don’t really disagree in principle on the what’s and whys of the cause of this economic mess that the world politicians still haven’t got a solution for.
I said the oil price jumping from 35 to 140 was the trigger, not all oil price spikes.
Something we can thank Alan Greenspan for btw
Greenspan’s view of supply and demand in oil is sobering. For him to believe that oil prices will stay high he has to be forecasting that demand in emerging economies like India and China will not slow.
In his CNN interview he said and I quote
“If Bush hadn’t invaded Iraq oil would be $160 a barrel now”
This immediately spiked the price of oil overnight by $20 and it proceeded to attempt to hit his magical $160 figure as speculators cashed in on “the god of economics” prediction.
This in my opinion the trigger for the collapse in the market... as you agrees because comme ci comme ca was the oil price trigger. The underpinning of the market to real estate base has created the now uncontrollable deflation that we are experiencing. Just like in the great depression.
Outmoded policy fixes to a new problem for want of a better word “hyper deflation.” This is condition is something the pollies have never had to battle on this scale before.
The only thing more dangerous than an economist is an amateur economist!
Quote Bartley

How much does one spend on petrol per week compared to rent?

I think Thomas you will see that over investment in land pre-empts oil.

However they are both natural resources and speculation should be discouraged with a holding charge on oil as per land.

What are you saying? The costs of running a car are only fuel?
Even so at the average travel of an Aussie driver that would be approx $1800 per year $35 a week for the commuter however that’s not the inflationary costs of oil.
There’s transport dominated by diesel driven trucks and trains
There are food deliveries
There are mail deliveries
There’s plain fuel costs and transport
There’s shipping etc, and so on
Need I go on?
To quote an American source the national average for unleaded gas hit $3.28 a gallon this week, a 26 percent increase from last year at this time. Yet, the real cost of energy dependence amounts to more than $11.35 per gallon, according to Gal Luft,
And that’s in the USA where fuel cost is half the Australian costs.

Actually, if you read my first post I immediately stated that I was the author… so I announced it straight away, no akas needed.

Anyways, I 100% agree with you that Greenspan has poor views on what causes oil prices. I also agree history is repeating itself; our current crisis, however, resembles more the Panic of 1837, 1857 and 1873 than 1929, although all were ignited by land speculation. Surely, although a monetarist, yet well read in Austrian School economics, Greenspan should have KNOWN it was STUPID to put interest rates down *too low*, igniting an artificial boom. This is what happened in the 70s, where real estate prices skyrocketed and rents were going up 75% per year. Oil spikes do not cause recessions *per se*: http://dss.ucsd.edu/~jhamilto/JDH_palgrave_oil.pdf. Rather, oil shocks simply exacerbate already poor monetary conditions (i.e. cause interest rates to rise due to inflation) and EXPOSE the malinvestments which did take place. As Karl implies, higher rents could generate “cost push inflation” just as much as oil, indeed this excellent 1973 Time magazine article discusses this precise point: http://www.time.com/time/magazine/article/0,9171,942722,00.html It points out rents rose much more than oil and that the extra demand in oil in the 1970s was also the result of massive urban sprawl and expansion.

Moreover, here is one of the reasons I am not a fan of oil being attributed as the cause or triggers of recessions.

If oil is put at the heart of one’s analysis then one must explain: A. why the US and UK economy were in decline before the 1973 oil shock (and why the 70s commercial property boom, taking place throughout Australia, Japan, the UK and the US – shouldn’t be responsible for the 70s bust, while a smaller commercial property boom was being blamed for the 90s bust);

B. why it took 3 years for the 1979 oil shock to manifest itself around 1982-83 recession while the early 70s one was apparently "immediate" (this shock came in *too* late: Western world was in recession in 73/4, same year as the oil shock, why was there a recession in 1982, three years too late)

C. why the early 1990s, which experienced a 30% increase in oil, was too late to cause the recession (due to overbuilding due to a commercial property boom) and

D. why subsequent oil shocks have not had a negative impact on the economy i.e. the 1999 spike did *nothing* to the economy in terms of growth, why the jump in 2003 did nothing (in terms of causing GDP to turn negative), the jump in 2005 did not make our or the UKs economy halt either... I think a dramatic spike in oil prices can *slow* the economy, but I do not think it can *reverse* the nations growth.

A drop in land values, however, can through negative wealth effects (impacting consumption) and bank lending as asset values plummet (impacting investment and incentives to build).

Moreover, one day oil will run out of oil, but the land question will still remain beneath our feet forever more. But basically, we are all in agreement of the problems of overinvestment in real estate, which could be funelled into say, alternative energy researh.

All crashes/booms require a stimulus.
The Bush administration increase of the budget allocation to defense spending by 40% was the stimulus for the boom from 2003 to 2008 which really petered out 2007 as the awareness of the USA deficit loomed but was ignored.
The oil price jumping from 35 to 145 was the stimulus for the crash that we are now experiencing.
Now note here I said stimulus however the popular (blame word here seems to be cause) so if that is what you pedants want then that’s what you may have.
I prefer to categorize cause/ effects into a more meaningful class.
Whig 98 points out so attentively ‘why didn’t all oil spikes cause a crash?
At least he is now asking rather than announcing.
That denotes an effect response and the response was an inflationary effect on the markets.
2003 to 2008 Dow.
The determination of a crash is a decline in the economy of approx 30%, with a normal correction being a 10% downturn.
1973 55%
1978 25%
1979 3 mini corrections of 18%
1980 83 20% decline
1991 18 %
1999 22%
This as you can see is ignoring the 10% corrections we had to have … so to speak.
Now we have established the oil market effect on the economy Mr. Whig go back to the drawing board please and dream up some new theory or turn to philosophy. Just stop annoying the realists please.

Your view of stimulus spending by Bush in causing the boom is almost laughable (not least because 75% of defence spending was spent OVERSEAS). Again, it was BAD monetary policy (setting interest rates to 1%, which misallocated capital into housing) and government intervention *via* the subprime market: http://blog.mises.org/archives/008907.asp and http://mises.org/story/3200 (excellent article, scrolling half way vetoes your premise) and http://blog.mises.org/archives/008898.asp

Moreover, what are these "corrections" you speak off (these seem arbitrary numbers you cited) and what are your sources? Please list and EXPLAIN the SOURCES you cited. As far as I can see, you are not dealing with recessions: http://www.nber.org/cycles.html NBER is the *official bureau* which records economic recessions. As you can see, the early 1979 oil shock is one year late in 1980 and 3 years late in 1982. The 1978 downturn in Aus was cearly *too* early to be caused by oil.

I refer you to the following papers, which I basis my claims on. I expect you to highlight academic papers as well.

1. 'Why do oil shocks no longer shock?' http://www.oxfordenergy.org/pdfs/WPM35.pdf The point of this article is that oil is no longer looked at central banks in setting monetary policy - malinvestments in land, due to tightening monetary policy, can be exposed, as they were in 1975. *Yes* oil can have a shock BUT ONLY MAGNIFIED by collapsing land values. However, the article cited below clearly shows stagflation can be explained in purely monetary terms without any reference to oil:
2. http://www.networkideas.org/ideasact/sep08/Jyotirmoy.pdf
3. http://www.frbsf.org/publications/economics/letter/2005/el2005-31.html
4. Empirical analysis: http://www.mees.com/postedarticles/finance/general/a47n35b01.htm which can be found here: www.sais-jhu.edu/faculty/sandleris/Macro/Readings/R_Oil_and_the_Macroeconomy.pdf This paper notes “conceptual difficulties in assigning a central role to oil price shocks in explaining macroeconomic fluctuations.” The timing of oil price increases and recessions is consistent with the notion that oil price shocks may contribute to recessions without necessarily being pivotal, they say. They also-note-oil-is-often*too*-late-(1990) or too-early (1980) to be the cause of the downturn. You can find this on page of the above paper - page 122 and 133 prove my point. Overall, the facts you cited are not espoused by either NBER or recent economic research.

Try using a free yahoo Dow chart and seeing what happening in real time you clown and stop annoying the natives with your petulant frenzy

That's fine. But please cite your source or link us to the source. You say to use yahoo or google to locate it. Again, I can do that, and have done that, but none of the sources or graphs I have viewed lead to your conclusion. Again, I implore you, please, provide me the source. I am most interested indeed in what you are saying and therefore urge you to assist me. I shall continue to propound a 'petulant frenzy' in the name of educating the natives like yourself and in advancing academic integrity. It is forums like these which provide genuine intellectual discourse.

Anyways, the issue here was the REAL ECONOMY - that is GDP growth (or therelack of). The articles cited above continues my claim that oil may contribute to inflation, but not necessarily to DOWNTURNS. Isn't this interesting, the tenure, the tenure of your argument has turned from the real economy to the Dow Jones etc. Again, I request, no I implore you, to cite your source and prove to me oil created the downturns cited above i.e. 1975, 1982-3, 1990 and why it has not caused subsquent downturns. Please, Thomas, help me, find the answer. Because I have searched and your conclusions simply seem alien to me.

Phew what a challenge! Not only does I gets to solve the world economic crisis I gets to advance the integrity of the forum.
Please only one miracle at a time or my head will swell.
In answer to the second statement as I am sure the first was a false platitude!
Solutions ….hmm what solution?
The speculation in real estate is the underlying problem in this disaster which we have still to reach bottom.
I would suggest that a Dow range of 4000 to 6000 might be safe level to begin from, but as you can see the No drama Obama package isn’t and will not work.
Not until the real estate sorts itself out will the problem correct itself. The home is, after all, the basis of all quality of life in the western world?
This is also the basis for the correct approach to rebuilding the economy. However the government both here and there refuses s to adopt any logical response package policy. Since when was throwing money at an economic crisis ever a solution.
The invasion of Iraq by Mr. Bush was the beginning of the boom, and was paid for by the eventual massive USA debt that now threatens the world. We’re talking trillions here not a piddley $500 billion of the Aussie economy. And Australia, England and Canada are all equally responsible for the WOMD argument so no blaming he USA solely for this one.
However as we have a n international banking system so dependent on the USA to float itself we have a lot more pain to follow.

I am glad we agree that real estate speculation is a problem. My overall point stands: deficit spending was not the *PRIMARY* cause the downturn - albeit giving the amount of debt the US public sector has weakened the US governments response to the current deflation (if they hyperinflate there currency collapses, if they do nothing there domestic economy does so too). I find the following posts very amusing (it also address some of the earlier points made by Wattle e.g. the home buyers grant inflated land values, State top-ups of this scheme that increase it to $24,000, no capital gains tax on sales of an owner-occupied house–so that the entire capital gain from selling your home on a rising market is tax-free): http://www.debtdeflation.com/blogs/2009/02/20/neoliberalism-and-economic-breakdown/

I would venture to say that the "housing subsidy" whilst it appears good on the surface just :
1 adds to the inflationary cost of a home in that it provides $24,000 for the builder and $17,000 for the existing home buyer.
2 does not free money or make it any easier for this shrinking group, especially now the crisis is reaching its worst.
Banks re simply going to do what they have done in the States , keep the cash or use I to buy more capital , which brings me to an amusing sideline.
The Obama package threatens buts yet I haven’t seen any laws come into play , to cap the banker’s packages to $500,000. This has brought a lot of complaints from the sector. Th prime argument being the system will lose its talent! I would argue what talent! The same ole same ole isn’t talent its system manipulation.
3 if anything place the capital at risk.
4 does nothing for the building industry but cause inflation.

Steven,

I am temporarily departing from my self-imposed exile from OO to respond to this article.

Everything you say is true.

I would like to invite you to join isocracy.org where you will find a group of like-minded individuals (i.e., "left libertarians", geolibertarians etc) who are orientated exactly in the way you describe.

Kind regards,

Lev