Dear grputland,

Thanks for the reply and clarification. I'd have replied sooner but I have been ripping up old carpet and polishing a floor.

Infill development competes with new development, and probably carries substantial inherent benefits for infrastructure and the environment. I agree with you that it is development well worth encouraging.

"you need a politically and economically viable method of financing the infrastructure improvements needed by new developments, so that strain on the existing infrastructure will not be cited against them."

That raises questions like "What is the infrastructure cost for each additional citizen?". I suspect that the cost is very substantial, and is reflected in the large debt being incurred by government in trying to cope with the current rate of population growth.

I will read your submission later, but on perusal I note agreement on the benefits of higher density. A point of difference is that I dont believe extra taxation is necessary. I hold the opinion that local government should encourage infill development far more than they are at present. Such a measure would remove the incentive for greenfield land hoarding. Reducing immigration would have a similar effect, as well as greatly reducing the infrastructure burden.

The problem is that your whole article hinges on the technical details. Its up to you to show us where you got the data from and how you put it together. Its not up to us to do that for you. After all, you are trying to persuade us with your opinion piece. In short, you wrote it --- you substantiate it.

I think David Jenning's point about compensation was meant sarcastically.

"BTW, you say they are all private rents. They are actually total public and private land rent."

Well if they are public rents then what is your point? Because that money is coming straight back to the public purse.

What do you mean that land rent isn't privately created? Somebody had to buy the land and build the house. THats all done privately.

As for the cost of money. Well people were kicking up a stink in 1989 when the interest rates were 17%. How many households really read the Tax Act before buying a house? I think they go to the bank first.

"As far as world wars affecting my chart of Australia’s land values divided by GDP, Col - of course! Thorstein Veblen-John R Commons' ‘Institutional School’ of economic thought holds, correctly IMO, that world wars are a consequence of a preceding period of speculative economic behavior. It certainly doesn’t arise in a vacuum. At http://thedepression.org.au/?p=1616 I’ve blogged that I foresee WWIII when we’ve again failed to utilise the revenue system to resolve economic depression. War as an ‘alternative’ has long been seen as the ‘only way out’ for the aristocracy and property speculators. But that’s so much more “fairy floss”, again, isn’t it, Col?"

OMG you are citing your own blog post as authority? Thorsten Veblen -- he died in 1929 so his "theory" wasn't really applied to WWII. Where is this theory of wars as a consequence of speculative behaviour written anyway? Are you suggesting that Australia's property market will lead Kevin Rudd to start WWIII? How are we in a depression?

This article has some serious flaws and the author's hyper-critical response to any criticism highlights that.

He cites, "The Taxable Capacity of Australian Land and Resources" as a paper that substantiates his figures. But thats Terry Dwyer's work not Bryan Kavanagh's. And at any rate I've read Dwyer's article and he talks in detail about the difficulties in measuring the data. He certainly doesn't present anything as simply as what Kavanagh is saying. Moreover, a lot of the land held by corporate interests would be unsuitable for residential purposes thereby not supporting the author's housing affordability argument. There are no statistics presented in Dwyer's article that directly correlate to what Bryan Kavanagh is saying.

Also he wrote in his article: "As we capture only 4 per cent of GDP through rates, land taxes and other taxes on immovable property, this means that privatised land rent now represents an enormous 28.5 per cent of our GDP!"

So I did quote him more less correctly.

He also wrote:
"Maybe, as our real estate spruikers tell us, we have established a new, permanent plateau from which we will continue to launch ourselves ever upwards, but the collapse in real estate around the world can hardly make us sanguine of this possibility?"

Some vulnerable real estate markets collapsed but not all around the world. A lot of markets in a lot of cities remain stable. Try buying something in New York or London.

Dear Col,

You wrote:

> hook, line and sinker
> ...
> So, why do you assume I benefit from the pre-tax capital gain?

The words "pre-tax" were meant to specify the point of comparison rather than the final outcome. But never mind; have it your way -- what I should have written was:

"Well, by your own admission, you pay 20% of the holding cost and get 100% of the POST-tax capital gains, while your tenants pay 80% of the holding cost and get 0% of the POST-tax capital gains. And somehow you're subsidizing them!"

Now how does that get you off the hook? -- and me, apparently, on it?

> Do you feel the state shares “responsibility” for their
> parasitic “leeching” off of the capital gain,

Capital gains are created by the community through its growth. Retaining for the community part of what is created by the community is not parasitism. Private appropriation of it *is* parasitism. Similarly, public appropriation of privately created benefits through income tax, payroll tax, stamp duty and GST is parasitism. Why don't you complain about that instead?

> in which I take all the “risk” and they take none?

Wrong. When the property market tanks, the States lose stamp-duty revenue and the Feds lose CGT revenue (to say nothing of the flow-on effects). It would be better for all parties if the growth in property values were more steady and predictable.

> “fixed stock of something that can't be produced”
>
> That, in the context of housing,

I was referring to LAND, not houses. The intermediate term "housing" seems designed to obscure the difference.

> is such an absolute
> misrepresentation of fact, to the point
>
> It is a LIE.

Told by whom? Who said the stock of houses, or even housING, was fixed?

> House stocks are not fixed, there exists a whole
> industry busy building...

I not only acknowledged that, but even said it should be encouraged.

So what's your beef, Col?

Fester wrote: "I dont believe extra taxation is necessary."

Neither do I. What I advocate is redesigning the revenue BASE so that future investments in infrastructure pay for themselves by expanding the BASE without further changes in rates or thresholds. The initial redesign can be revenue-neutral -- or, in view of the long-term benefits, perhaps even revenue-negative. Considering the effect of infrastructure on property values, property investors should enthusiastically support this arrangement.

Lucy and David:

If you have trouble believing the magnitudes involved, consider that Australia's land, according to the ABS, is worth a bit over $3 trillion. Assuming (conservatively) that the total return is 8% per annum (comprising 3% rent and 5% real capital gains), that's an economic rent of at least $240 billion per annum, which in turn is a bit less than 24% of GDP. And that doesn't consider the other sources of economic rent, including natural resources, natural monopolies, statutory monopolies, and other government-created licences and privileges.

At present, that economic rent is mostly privatized. The idea is to capture more economic rent for public revenue, so that less revenue needs to be raised from taxes that punish productive activity.