Housing is a basic human right. Why then does the tax system support land speculation as if it is a god-given right? More than $20 billion is given in annual tax breaks to property “investors”.
With housing pressures mounting, the media is constantly hit with two pervading “truths”. One is that vacancy rates are at record lows. The second is the land supply debate, with the 2030 urban boundary (in Melbourne, for example) restricting supply, and thus forcing up housing prices.
A step further in this debate was taken with the recent release of Earthsharing Australia’s I Want to Live Here report. It found that the highly regarded REIV’s vacancy rate only includes properties presently on the rental market. Thus “speculative vacancies” held off the market were not included in the “official” vacancy rate.
The report surveyed vacant land and housing in the rapidly gentrifying Bluestone Ward, City of Maribyrnong, covering the suburbs of Footscray and Footscray West. Typically working class suburbs, the proximity to the city is attractive to speculators who understand renters have few alternatives in a squeezed market.
The findings conservatively found that an extra 1,058 people could live in one small ward. Let me repeat that. During a period with “record low vacancies”, 1,058 more people could live in just one area of Melbourne. Why are they at a record low?
Of the 430 vacant properties found empty, 399 were vacant land allotments. Some had been vacant for over a decade. 430 properties would provide over a year’s supply of auctions (www.homepriceguide.com.au). Imagine what this extra supply of land would do to the price of housing in the municipality?
Adding an extra 1,058 people to the Bluestone Ward of 9,000 people would also be an incredible fillip to local businesses.
Why are the properties held vacant? Anyone who has been to a property seminar knows that once you own eight properties, the rent from one quickly cascades to help pay off the others. Once you control an extensive portfolio of property, a speculator’s best interests are to monitor the quantity of land supplied to the market. With land prices increasing, so does the borrowing capacity of the speculator to purchase additional property.
This is why the Urban Development Institute’s “Land Price Index” is so popular among land bankers. Released quarterly, the diligent speculator can maximise profits by monitoring the published supply levels. For this reason, much land is withheld from the market, forcing up prices.
Critics of Richard Pratt’s price fixing must look at such a situation with concern.
The I Want to Live Here report states that it is the privately held supply of speculative land that is hurting affordability and threatening to stretch our 2030 boundary.
Without an effective land policy the Victorian State Government’s 2030 boundary will always be under threat. Any “transport hub” acts as honey for the bees. Speculators are the first in line to any major infrastructure projects, easily outbidding young people and families at auctions. They have an understanding that publicly provided services (such as new train stations) deliver private windfalls, as captured in higher land prices in the surrounding areas.
An effective land policy would see a holding charge on all land. A reformed Land Tax, in the name of a Site Rental, would be implemented at a flat rate. Land could no longer be withheld from the market to manufacture capital gains.
Unfortunately the elegance of such a shift is constantly shot down by property-based think tanks. Between October and January 2007 more than 70 per cent of press releases from the Real Estate Institute of New South Wales criticised Land Tax, the only charge the super wealthy can’t avoid, the only charge to ensure land is used efficiently.
The transferring of taxes off productive work and onto resources would give a significant improvement to small business, simplifying compliance costs and curtailing the use of tax havens. Reward for effort would be encouraged over reward for speculation.
An example is 62- 64 Geelong Rd, Footscray. The property was bought for $510,000 in 2000. Just seven years later it was sold for $970,000. What did they do? Nothing - the property was left vacant. Are such paper shuffling profits justified? Should they be supported with low capital gains and negative gearing? Should they pay less tax than the lowest wage earners? Leaving a vital resource vacant for such a period of time is akin to a union demanding a four-hour lunch break.
Why should working class people pay taxes to fund infrastructure and improved government services when the benefits are captured in higher land prices, leading to higher rents? This is the cause of the wealth gap.
Land policy must be corrected to deal with the twin troubles of the wealth gap and climate change.