Finally a Senator has said it, on the front page of the Australian Financial Review:
Senator Day described sections of the property industry as "carpet-bagging, rent-seeking bootleggers" who used political donations to wield influence to restrict land supply and drive up prices of high- and medium-density apartments.
He likened the relationship between the property industry and politics as to the economic theory of the "baptists and bootleggers" of the 1920 Prohibition, in which both groups favour regulation for opposing reasons.
We commend Senator Day for taking such a strong stand. The former head of the Housing Industry of Australia, who is selling out his stake in the national building empire he formed 40 years ago, went on to say:
"This [his political career] is more important now," Senator Day said.
"When you look at the problems of youth unemployment and housing affordability, to quote Bert Kelly, it's going to take my every waking moment for the next 20 years."
The land banking formula is quite simple.
Cartoon – Tandberg, courtesy of The Age.
This drip feeding was once known as a staged release. Perhaps the real estate for ransom mentality was too close for comfort to 'staged hostage releases'. A new term has thus evolved – sequential development.
The ACCC must investigate this land banking practice. Sequential development can be a recipe for minimal work teams – the slower they build, the more money developers make. How? As population increases and society develops, competition for prime locations is bound to increase. This is a community created economic rent.
In what other industry are holders of crucial natural resources allowed to drip feed these building blocks of life to the market in order to push prices ever higher? It's as if we are permitting water barons to turn our taps on and off unless we pay higher and higher prices.
A Better Way
A fairer system would see these large landholdings broken into smaller allotments to reduce market power. One example allows 17,000 re-zoned sites to just one developer.
Beyond such regulatory control is a taxed based answer. A higher Land Tax will ensure competitive pressure is placed on landholders to put sites on the market as soon as possible. The current cost pressure is something like $5,500 (in council rates and Land Tax) versus capital gains of $30,000 p.a per lot.
Karl Fitzgerald is giving a talk "Collaborative California" about his recent tour of California on Tuesday August 5 at 6:30 (details here). This article was first published on Prosper Australia.
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