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A bit more on housing

July 20th, 2007

I expanded my post on housing affordability into a piece for the Fin, published yesterday. The suggestion of replacing stamp duty with land tax produced a letter from someone whose argument (if I got it right) was that homeowners would be better off if stamp taxes were abolished and not replaced with anything. True, and while we’re at it, free expresso and ponies all around would be nice.

With an election only months away, it’s not surprising that house prices are a hot political topic. It’s also not surprising to hear plenty of hypocrisy, on the topic.

The crucial problem is that, while it’s politically obligatory to favour affordable housing, the majority of the voting population already own (or are paying off) their houses, and stand to gain if prices rise. As John Howard reportedly said in 2004 ‘”I haven’t met anybody yet who’s stopped me in the street and shaken their fist and said: ‘Howard, I’m angry with you, my house has got more valuable’

In 2004, house prices had been rising strongly for years, and interest rates were at historically low levels. If it had been possible to slow down the increase in prices of the preceding few years, no one, except perhaps some overgeared investors, would have actually been worse off. Existing home owners would have foregone some unrealised capital gains, but would still be well ahead, and new buyers would have benefitted from lower prices.

The conflict is more acute this time around. In some areas, particularly in parts of Sydney prices have declined in real terms at the same time as interest rates of risen. The result, for those who entered the market at high prices is not pretty. Interest payments are consuming as much as 30 per cent of household income, yet the payoff of large capital gains, seemingly guaranteed by all historical experience, looks to be a long way off.

Moreover, given the spread of aggressive lending practices in this period, many buyers started with low levels of equity, often below 20 per cent of the purchase price, and have made only marginal progress in paying off the debt. It would take only a modest further decline in prices to push many into negative equity.

Yet prices are still unaffordably high for many would-be homebuyers. At this point, the best policy advice would seem to be that of the Irish farmer, when asked for directions who said “Well first off, I wouldn’t start from here’.

Suppose though, that governments really wanted to make housing more affordable. What policy measures could they take.

The speculative boom in prices was ignited by the government’s decision, back in 1999, to halve the rate of capital gains tax. On grounds of tax neutrality alone, it would be desirable to reverse this change. However, assets bought under the current rules would have to be grandfathered, and expectations of capital gains are now fairly moderate, so it is unlikely that this would have much immediate effect.

The Treasurer has argued that the big problem is the failure of state governments to release more land on urban fringes. But shortages of new land are not the main problem.

Urban housing prices follow a gradient, reflecting the value of time and convenience. Houses and land close to the city are more valuable than similar houses further out. Go far enough out, and the price is determined by the cost of converting land from farming or other uses into house blocks.

If house prices were being driven by a shortage of new land on the outskirts, the price gradient should be getting flatter. In fact, as the Productivity Commission has shown, the gradient became steeper between 1994 and 2002, and it has become even steeper since then. The outer suburbs, were the last to boom, and the first to slump, most notably in Sydney.

A much more plausible candidate for reform is the way residential land and housing services taxed. On standard tax principles, the flow of services from land should be taxed on an annual basis, just like other income. Indeed, land taxes are generally considered the most efficient available to government. On the other hand, transactions taxes like stamp duties are highly inefficient.

If stamp duties were abolished, along with the current exemption from land tax enjoyed by owner-occupies, the price of houses would not change much, since the present value of their services would remain the same. But the cash costs faced by new home buyers would decline drastically. On the other hand, existing home owners would face a new annual charge.

The experience of the NSW government, which tried to cap the land tax exemption at $1 million shows that such a shift in the tax burden would be politically suicidal. We may like our leaders to talk about making housing more affordable for young families, but, as a community, we have been unwilling to do anything serious about it.

John Quiggin is an ARC Federation Fellow in Economics and Political Science at the University of Queensland.

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  1. Hermit
    July 20th, 2007 at 22:39 | #1

    There are more factors at play. One is the prospect of ‘transport poverty’ as outer fringe commuters lacking public transport are forced to add increasingly hefty petrol bills to mortgage repayments. Another is the presumption of pensioner exodus from leafy suburbs as council rates rise. Now some seniors are staying put leading one council (Brighton, Tasmania) to charge flat rates independent of property value. Perhaps Maggie Thatcher’s disastrous poll tax was ahead of its time. Yet another local govt quirk is the practice of approving new subdivisions knowing that every new or existing dwelling faces Stage 4 water restrictions. Sustainability considerations must now be factored in to housing policy.

  2. Ernestine Gross
    July 20th, 2007 at 23:59 | #2

    “If stamp duties were abolished, along with the current exemption from land tax enjoyed by owner-occupies, the price of houses would not change much, since the present value of their services would remain the same. But the cash costs faced by new home buyers would decline drastically. On the other hand, existing home owners would face a new annual charge.”

    The foregoing analysis compares imputed (ie non-cash) income with cash payments.

    In many suburbs of Sydney, the annual cash income of home owners would not be sufficient to pay for land tax, based on the net present of non-cash imputed future services. I am not surprised that the NSW government ran into difficulties with its land tax above $1,000,000.

    IMHO, partial equilibrium comparative static ‘efficiency’ results in economics have caused a lot of problems in many policy areas.

  3. swio
    July 21st, 2007 at 02:44 | #3

    I am one of those Sydney residents who bought just after the peak of the boom. We are currently in a slightly negative equity situation.

    Our negative equity, along with the overlooked fact that things like real estate agents fees have also risen enormously means it would take quite a significant amount of cash just to get back to zero debt if we sold.

    “Urban housing prices follow a gradient, reflecting the value of time and convenience. Houses and land close to the city are more valuable than similar houses further out.”

    This could be remedied by substantial improvements in transport and other infrastructure. The transport problems in Sydney are particularly acute.

  4. conrad
    July 21st, 2007 at 08:06 | #4

    It seems to me that there are also lots of long term side-effects of high house prices that don’t get too much of a mention (which surprises me). Some of them are not just economic — there are also social effects — in most cities with particularily high housing prices, for instance, the number of children people have tends to be low (often very low — although its not clear to me to what extent all these types of effects are causative).
    It would be interesting to know actually why people think high housing prices are bad — most of the discussion assumes it is, but there are a multitude of potential reasons and it is not clear which ones are actually the most important — maybe the majority of the population like high house prices, but perhaps the majority don’t think living with their middle aged children is a good thing.

  5. July 21st, 2007 at 13:15 | #5

    That letter to the AFR sounds like a pastiche of a post I made pointing out some non sequiturs of JQ’s.

    To recap, when people disapprove of removing land tax exemptions, we may not infer that they necessarily approve of keeping land tax obstacles to new entrants. Some may not even have thought it through. They may prefer that funding to be obtained in other ways than the false dichotomy JQ offered (it’s false because revenue is consolidated and tax is not hypothecated, committed in such a way that moving one part of land tax ipso facto moves the other in that direct way – though we would have better fiscal discipline and fewer externalities with more such nexi). And some – like me – feel that the “services” provided are on the whole detrimental, and that if governments only had the wit (the intrinsic lack of which is of course the underlying problem), why, then they would engineer out the problems rather than provide palliative care, tar baby and rat king fashion.

    At the risk of digressing into contempt of court, let me state that this is what makes nonsense out of Judge Tim Wood’s recent obiter dicta about an income tax fraud. The fraud does not flow through to a greater burden on others, because there is no nexus between revenues and outgoings (so nothing will flow through to other peoples’ tax bills). The shortfall in tax does not diminish the government’s capacity to do good, because that is at rock bottom already. And, even if there were an effect on the physical capacity, it would be irrelevant because government efforts are misguided by the same professional myopia that distorts the views of any public servants in this area – even such notable public servants as the judge himself.

    Far from taxes being the price we pay for civilisation, not only do they not go towards that, and not only does such civilisation as we have trace back to other sources than government provision, but also quite a lot of people would be a lot better off if that were either not provided at all or not provided by governments that have crowded out the alternatives. Did you ever hear about the four Boy Scouts who helped a little old lady to cross the road? It took that many because she didn’t want to go.

  6. July 21st, 2007 at 14:03 | #6

    And what is wrong with removing stamp duty entirely?

    It is not as if state goverments are doing anything worthwhile with the money.

  7. swio
    July 21st, 2007 at 16:59 | #7

    I feel that the cat is out of the bag as far as high housing prices go. When you get right down to it there is no way to reduce house prices without stuffing up the finances of enormous numbers of people.

    But for future reference what could have been done to prevent the high house prices in the first place? It was clearly driven by low interest rates. Just imagine how good things would be today if we had some sort of policy in place that managed to keep house price reasonable throughout the last decade while interest rates remained low. The interest rate burden on househoulds would be much lower than it is and our disposable income would be consequently higher.

  8. July 21st, 2007 at 19:33 | #8

    One of the major problems is the price of new land for houses and the price of land for redevelopment. In both cases someone is getting windfall profits. The difficulty is not with the profits but what is done with the profits. In the ACT the money goes mainly to consolidated revenue. If it went to servicing the land with better transport facilities, with services in the suburbs, with better community facilities so that the people in the outlying districts got the benefit from the high prices then that would be acceptable. What happens is that the increase in prices goes to other purposes and in the case of Canberra it goes to over building the central city area and to an overbloated bureaucracy rather than to benefiting the people who paid the high prices. It is only fair that when you pay a high price you should get the benefit of the high price rather than it being given to others.

  9. SJ
    July 21st, 2007 at 22:57 | #9

    SATP Says:

    It is not as if state goverments are doing anything worthwhile with the money.

    I guess hospitals, schools and police don’t exist in SATP world.

  10. July 22nd, 2007 at 01:02 | #10

    SJ, if you lived in Qld or NSW, you would be aghast at the culpable incompetence with which those state governments are mishandling their health systems. Especially if you became a public patient.

  11. ljh
    July 22nd, 2007 at 06:29 | #11

    “But for future reference what could have been done to prevent the high house prices in the first place?”

    Look at places where there has not been a spike in the cost of housing e.g. Germany? I suspect better rights and conditions for tenants make renting more attractive and reduce the pressure to buy.

    The house price increases seem to have been at least partly due to aggressive lending from the banks. Restrictions on lending so that e.g. banks could not recoup losses on home loans over 4 x salary might have prevented the boom without putting pressure on established home owners.

  12. July 22nd, 2007 at 11:04 | #12

    Ljh is bang on the money. Difficult for people to bid up house prices if they don’t have a bank behind them.

    Perhaps we could blame Ozzi Home Loans, for undercutting the banks & making home loans more affordable?

  13. crocodile
    July 22nd, 2007 at 11:57 | #13

    Not so sure about that one, ljh and steve. The banks receive money in the form of deposits of which they are expected to pay interest. In turn they have no choice but to make these funds available for loans that they in turn receive interest, obviously at a higher margin. How else can they make a profit.

  14. July 22nd, 2007 at 12:48 | #14

    A banking licence has responsibilities Crocodile. Their purpose is to facilitiate the economy, not to wreck it.

  15. Tony G
    July 22nd, 2007 at 13:05 | #15

    I have been employed in the building and construction industry for over 30 years . The declining housing affordability impacts on my industry and it severely handicaps the younger generation of today.

    There has been a marked deterioration in housing affordability over the last ten years.

    IMHO four main areas that have changed and dramatically increased the costs of housing over the last ten years are:

    1. The increase in the proportion property contributes to State Government Taxation revenues. The percentage of state taxation revenue derived from land tax and stamp duties on conveyancing has risen from 13% of state tax revenues in 1996 to 33% of state tax revenues in 2006. This is a massive 150% increase in the rate housing contributes to State tax revenues.

    It comes directly from homebuyers and renters, and it should be reduced.

    Source abs 5506

    2. Delays in obtaining approvals. In the mid 1990s it was not unusual to obtain development approvals in two to three months. It now takes between one and two years. We have simple projects that have taken longer.

    Reverting to a 3-month approval process would reduce housing costs from 10% to 15%..

    3. Section 94 and other utility service contributions. These large costs are now levied up front on approval. Previously these costs were amortised over a 30-year period in the rates.

    Reduce or abolish these contributions.

    4. GST levied on new housing. There is a large supply of existing housing that is bought and sold with no GST. New housing which has a GST of up to 10% levied on it can not compete on an equal footing with an existing renovated property that has none. This is the reason dwelling approvals and starts are at record lows and not matching population growth levels. New housing can not support the increased Land Taxes and Stamp duties whilst also having the GST levied on top of these taxes.

    Abolish GST on new housing.

    $
    Millions Land Tax; Stamp Duties Total LT Total State Property Taxes
    on & SD Tax Revenue as a % of Total
    conveyances State Taxes

    1995/6 1480 2294 3774 29015 13%
    1996/7 1610 2893 4503 31254 14%
    1997/8 1717 3016 4733 32585 15%
    1998/9 1925 4562 6487 35370 18%
    1999/0 1916 5536 7452 37826 20%
    2000/1 2102 5343 7445 32679 23%
    2001/2 2172 7374 9546 33341 29%
    2002/3 2553 8844 11397 36418 31%
    2003/4 3059 10507 13566 40394 34%
    2005/6 3615 10945 14560 44235 33%

    % 9% pa 17% pa 14% pa 4% pa
    Growth
    pa

    Source abs 5506

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/second+level+view?ReadForm&prodno=5506.0&viewtitle=Taxation%20Revenue,%20Australia~2005-06~Latest~3/04/2007&&tabname=Past%20Future%20Issues&prodno=5506.0&issue=2005-06&num=&view=&

  16. Tony G
    July 22nd, 2007 at 13:16 | #16

    Total property Total State Property taxes
    Tax Tax Revenue as a % of
    total State taxes

    1995/6 3774 29015 13%
    1996/7 4503 31254 14%
    1997/8 4733 32585 15%
    1998/9 6487 35370 18%
    1999/0 7452 37826 20%
    2000/1 7445 32679 23%
    2001/2 9546 33341 29%
    2002/3 11397 36418 31%
    2003/4 13566 40394 34%
    2005/6 14560 44235 33%

    $millions

  17. cacofonix
    July 22nd, 2007 at 13:37 | #17

    Thanks Professor Quiggin from supplying that quote from our PM. It confirmed that renters do not count in John Howard’s concerns and that is why they are forced to subsidise, with their taxes, the cost of private home ownership. This includes, amongst many other things, the first home owners grant and rental assistance for welfare recipients. In both cases the money simply helps father fuel the housing hyper-inflation rather than help to make housing affordable.

    I think this debate largely misses two other key factors which have been even more critical in forcing up the cost of housing in recent decades.

    1. Much of the cost of housing is in fact the result of the privatisation of the housing market begun by Menzies.

    The government-owned Housing Trust of South Australia never cost South Australian taxpayers a cent, yet for decades was able to provide affordable good quality housing to all sectors of South Australian society. Money that would have been unproductively invested in property speculation in the Eastern states was, instead, directed towards establishing viable manufacturing industries in South Australia.

    2. That high housing costs are a consequence of high immigration

    High immigration now at unofficial, but real and mesospheric 300,000 per annum deliberately brought about by the supposedly ‘strong border control’ Howard Government to suit the needs of property speculators, property developers and dependant industries. There is abundant evidence for this coming out of the mouths of the land speculators themselves. For example read http://www.realestate.com.au or read this from a 1973 submission by a property developer to the National Population Inquiry:

    A large number of industries, including the building industry could not have developed to their present size without the immigration policy … Population growth promotes expansion in building activity.
    This is the mainstay of our economy, which as opposed to that of Japan, is substantially concentrate on national infrastructure rather than purely on export industries.

    - cited in “The Growth Lobby and its Absence : The Relationship between the Property Development and Housing Industries and Immigration Policy in Australia and France” p114 of Sheila Newman’s Master’s thesis of 2002 downloadable from http://candobetter.org/sheila

    As Queensland Deputy Premier Anna Bligh recently put it :

    “The only way we could really (stop population growth) is to put a fence up at the (Queensland) border, or to cancel or freeze all new home building approvals,” she said.

    “That would have a very serious impact on the construction industry that a lot people rely on for jobs.”

    Remember, this is the ‘left wing’ female ex-student-activist Deputy Premier of the ‘Smart’ State speaking.

    We need to grow population in order to provide jobs for those already living here. And of course, tomorrow all of today’s new arrivals will depend upon yet more new arrivals in order to create jobs for them. And the day after tomorrow all those newer arrivals will depend upon yet more new arrivals to create jobs for them, and so on until we are all only permitted to consume 5 litres of water a day each and are living stacked on on top of each other all the way up to the stratosphere in concrete boxes.

    And, of course, as Professor Quiggin has pointed out, those who have invested in the hyper-inflated housing market expect the value of their investment to be at least maintained, if not increased. How else is this to be achieved without a constant flow of immigration?

    How could anyone possibly question the economic capabilities of the various Governments which have brought about these circumstances?

  18. SJ
    July 22nd, 2007 at 19:27 | #18

    SATP Says:

    SJ, if you lived in Qld or NSW, you would be aghast at the culpable incompetence with which those state governments are mishandling their health systems. Especially if you became a public patient.

    As it happens, I do live in NSW, and I’ve used the public hospitals a half a dozen times in the last 3 years for the little SJs, now aged 5 and 8. From my own personal experience, I think you claim is laughable.

    Regradless of this, you’re now claiming something completely different to you original claim, which was:

    It is not as if state goverments are doing anything worthwhile with the money.

  19. ljh
    July 23rd, 2007 at 00:09 | #19

    “Not so sure about that one, ljh and steve. The banks receive money in the form of deposits of which they are expected to pay interest. In turn they have no choice but to make these funds available for loans that they in turn receive interest, obviously at a higher margin. How else can they make a profit.”

    I don’t think it is that simple. This is really not my area, but as far as I know, modern banks create mortgage backed securities which they sell on, allowing them to lend more. So the risk of a bubble in property prices bursting may actually be held more by institutional investors like pension funds than by the banks themselves.

    I don’t think the government should really concern itself with banks’ profits. They operate in a theoretically competitive sector and are big enough to look after themselves. Banks have profited hugely from inflation in house prices and that means that young families are spending ever higher portions of their income to cover housing costs. And your sympathy is with the banks?

  20. observa
    July 23rd, 2007 at 00:13 | #20

    Stamp duty exemption for first home buyers in SA cuts out completely at $250,000. What a sick joke that is in today’s marketplace. Perhaps someone can explain to Tania Plibersek the current taxation treatment of negative gearing of real estate too http://www.news.com.au/business/story/0,23636,22114304-31037,00.html
    Sure beats me what she’s dribbling on about here

  21. mugwump
    July 23rd, 2007 at 06:27 | #21

    Supply is a big component of the housing price problem, but in more subtle ways than is commonly assumed.

    Take Adelaide as one example. Some of the supply issues:

    1. It takes 13 years for the state government to approve new greenfield developments.

    2. The state government now slugs developers (and hence new home owners) enormous development fees ostensibly to pay for local services such as schools, roads, etc. Once upon a time these things were paid for from income taxes (and now GST), which begs the obvious question: what are my income taxes and GST paying for today? (no prizes for the correct answer: armies of bureaucrats who, among other things, take 13 years to approve new developments).

    3. The state government forces developers to build medium-density housing way out in the suburbs. One big advantage of the suburbs used to be low-density living, so the state government’s policy further raises the value of inner-city property relative to the fringes.

    4. Due to house price inflation, stamp duty on median-priced homes is more than double historical levels.

    5. The state government refuses to allow development on vast tracts of land quite near the center of Adelaide, including inner-east and near-south.

    6. The state government refuses to allow development of new large shopping malls and other facilities, further distorting the value of inner-city property which is near existing facilities.

    Neither Adelaide nor any other major Australian city would exist if they had been subject over their lives to the ridiculous development restrictions imposed by state governments today.

    But I do agree on one thing: tax land on an annual basis based on its values (local councils already do this). But go the whole way.

    1. Get rid of stamp duty, and cut other taxes like GST and income tax.

    2. Get rid of development restrictions.

    3. Fund a portion of all local services including schools from the local property taxes raised.

    4. Devolve responsibility for provision of the services paid for by local taxes away from the state and federal governments and into the hands of local councils.

    Do this and you’ll see a big impact on the inner-outer housing price gradient. And you’ll see a big improvement in supply, because developers will be free to build the kind of suburbs in which people actually want to live (including provision of shopping and commercial facilities), and owners of fringe land will be forced to sell to developers or pay ever increasing property taxes – ie you’ll get rid of the crazy distortions you see in Adelaide and elsewhere where speculators (including the state government) can hold vast tracts of desirable land at zero cost.

  22. John Foster
    July 23rd, 2007 at 11:39 | #22

    When the Reserve Bank pursues a monetary policy which only targets interest rates it, by definition, loses control of the money supply and credit. This means that the banks can create reserves at will to expand credit without causing a problem for APRA. This credit can be fed, in turn, to secondary financial agents, such as mortgage firms. Property is regarded as high grade collateral by banks (and APRA) so we have a recipe for house price inflation when there is negative gearing and a capital gain discount. Apart from a few warnings in the early 2000s, the Reserve Bank has done nothing to stop this process. There has been an inflation target but no asset price inflation target.

    So we can place most of the blame for the boom in house prices on an inadequate monetary policy which relies only on one instrument, the interest rate. History tells us that the private sector depends upon the monetary authoriries to ensure that monetary growth doesn’t flow into price rises. This has never just been a matter of trying to fine tune interest rates, regulation of some kind has always been necessary to curb certain categories of credit creation. We cannot expect the banking system to do this, it is a matter for the central monetary authority to deal with.

  23. July 23rd, 2007 at 12:28 | #23

    Yes John, I have always puzzled at why the RBA uses interest rates to control credit supply, when they could just control the amount available to be loaned.

  24. July 23rd, 2007 at 12:40 | #24

    SJ, you are substituting derision for thought. Take a good close look rather than going into denial like that. I’ll walk you through it:-

    SATP: SJ, if you lived in Qld or NSW, you would be aghast at the culpable incompetence with which those state governments are mishandling their health systems. Especially if you became a public patient.

    SJ: As it happens, I do live in NSW, and I’ve used the public hospitals a half a dozen times in the last 3 years for the little SJs, now aged 5 and 8. From my own personal experience, I think you claim is laughable.

    PML (me): Get closer into this and remember, you are not talking absolutes but comparisons; would we be better off if the state governments were not doing this? And we do have a basis for comparison. For instance, I, my father and my uncle each had our appendixes out, they in 1930s Scottish hospitals run as independent charities, I in 1960s Nigeria on the back of a teaching hospital and a company health plan. On the other hand modern waiting lists mean that in today’s British NHS, a great many people die of appendicitis without even reaching hospital (so they don’t show on hospital figures). Right now, here in Australia, I have a friend whose appendix occasionally flares up; she is taking what seems to her the lesser risk of leading a normal life.

    SATP: Regradless of this, you’re now claiming something completely different to you original claim, which was:

    PML (me), interjecting: No he isn’t; as I read it he isn’t claiming anything there at all, he is trying to illustrate his earlier point, which is (resuming):

    SJ: It is not as if state goverments are doing anything worthwhile with the money.

    PML (me): Which is absolutely correct. Don’t just read my remarks just above, see my earlier comment on the point. Even when these governments do good in absolute terms, their inefficiency and ineffectiveness as compared with the alternatives means that you aren’t getting a good bargain. Sometimes you don’t even get what you need, let alone get it as good value. Governmental tax burdens and allocations of resources mean that the alternatives get crowded out. Discussions of crowding out, clawbacks and drawbacks and externalities and so forth, should be read first before anyone pays attention to articles like the one in today’s Age about how people are turning back to state education.

    PML (me): I submit that, as far as efficiency (ratio of bang to buck) and effectiveness (whether there is enough bang) go, we have plenty of theoretical and empirical evidence that there are better ways of handling “government” service and provision than via governments. There is the fact that personal provision becomes more realistic without governmental burdens – particularly because governments make externalities and destroy the nexus between paying and getting, what with consolidated revenues and lack of hypothecation (yes, I know they need that to work “properly”; that is an argument against governments handling things, not against hypothecation). There is also the principle of subsidiarity, which can be carried all the way down to individual charities, to work where individual effort fails. It is not a question of let governments do it or do without – not even when governments would leave people in the lurch if they stopped without a transition. They certainly deserve no credit for doing something when they themselves have broken the alternatives and refuse to engineer out the needs or even countenance any transitions away from learned helplessness (e.g., the Liberal Party has persistently failed and refused to conduct a study of Kim Swales’s approach to unemployment, despite being instructed to do so by a State Council resolution and repeatedly being reminded of it).

    PML (me): Finally, we can actually look at values and legitimacy; governments do not have even our implied consent for social democracy style service provision, and the whole lack of moral basis for it has been addressed over and over in history (see Article 38 of the Church of England). Learned helplessness and manufacture do not create any legitimacy, ever.

  25. observa
    July 23rd, 2007 at 12:48 | #25

    And once you finally overcome all these cost hurdles heaped upon you by the well meaning and finally take the plunge into partnership with the friendly bank manager, there’s those needy souls at Council. Couldn’t get a rates notice without a glossy brochure and the public circus speak now could you? Here’s the good folks at the City of Holdfast Bay laying on the vaseline, to explain a 6.5% average rate rise, plus a projected 2% increase in revenue due to new development(the latter on top of a feast of new rate revenue as a result of new Holdfast Shore condos and the like these past few years)

    “Council’s 2007/08 Annual Business Plan supports a long-term financial performance and position that is sustainable. This will mean that planned long-term service and infrastructure levels and standards are met without unplanned increases in rates or disruptive cuts to services.”

    I’m thrilled that none of the rise was unplanned for, including the unexplained new addition of $27.25 for my ‘Natural Resources Mangement Levy’

    You don’t think Kevvy and Co will be putting on some more public servants to watch Council Rate increases do you? Just in case they’re not being properly planned for of course.

  26. El Poppin
    July 23rd, 2007 at 13:38 | #26

    Living in inner melbourne and having developed two sites, I’m not too fussed about paying for the new services such as electricity, sewerage, etc. However what is annoying is the fact that any one can object to any development – worst case someone who lived three blocks away (and the individual was a town planner, although not working for the relevant council) launched objections that were unreasonable from the beginning and eventually were found to be so. But then the whole site was slapped with a heritage protection notice, although there was none. Indeed the wjhole suburb is now under heritage protection although during our appeal we demonstrated that that could not possibly be so. So to ease the supply question remove all the building constraints and restore some semblance of property righs. The only type of planning required should be whether the area is industril, commercial or residential. If a developer wants to build multiple floor buildings, then so be it. If no one wants to buy these then the developer cops the loss.
    On the interest rate side of teh equation, my question is whether the housing has been given the correct weighing when calculating the CPI which is one of the determinants of interest rates. Has the Reserve Bank done their homework?

  27. observa
    July 23rd, 2007 at 13:51 | #27

    Generally speaking, the housing affordability crisis is one symptom of a much broader malaise, namely the income tax dinosaur, as John Foster points out. The abandonment of income tax, for a reliance on carbon and resource taxing (which necessarily requires a land use resource tax) would end our unhealthy preference for investment in RE and large Tuscan boxes. Reliance on carbon and resource taxing would also negate the need for mandatory controls on energy/water use in housing design, leaving those rational decisions to incentivised individuals. As well, zero income tax means savers can pay tax when they spend their savings and interest, rather than pay as they earn now. Indeed they pay tax on nominal rather than real interest, which is why deferred capital gain is so attractive. We all know it’s the tax system creating the distortions, but noone really wants to unwind it all, although with CO2 climate change, perhaps now is the catalyst for serious socioeconomic change. Spare us the Kyoto/plastic shopping bag bans/mandatory rainwater tanks/yad, yada quantity control freakonomics.

    With a nil income tax regime, much of the speculative demand for RE would disappear, leaving room for some sensible demand measures, to aid basic housing affordability. That’s where I think a ‘life grant’ for all would be sensible. An adolescent finishes Year 10 and gets a credit account (life grant) consisting of all post YR10 education spending now, the FHOS grant, etc, to be spent in one of 2 ways over their lifetime. Firstly for any post Year 10 approved ed and training, or to be used to purchase a home. As well compulsory super could be paid into their mortgage to increase affordability, up to a sensible maxm. All such life grant/super payments would be quarantined upon sale of the house and rolled over into another home or back into the ed life grant. It’s that simple really and it’s clearly time. Needs some real bipartisan statesmanship though, rather than gabfests and more public servants monitoring the price of bananas.

  28. SJ
    July 24th, 2007 at 22:53 | #28

    PML Says:

    Finally, we can actually look at values and legitimacy; governments do not have even our implied consent for social democracy style service provision, and the whole lack of moral basis for it has been addressed over and over in history (see Article 38 of the Church of England). Learned helplessness and manufacture do not create any legitimacy, ever.

    Blind faith, be it in some form of libertarianism/anarchism or in a particular document written by the heirarchy of some church in 1571 is rarely a good presciption for public policy. This sort of stuff is simply not helpful in the reality based community.

    There has been quite a large number of elections in various countries in the 20th century in which express consent was given to “social democracy style service provision”.

    Maybe you were just having a hard night on the single malt, or something.

  29. July 26th, 2007 at 19:56 | #29

    SJ, you aren’t reading my stuff the right way round. I’m not making a policy prescription just there, I’m going into the underlying ethics. Ethics do not date.

    What is more, there has never, ever been any election, in any time or place, ‘in which express consent was given to “social democracy style service provisionâ€?’. That is because of the maxim that you cannot give what you do not have. Elections can only work within an ethical framework, not create one. It’s connected with the old debate over Ius dicere or Ius dare – whether you are determining what is right in the sense of working it out and saying it, or actually making it so. But no electorate owns me or any part of me, or has any moral right to make wrong right any more than it can make black white.

    On the other hand, if you are asking about what works or about what is necessary – lifeboat ethics – then you were picking on the wrong target. I dealt with those areas elsewhere, not in the part you quoted.

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