Prairie populist would smile at Stanhope budget initiative
The main daily in Australia's capital pushes sharing land value
We trim this 2008 editorial appearing in the Canberra Times on May 10. The author is their editor-at-large.
by Jack WaterfordWhenever I proclaim myself a fan of the American economist Henry George, people, including Treasury economists, shyly come forward to admit that there is something in him.
For the first time in nearly 40 years, even closet Georgists could manage a slight grin.
Jon Stanhope, Chief Minister of the Australian Capitol Territory (ACT), all of which is publicly owned, offered young people buying a home a saving of perhaps $200 a week.
Henry George was a 19th century American populist economist whose books were outsold only by the Bible. He influenced early Australian politics deeply. His disciples established Canberra’s leasehold system.
George recognised that a hectare in the wilderness might be worth 50c. But a hectare 1km from a major city might be worth $50million. What causes the difference?
The hectare near the CBD is located beside roads, sewers, power lines, schools, and hospitals. Citizens are eager to live where markets, work, and facilities gather. Those works (paid for by the community) drive demand, and price.
George concluded that developing such facilities should be paid for from the resultant increase of the value of land. The community, not the owner, added the value to the raw land.
George’s idea appealed even to conservatives. When Australia federated, income tax scarcely existed. Sales and excise duties were uncertain. Other taxes, particularly transfer taxes, were counterproductive; ways of paying for government were at a premium. Land rents are efficient to collect, impossible to avoid, and progressive in nature, so that the rich paid more.
Over a century ago, Australian Georgists implemented such ideas with leaseholds. Government could lease out all land on 99-year leases, charging landholders an annual rent of five per cent of its exchange value. Just as now Canberra land is re-valued every few years, such a scheme could ''capture'' rising land prices and convert at least some of it for the benefit of the community.
A person would choose vacant land on which to build a house. If it was near a school and the shops, its ''price'' might be 100 compared with another one, a kilometre away, costing only 50. But one did not pay 100 for his chosen block. One paid 5% for each year of the next 99 years of its assessed value. One could focus on borrowing for building, not for the land. One could start building immediately; indeed, one had to within six months. Banks recognised one's security of title and had no compunction about lending.
The guy who bought the 50 block was paying only 2/10/- a year. If one later decided to move closer in, one could ''sell'' the unexpired part of the lease. The ''buyer'' had to continue making lease payments. Given that 99 years amortised is hardly anything less than freehold, the value came close to an ordinary freehold price. A newcomer could buy an established home at prices comparable to, say, Adelaide, or take a vacant block at a massive immediate discount and build.
The scheme worked until 1970. Then the local MP, Jim Fraser, died, and the Liberal Government tried to wrest his seat from Labor. They offered Canberra landholders a massive bribe: vote for us and we will waive your duty to make future leasehold payments.
It was popular but didn't quite carry the day. Still, it changed the scheme. Henceforth, ACT landbuyers no longer paid a 5% annual land rent, but a sum, usually set at auction, to encompass the whole 99-year lease price in one hit. Instead of putting down, say, $2000 on a $40,000 block, one had to pay the $40,000 upfront, and incorporate that in the mortgage one took to build the house.
Stanhope’s $200 offer is a partial reversion to pre-1970 times. It is not a subsidy. It is far more economically sound than first home-buyers grants or stamp duty subsidies, which distort markets in a way particularly paid for by first home buyers.
Stanhope’s 2% rent is an option to purchase, albeit one that can be deferred for years, until one can afford to pay. If one sells, the full lease price has to be paid in full. But a young family can defer that debt until they can afford to pay, say for 15 years, when family income is higher. It could be extended further, even without means tests, without amounting to any sort of public subsidy.
It probably should be.
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