Owners Gain from Cycles but does Society?
|April 29, 2014||Posted by Catherine Cashmore under Uncategorized|
A 2014 excerpt of Catherine Cashmore’s blog, Apr 28.
Over the course of a business cycle, which is both lead by, and correlated to the housing cycle, the gains – more correctly termed economic rent or “earnings from land,” alone – by far and away surpass those that can be gleaned from other more productive investments.
Unearned incomes in land increased a whopping $187 billion in the December 2013 quarter alone (ABS 6416). Total yearly dividends (2013), for investors engaged in risk, was recently reported at $84 billion – $103 billion less for an entire year.
The Henry Tax review suggested progressively scrapping a vast array of ‘bad taxes’ (payroll, insurance, vehicle registration, stamp duty, and forth, as well as reducing those that ‘reward’ speculation) and instead, collecting more of the economic rent of natural resources – significantly ‘land.’
Historically, the capture of economic rent (through land tax and to some extent ‘betterment’ taxes) financed some of the most remarkable infrastructure we have. Sydney Harbour Bridge being a case in point. To assist with funding, government captured a portion of the uplift in property values as a result of this infrastructure. Having to pay was in no way detrimental to the property owners. The increased advantage of economic activity coupled with the rise in prices resulting from the enterprise, more than compensated.
Presently, the wealth locked in our residential land market – through accrued speculation – sits at post $4 trillion (add the buildings on top, and it’s an estimated $5.02 trillion). It’s so large a number; it’s almost meaningless in real terms. Western civilization has not been around for a trillion seconds – go back a trillion seconds – (31,688 years) – and you’d see Neanderthals roaming throughout Europe.
Capturing a greater percentage of annual land values, whilst at the same time reducing those on productivity holds much in its favour.
• It reduces the propensity of boom/bust housing cycles,
• Encourages timely construction and effective utilisation (good for both the economy, employment and consequently, our welfare state)
• Aids infrastructure financing,
• Supports decentralisation,
• Assists in keeping the cost of shelter affordable – levelling to some degree, the playing field between non-owners and owners.
• And importantly, in regions where it’s been implemented with success – Pittsburgh and Pennsylvania being examples – most owners pay less tax when there’s a shift from productivity onto land, than would be the case otherwise.
Of course, to change the mindset of any nation that has been encouraged to use their housing investments as leverage for economic activity, a welfare fund for retirement, collateral for the advancement of business and commerce, and an ATM for family emergencies, is no easy task.
Not to mention the many vested interests in both Government and the property industry, all of which derive their income from the promotion of it.
There’s only one reason we have devastating house price booms and busts – the pre marker to any recession and economic disaster – and that is speculation induced in this case, through the privatisation of unearned gains. And whilst some continue to reap a windfall from exploiting the process, we really need to pause and ask – ‘”Who is it really benefitting?”