Foreigners Buy Land But Leave it Where Locals Can Tax It
|March 31, 2014||Posted by Staff under Good Press|
This 2014 excerpt of Macrobusiness, Mar 11, is by Catherine Cashmore.
Rising property prices – the product of the plot of land that sits underneath the structure – are unashamedly promoted in most modern economies as the key driver to boost the privatised wealth of its nation, with the hope the payoff effect will feed other areas of consumption. They are no longer just ‘national’ affairs, but open to international speculation and investment, of which Australia is by no means immune.
None of this has assisted the home buying sector in America’s property market. Ownership rates continue to fall, and local buyers remain priced out. Yet Obama had no hesitation in boasting: ”Today, our housing market is healing!” (Healing!) “Home prices are rising at the fastest pace in 7 years…” (Faster even than incomes it seems, with first homebuyers at their lowest level since the crisis began.)
Premium localities in the cities of New York and London are openly marketed as ‘safe havens’ for the internationally wealthy. Isolated from the local economy, as local workers are forced out, and rumors of homes laying vacant for much of year provoke neighbourhood outrage. It’s now reported, for every minute you spend on the three Underground stops between Earls Court and Sloane Square, property prices rise by £96,647.
It’s not just the 1% of billionaires seeking out safe haven’s abroad, in what’s been termed the “largest and most rapid wealth migrations of our time.” But the rise of China’s ‘Consumer Class’ – ‘middle income’ individuals, discretionary spenders, whose wealth goes largely under-reported in a “grey economy” of illegal and quasi-legal activities. If trend continues, in a few years, China will become the world’s richest country, and India won’t be far in its wake.
The geographical location of land is fixed and limited in supply. Therefore we can’t all benefit from economic advantage gained from ownership of the best seats in town, without effective taxation of the resource that is.
A correctly administered broad-based land value tax (as explained here – reducing taxes on productivity) would not only encourage the ‘good’ utilisation of land, but if handled efficiently, gains could be fed back into the community to assist increased investment into infrastructure and social services.
This alone, would go a long way to reducing the wealth inequality currently experienced in our big cities.
Ed. Notes: And the best way to feed the gains back into the community, of course, would be to pay residents a dividend from the recovered rents.