People Power and Housing – Centre, Left, and Right.

People Power and Housing – Centre, Left, and Right.

The protests that washed across major cities and towns a few days ago, covered a wide variety of issues, yet underlying them all is dissatisfaction with both sides of politics and the frustration in the community that ‘voices’ are going unheard.

We’ve been used to seeing similar demonstrations across the austerity-ridden countries of Europe and the USA, and political clashes such as those in Russia and most recently Ukraine

Yet since the fall out of the last economic crisis, a concentrated outcry of public anger has penetrated democratic society and it’s not limited by ‘cause’ or segregated by age and status, but generated by the incredible impact of social media enabling a wide array of ordinary citizens to vent their concerns outside of sporadic government polls and the headline sensationalism of main stream media.

The natural limitation of Government is the inability to please all, and no one would expect as such.  In a democratic society, they’re elected to enact on the policies campaigned upon – asked to lead rather than follow and ensure citizens achieve a platform that assists in advancing equitable outcomes.

Albeit, it’s a brave Government that turns its head away from large vocal demonstrations, especially in an age where – through the connectedness of social media – they can be arranged at the drop of the hat, bypassing the usual bureaucratic process of writing to a local MP to highlight community disquiets, or publishing a letter in the local paper.

You can argue back and forth about the issues surrounding this latest public protest. Express outrage at the inconvenience incurred to the daily commute. Or even question its relevance considering we have not long elected the Coalition into power.  But when a wide makeup of individuals, from all sides of the political spectrum, takes to the streets – not on one agenda alone – but an array of disgruntlements.  It is no longer merely representative of a minority that sits on the fringes of society; it signifies a clear message of distrust – a potentially destabilising force.

“Cone of Silence”

Tony Abbot’s government made it clear upon election, that they intended to control the flow of information available for public discussion.

It wasn’t only displayed in the media restriction detailing daily boat arrivals, but in a large array of research undertaken by the previous administration, which has now been firmly locked into ‘archive’ status.

This would include two I’ve mentioned in recent columns – the National Housing Supply Council, and the year long study that formed the white paper into the “Asian Century,” which outside of general criticism, remains a useful tool of reference for Australia’s future demographic makeup.

So you could say that listening to the public voice, isn’t the current Government’s priority – but then, neither was it for the last.

Little if anything came from those reports.  The were good on content, but lacking in action – and much like the “2020” summit in 2008, the results can be summed up neatly by words from biographer, Nicholas Stuart, in ‘Rudd’s Way – November 2007 – June 2010;’

“….His rhetoric inspired and enthused voters. And yet …. and yet …. nothing happened.”

“Nothing happened” – because Governments too often bend the knee to those with the ability to influence political leadership and public opinion, rather than acting ‘democratically’ for all.

Housing policy alone aptly demonstrates this.

  • The tax and transfer system values owners over renters;
  • Encourages and rewards those who use the land as a speculative investment for personal gain;
  • Advantages giant corporations over independent businesses;
  • Widens the ‘wealth’ gap between rich and poor;
  • And hampers timely development of affordable housing; (to name only a few.)

When concerns are raised, our leaders spend a few wasted millions on comprehensive enquiries to ask ‘why?’- like some clueless high school student.

“What do we want?..”

These protests, whilst not directly about land prices, were about community and social justice, of which housing forms an indivisible part.

The list includes education – and as I’ve pointed out previously, high land prices directly contribute to what’s assessed to be the most segregated schooling system out of all members of the OECD countries.

Some of the highest land values are found in the best Government funded school catchment bands, and as an auctioneer proclaimed during his pre-amble in the McKinnon High School zone last week;

“There is no ceiling for house prices in this area.!.”  A bullish spruik if ever you heard one – but not far from truth.

Record prices continue to be regularly broken, affluent buyers continue to pay a premium.  Yet the price is effectively ‘free,’ because as the zone’s future vendor’s ‘speculate’ – if they hold onto the family home long enough – they are likely to receive a ‘windfall’ in unearned capital gains.

Social Justice? Hardly.

Unwonted robbery?

The community produces the gains through the tax-funded facilities. Whilst market forces drive prices higher, the unearned profit does not flow back to maintaining or upgrading those services – which is where it arguably belongs.

Instead it is privately capitalised– soaked into what is an irreplaceable, illiquid

and unproductive asset, thereby giving free leave for mounting property prices to continue, which, under the current system, grants a ‘tax free’ unearned reward to the owner occupier upon sale

The sell off of public services was also highlighted.  This too can also be associated with high land values, which have dictated what is assessed to be the more profitable offloading of the Millers Point public housing estate, rather than retaining its use for long standing residents, which, by definition, drives social polarization and housing inequality.

It seems in the land of a ‘fair go,’ only the affluent are allowed to advantage from a Sydney Harbor view.

Are They Listening?

Yet the indicators Government use to measure their performance whilst in power are meaningless to protesters, and in many respects, a 21st century economy.

They are no measure of happiness, or signal the worrying rise of mental illnesses such as depression.

Only by ‘hearing’ community voices, gives a clue to that.

GDP – the total value of all products and services bought and sold, a basic measure of money changing hands, does not distinguish between;

  • Productive or destructive activities,
  • Show who’s getting the lion’s share of wage increases, Or
  • Assess where those increases are being invested; (Which, considering housing (land) is currently estimated to be 300% of Australia’s GDP, gives some indication.)

Equally it gives no clue to the foundations of societal health – such as environmental concerns, access to education, or wealth inequality.

Yet these are the issues community wants to address – because these are the barometers that directly impact our quality of living.

Whilst GDP is an excellent measure of the amount of arguably unneeded ‘stuff’ changing hands, it’s also not up to the task of adequately measuring intellectual property, innovation and invention for example – such as the creation of a free app.

It may be concerned with the health of the economy, but as for the well-being of our 21st century community – it’s simply not up to the task.

Equally, unemployment figures are based on theoretical estimates, formulated by way of an extensive ABS survey, which aims to correlate the percentage of the labor force not actively employed, underemployed, or ‘participating.’

They are rolled out monthly, with the widely held ‘text book’ assumption (known as NAIRU) that, regardless of how many actually want to work, should Government pro actively attempt to lower the rate of unemployment below the desired level of “full employment”  – which in Australia, is assessed to be and ‘unemployment rate’ of roughly 5% – it would unwontedly induce inflation and destroy price stability.

A purported ‘fact’ that offers no comfort to those living on the poverty line of job seekers allowance.

This is also largely due to our flawed system of taxation – which places a levy on productivity, (such as income and payroll taxes,) unwontedly impeding the supply of goods and services, which in turn raises prices, feeding inflation and increasing the unemployment rate arguably ‘required’ to lower wages sufficiently to stabilize inflation

If we instead moved toward a system – and one, which was, at least in part, advocated by the Henry Tax review, and not withstanding, numerous other submissions from community advocates such as Prosper Australia, or the Land Values Research Group to various senate enquiries over the years. And taxed the unearned gains from land (as mentioned above,) rather than the earned gains from productivity.

It would (as has been proven historically) influence;

  • A reduction of social polarization – and therefore inequality.
  • Remove the needed ‘sell off’ of public services due to high land values.
  • Boost productive investment, assisting the job market and advancing competitiveness for small business.
  • Reduce the speculative element that drives land prices ever higher.
  • Provide a steady base of revenue to invest in public services as well as affordable housing, and;
  • Ensure infrastructure is built for need – full utilization of land encouraged – and land banking reduced.

Productivity Paradox

In light of all the above – it is remarkable that back in the 60’s and 70’s, discussion in the university lecture halls was centred on the ‘productivity paradox’ – correctly assuming it only a matter of time before all mankind’s basic needs could be largely fulfilled by robots (which they has been.)

Economists were deliberating what we’d do with all our leisure time when a full working week was no longer necessary!

A stark change from the current mode of discussion, which is consumed with how long past the age of 65, individuals will need to work in order to retire mortgage free, with enough left in the pot to afford the basic necessities of life, which in most cases, is inadequately funded by super annulation alone.

If it were possible to send the dog to work, we’d have already done so.

Community

Indeed our economy is not founded on the pillars of community and social justice, of which the protests are so concerned.

As admirable as numerous recommendations made to various senate enquiries into issues of inequality, affordability, finance, and environmental concerns have been, nothing has changed, because we have a lopsided economy, built on a $5.02 Trillion housing market ($4.1 Trillion of which is land) – and on this, and many other matters alone, a new generation of enlightened folk have clearly had enough.

High land values have played an important part in all the issues of social inequality highlighted above, of which I’ve provided ample evidence in previous columns.

Our major cities now exhibit what’s considered to be a very ‘non Australian’ style ‘English’ cultural class divide – as polarization between the asset rich and income poor expands.

The roll on effect impacts the environment, employment, education, and mental illness – as residents are forced into areas lacking in essential amenities – once again due to a flawed system of finance and housing policy.

To Conclude..

And so, when you start to see what is so beautifully highlighted using the maps below, which show where the affordable property was located in 2001 for low and middle income buyers, compared to 2011 in our major capitals, which hold the lion’s share of population.

(The yellow patches being affordable, and blue patches unaffordable.)

Sydney SP Brisbane SP Melbourne SP

And you read quotes from a long standing resident advocates, at the soon to be forced out Millers Point public housing facility, who rightly question;

“The government says their core business is not housing. But surely their core business must be communities….?!”

Then you start to get a grip on the central issues this protests represents;

March in March

And I would suggest – (as expressed on their website) – it really is “only the beginning.”

Catherine Cashmore

By Catherine Cashmore, a market analyst, journalist, and policy thinker, with extensive industry experience in all aspects relating to property. Follow Catherine on Twitter or via her Blog.

“The Marginal Buyer Of Sydney And Melbourne Real Estate Has Changed”

“The Marginal Buyer Of Sydney And Melbourne Real Estate Has Changed”

Investment bank ‘Credit Suisse’ couldn’t have coined it better when they asserted;

“The marginal buyer of Sydney and Melbourne real estate has changed, as have the drivers of property prices.”

The words are taken from their recent report on international investment into the Australian residential real estate sector, with the intention to highlight potential opportunities for future speculation.  And the statement is correct.

Anyone, who is in the business of buying or selling property, is acutely aware how the push and pull of both supply and demand in our property markets, has been markedly shaped by both a change in the local demographics of our nation, along with international competiveness in recent years.

The roll over influence on values in concentrated regions of our largest capital cities has, in some cases, been significant. And whilst it remains the subject of much angst for those priced out, I have yet to meet a seller who did not welcome this increased competition, or stage some sort of active public protest.

However, heated debate in the main stream media, around what has long been known in the industry, as little more than a ‘tick box’ formality, designed to detract from what remains a largely unaudited system of ‘non resident’ investment in Australian property – residential or otherwise – by the Foreign Investment Review Board, has been going on since 2008.

As property editor, Robert Harley recently pointed out in the AFR;

“…even the ‘experts’ find the FIRB annual report…. tardy, lacking in meaningful detail and hard to reconcile with their own experience… “

And as the fictional character “Chodley Wontok” discovered last year, claims in the foreign policy document that applications are reviewed against the “national interest,” on “a case-by-case” level, do not go so far as a mere passport or visa check!

However, the sheer hysteria around this subject needs to be bought under control.  And if we’re to make sure policies are correctly regulated and work in the national interest as ‘spruiked,’ the blame needs to be carefully targeted to areas of influence – namely, policy

Something the Government has to date, repeatedly failed to do.

A policy disaster.

Following the 2008 crisis, when Kevin Rudd decided to put in place measures to prevent any major deleveraging of household debt, one of these was to openly advertise ‘relaxed’ regulations around the acquisition of residential real estate for temporary residents, companies, and developers selling solely to overseas buyers.

Whilst the wisdom of such a move was debatable, what followed was a truly disastrous state of affairs

Attempts by Walkley Award winning journalist, Chris Vedelago, to obtain accurate data under the freedom of information act, to monitor the level of increased demand being widely asserted by industry advocates – was repeatedly frustrated.

According to the then Assistant Treasurer, Senator Nick Sherry, any effort to establish a greater understanding of the FIRB’s compliance system, was not in the public’s “best interest.”

Instead, the Government – then panicking over the consequential effect to their ratings in the polls – came up with the incredibly smart idea of a ‘dob-in’ hotline.

The hotline was designed to enable worried locals, to report those dubious looking foreign nationals, who were cleverly disguising themselves as local buyers and naughtily ‘bidding up’ neighbourhood prices.

That would put a stop to it! *Thought Kevin*

Unsurprisingly, from the limited number of calls received (although, once again, probably not from those vendor’s who were happily selling their properties in the rapid run up to the market peak of 2010,) most turned out to be Australian citizens and long standing permanent residents.  So, it did little – if anything – to stem the core of concern still prevalent within the community.

It is therefore of little surprise, that anecdotal stories from agents, who maintain official figures, are under reported and rules are being flouted, continue to carry more weight. And a debate, which now walks a fine line between being termed racist or otherwise – continues unabated

What’s going on?

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.

When the Federal Government states in its policy document that it “welcomes foreign investment” which

 “…has helped build Australia’s economy and will continue to enhance the wellbeing of Australians, by supporting economic growth and prosperity..”

You can assume toward the top of that list, is the investment into the land market – residential or otherwise.  And as official figures show, few – if any – applications are ever turned down and real estate captures the majority interest.

The recent recessions that have occurred in other countries as a result of their own residential speculative booms, have merely accentuated these international patterns of investment and migration.

For example, following the GFC, the number of foreign-born workers leaving Britain, rose by nearly 30%, as the Government set about removing 300,000 skilled jobs from the list of positions open to workers from outside the European Union – evidently fearing political backlash from somewhat unsubstantiated claims, that this was significantly ‘harming’ British jobs, and thus not aiding rising unemployment or the economy as a whole.

At the same time, distressed nations opened their doors to opportune investors from around the globe, who were encouraged to take advantage of now uniquely ‘cheap’ real estate markets, in a vein attempt to kick off a ‘recovery’ in their own local terrains.

It was only a few years ago, stories were littering the main stream media highlighting the surge of demand for USA properties, as ‘spruikers’ made benefit of our strong Aussie dollar, to lure local investors to purchase previously owner-occupied foreclosures, and instead, turn them into investor owned speculative rentals.

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.

But the Government cares little – the gains in property are the ‘silver lining’ Obama needs to maintain popularity. And he had no hesitation in boasting as such when he recently stated;

”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 rumours 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.

However, (as with Australia,) outside of half hearted central bank ‘don’t spend too much’ warnings, there little rush to limit the inflationary rises.

This pattern is always the same.  It’s allowable to let productivity and industry fail whilst small businesses suffer, but woe to the Government who allows the privatised ‘wealth’ fund of its aging population endure any such demise.

Australia’s changing landscape

Australia is internationally marketed as the ‘lucky country,’ an economic star on the world stage, from which we derive much benefit.

Population growth throughout the GFC was barely dented – and like every other country, we tow away the poor, whilst targeting skilled migrants, or those with dollars to invest.

Over the last census period alone, Melbourne’s population expanded by nearly 355,000 new residents, and continues to grow at pace of roughly 2% per year.

Additionally, its population has grown in diversity, with the traditional European migrants of Greece and Italy falling as a proportion, whilst the growing number benefitting our shores now come from both China and India.

(Settlers = skilled and family reunion migrants, along with humanitarian visas and refugees)

Vic migration census period

The same trend is mirrored in NSW – projected to reach 8.4 million by 2060. Migrations to the famous harbour town also come increasingly from both China and India, as demonstrated below.

.nsw migration census period

When, under Julia Gillard, the Government commissioned a ‘White Paper’ on ‘The Asian Century’ designed to;

“…generate a set of general propositions to guide policy development over the long-term..”

The importance and potential magnitude of Asia’s dominance on the world stage was emphasised, by Julia Gillard when in a speech she asserted;

“We are now seeing the most profound rebalancing of global wealth and power in the period since the United States emerged as a major power in the world.”

No Kidding!

Indeed, it would be hard to over-estimate the economic force Asia holds for our local economy.

It will shape the most important social, cultural, business, domestic and foreign policy implications we will face in the decades to come.

By 2025 the Asian region will account for almost half of the world’s output and also be the world’s largest consumer – and if we play our cards right, Australia is best placed to advantage.

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 number of Asian students studying on our shores is at record highs.

Trade flows, research and business development, education, tourism, and increased levels of migration have benefitted us significantly in recent years – and the potential to capitalise on the productive sectors of our economy remain.

Whilst the Gillard Government’s white paper – now firmly locked into “archive status,” – remains a useful form of reference.  It was widely criticised at the time, for its vague approach as yet ‘another’ study, which like a PHD paper, is good in content, but lacks any hint of direct action.

It claimed that Australian manufacturing was expected to ‘grow,’ with wishy-washy advice on how firms must;

‘”..adapt by anticipating changes in their markets, building the talents of their people and constantly innovating and lifting their productivity”

Claims, which now seem laughable.

We allowed the profits from the ‘once in a century’ mining boom to fall into private hands.

As Sydney Morning Herald’s Economics Editor Ross Griffiths recently clarified in his commentary on Abbott’s efforts to remove the ‘mining tax.’

“There is a lot of ‘unearned’ economic rent associated with the exploitation of limited mineral deposits,” and countries like Australia would be “mugs not to tax much of that rent rather than letting largely foreign companies walk away with most of it.

‘Mugs’ we are.

But what about land?

Asia’s influence is marketed as positive news, however, the one area that receives the most overwhelming negativity, it its influence on our real estate market, precisely because of the some of the issues hinted in the paragraph above.

We have little, if any, understanding of the accumulated wealth being brought into the country, and recent settlers have little experience with the local market, or misleading practices surrounding real estate price quoting.

This lack of transparency and education within the industry itself needs addressing, however, it’s a subject I’ll explore further in another column.

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 would further aid both the expansion and development of our cities, with the flow on effect ideally taking the speculative element out of the housing market, and assist in reducing its destructive influence on prices.

This alone, would go a long way to reducing the wealth inequality currently experienced in our big cities.

Presently, we’re doing a great job of building an abundance of cheap, high density, and no so inexpensive apartment blocks, full of small one and two bedroom flats, often no more than 60 square metres inside. Great for student renters – but do little to meet the needs of our biggest residential sector – family buyers with children.

Therefore, the above issues, all need to be tackled from ground up policy reform – significantly on the supply side.

Offshore investment must be solely channelled into creating new supply – and audited to ensure the conditions stated in current laws, are being adhered to.

I’m not holding my breath, but hopefully some of these will be explored in detail and ‘maybe’ go so far as being implemented following the Senate Enquiry later this year.

We can’t – and wouldn’t want to – stop migration.  But we can ensure wealth invested in our established real estate market, is utilised effectively.

Catherine Cashmore

It’s Time Australian’s were allowed to make an Educated Choice – “Questions & Answers.”

It’s Time Australian’s were allowed to make an Educated Choice 

“Questions & Answers.”

Australia – an economic ‘star’ performer…. but are we happier for it?

By any comparative measure, the Australian economy has performed remarkably well over the last two decades.

Strong gains in the labor force throughout the 1990’s, rapid population growth and a surge in the value of key commodity exports through the 2000s.

Resilient wage inflation duly capitalised into rising property prices, by way of a dramatic and accelerated run up of household debt in the lead up to the GFC.  All of which was buffered and prevented from any significant deleveraging, by the Rudd administration in 2008, when he threw sizeable cash handouts to families along with infrastructure investment to avoid plunging Australia into a technical ‘recession.’

From this alone, our economic platform is deserving of the title “The world’s ‘star performer.”

However, whilst we may stand out in the wealth stakes, we’re not a happier nation for it.

Last week Q&A featured a question from a young Australian and recent school leaver which touched on the sensitive subject of depression asking

  • What can the Government do to “fix it?”

Like every other Western nation, Australia has experienced a sharp rise in the number of people suffering depressive illness over the last decade, with the average onset of the disease moving downwards in terms of age, since the 1990’s.

Organisations such as Beyond Blue report that more than one in five Australian’s experienced depression, anxiety, or both, over last past year, and as the gentleman stressed, he was no exception.

The comments that followed were sensitive in nature – focusing primarily on individual treatment and prevention within the health system. And whilst the cause of depression is both complex and varied, the first acknowledgement on what the Government could do ‘collectively,’ came from Clive Palmer;

“We need to have some sort of vision..”  Said Mr. Palmer “Create an environment that makes people realise the world is not as bad as we think it is… if you cut things, if you cut budgets, if you take things from people, you make them more worried about the future, and more uncertain”

This was reiterated by Ged Kearny, President of the Australian Council of Trade Unions;

I get very concerned when I hear about cuts to public healththey’re just another barrier to person, particularly a young person, getting help..”

They are appropriate observations considering our rising population, skewed toward an aging demographic, which by its very nature will necessitate additional funding over the next decade into both health and education.

So, it was somewhat unfortunate, at the same time panellists were discussing cuts, Prime Minister Tony Abbott was giving a speech to the Australian-Canada Economic Leadership Forum in Melbourne, hinting at just this – as summarised bluntly by Christopher Pyne, Minister for Education;

“[The Prime Minister] said that the current growth in education and health expenditure was unsustainable, and that is true.”

What’s Tony Abbott’s ‘vision’ for economic growth?

“You can’t spend money until you’ve earned it! – Or until you have the means to pay it back!”

Was the cautionary opening statement Mr Abbott posed.

It’s a somewhat startling assertion considering it comes from the ‘issuers’ of our monetary supply, offset through taxing those who do have to ‘earn’ dollars before they can ‘spend’ it – whilst our Government ‘earns’ nothing – but is rather elected, and charged, to balance the budget in the best interests of its working population to promote economic growth – for which education and health are vital pillars.

Abbott goes onto say – the “best” way to build a “stronger economy” is for Australia to once again; “Enjoy a surplus!”

Which may lead you – (like me) – to wonder how exactly the average private household will “enjoy” this surplus, considering we have the highest unemployment rate since 2003, along with an increase in those registering as “long term” unemployed, up 13.5% since January 2013, and more part time jobs being created than full time?

In Victoria – where manufacturing industries are concentrated – unemployment is at its worst level since 2002, whilst youth unemployment – which represents the demographic driving the future of our economy – has reached a ‘crisis’ point.

Just over 12% of young people between the ages of 15 and 24 are currently out of work.

Regional localities reflect the worst – 20% in Cairns and Tasmania, 18% to 19% in north Adelaide, 17% in Western Sydney, the Illawarra, parts of Melbourne and regional Victoria – with the trade off being the increased cost of metropolitan accommodation for those “job seeking” in capital cities.

Additionally, the latest “ABS labour price index” records wage growth at its lowest level on record – climbing just below the rate of inflation for the last calendar year – whilst the cost for ‘essentials’ such as health, childcare, utility services, and petrol, in some areas, has reached record highs.

Considering our household debt to disposable income has barely deleveraged since property prices hit their peak in 2010 – the very talk of reaching a surplus within ‘3 years’ – particularly by way of cuts to essential services, or even the increased number relying on job seekers allowance – is foolhardy,

When the government tightens its belt, the private sector picks up the slack – therefore  “repairing the [government] budget” with the claim it’s putting Australia “back on the right track” – is not putting the fate of ‘Australian’s’ on the ‘right track.

Austerity, at a time of rising unemployment, does not lead to “productive” economic growth.  And from depression and unemployment statistics alone, it seems Australian’s are not ‘enjoying’ a return to surplus.

They’re are working longer, retiring later and in the face of rising unemployment, the only ‘vision’ the working population seemingly have to hold to, is more of the same.

So what are we left with?

After 30 years of demise, the manufacturing industry is in the depths of recession.

Retail is losing the battle to the “World Wide Web,” and residential construction is still struggling to pick up the cyclical slack created by the mining sector.

Abbotts “infrastructure promise” to speed up the flow of money from Canberra into the states, to upgrade road and rail projects, is positive news and sorely needed, however, remember where those gains will be most acutely felt.

Without effective land value taxation, the investment creates the ‘future speculative hotspots,’ where the improvements will be capitalised into rising land values, rather than fed back into servicing, maintaining, and further extending essential community facilities.

Land is an absolute necessity to all commercial and personal needs, therefore as land values rise; it will affect a continued strain on business and productivity, and once again, we’re stimulating the cost of irreplaceable fixed assets, rather than the employment sectors needed to underpin a longer trajectory of economic growth.

But this is what Australia is remarkably good at – creating a booming land market.  We’re right up there with the world’s best performers.

The housing bubble success story…

Following a rapid 12-month cyclical upswing of housing inflation, residential real estate prices are once again reaching their 2010 peak.

Outside of normal ‘corrective’ downturns, we’re continually lectured by an overcrowded mass of vested industry commentary, our housing market can ‘never fail’ – or certainly not to the extent suggested by personalities such as ‘Harry Dent,’ or respected Australian economist Professor Steve Keen, who are quickly bundled into the same category and labelled as nothing more than irresponsible ‘fear mongers’ for implying as such.

Our commentators waste no time offering their own economic analysis of ‘property cycles,’ which unfortunately missed any prediction of the subprime crisis – but that’s ‘OK’ because the Australian market didn’t ‘crash,’  – they didn’t predict a ‘crash,’ – credibility restored.

Albeit, housing affordability for both renters and homebuyers, has rarely escaped headline news since before the last election, and whilst to a limited extent we seemed to have progressed past the point in which rising prices are marketed as overwhelming ‘positive’ news, it certainly hasn’t destroyed the myth that they’re somehow ‘good’ for the long term health of our nation, as owners leverage off the so-called ‘wealth’ effect – relying on the unearned equity in their housing investments to fund both lifestyle and commercial activities

Australia’s biggest employer – aged related care (the health and social Assistance industries) – derives a large percentage of its funding from people selling their housing, which their children additionally hope to inherit to assist their own journey onto the ‘ladder’ – and the perpetual fear of any downturn in established values has painted the government into a corner.

Is the housing market on Rocky Roots?

Yet, fear mongering or not, we know from the above statistics alone, the estimated $5 trillion worth of wealth contained in the house and land market is sitting on rocky roots.

It’s no longer supported by the boom of productive activity and wage growth that assisted in generating the inflation during the 1990s and 2000s – producing the ‘strong’ monopolised banking sector which capitalised on the mortgage market as a population of buyers and speculative investors rapidly expanded.

Outside of future prospected wage increases, significant gains are only achievable by manipulating demand side stimulants, tapping into foreign investment, (currently driving the inner city apartment and development market,) whilst limiting effective and feasible ‘cheap’ supply – which the Government has successfully achieved to date, by way of policies such as negative gearing, first home buyer grants, and a truly diabolical record of supply side reform.

As mentioned in one of the most recent submissions to the Senate’s Housing affordability enquiry, by Prosper Australia, “It took forty years from 1950 to 1990 for housing prices to double, but only fifteen years between 1996 and 2010 to double again.” And whilst most will agree growth may be more ‘subdued’ as we continue, it’s imperative we highlight the destructive nature of this system, which isn’t assisting making us a ‘happy’ nation, and for a moment, stand back and take stock.

Ask yourself a Question..

Just for the moment, forget the raft of industry commentary and the prospected ‘dates’ for the next ‘crash’ predicted by Harry Dent – and ask yourself a question;

  • What will the next decade bring?

If through manipulation alone, Australia manages to achieve ‘more of the same’ and keep the housing boat afloat;

  • What will the consequential effect be on small business and industry?
  • Who will benefit most?
  • Will it be your Children who have to save even longer to get on the ladder
  • Or their Children who will need to save longer still?

Remember – if we were to have a crash, it’s not the wealthy that will suffer – it’s ordinary working families who are then left in a position where they’re unable to borrow to take advantage of lower prices.

Is the future, long-term wealth inequality?

The ‘boom/bust’ land cycle, better known as the ‘property clock’ – which we’re told by industry advocates, is the ‘best’ way to build the individual ‘wealth’ of its nation, is a system which derives its very existence from a long drawn out process, which ultimately accentuates inequality, always marginalizing those at the bottom of the income stream, whilst advantaging those at the top – as I explained here.

Nowhere is the divide between rich and poor more evident than the speculative land market, – which results in a slow process of social polarisation which in Australia, has given us a segregated schooling system where social disadvantage in education is stronger here than any other comparable western nation.

Whilst inequality in wages and business activity can be equalised through competitive activity, land – by its very nature – is ‘fixed’ in supply, and therefore the only ‘cure’ to rising prices in a soft economic environment, is the produce of ‘additional’ supply.

Meeting that demand by extending ‘upwards’ is a challenge. Land values in the inner suburbs are already high – and although it can assist the needs of apartment dwellers, investors, student renters, and to a degree, downsizers – family buyers (our largest home buying demographic) have no option but to head to the fringe if it’s affordability they’re after.

But, due to ineffective tax and supply policy, the Fringe suburbs, which capture the bulk of our city’s population growth, do not have the funding needed to facilitate ‘urban sprawl’ – hence the process of social polarisation.

They have the highest concentration of mental illness – such as obesity and depression – and prices are further manipulated by larger developers who ‘drip feed’ their stock onto the market, of which the Government currently has no control.

Not politically ‘sellable?’

From the time a child learns to enjoy a family game of ‘Monopoly,’ Australians are nurtured on a system that teaches the key to building wealth, is through the leverage of ‘capital growth’ in land values, therefore, none of this is easy to change.

To do so, requires complete structural reform of land value taxation and housing supply policy – therefore we’re told it’s not politically ‘sellable.’

The most solid prediction of the year? 

The most most solid prediction of 2014 to date, is the one that will result from the Senate’s housing affordability enquiry.

After the numerous submissions have been tabled and discussed. The question I stressed in my own submission will remain unanswered;

  • “Will the Government allow land values to drop?”

Assuming this is correct, then Prime Minister Tony Abbott has a care of duty to explain to the public directly, how the ‘propping’ up of the current status quo, will continue to erode the opportunity of future generations.

He must explain how the Government’s failure to provide effective land value taxation and supply side reform to lower land prices, will lock them into longer mortgages, a life times worth of double income debt, push more into ‘long term tenancy,’ and additionally, point out how the current system enhances poor education and health outcomes, social polarisation, and places a strain on core productivity.

Your choice!

Ultimately the choice lay with the voting population, and in a country that holds to the motto of  ‘a fair go’ – I expect clearly evidencing the consequences of our current housing market, will be a lot less ‘sellable’ than educating how we can establish a sustainable approach which – if handled correctly reducing taxes on productivity – will ultimately make each and every one of us better off.

It’s time we allowed Australians to make an educated choice.

Catherine Cashmore