A rising phenomenon sheds light on the housing affordability crisis. March 2007
It’s called vacant land. It can sit there all by itself whilst the world goes whizzing by it, with new houses being built and small business struggling to make ends meet. It looks innocent enough. Infact it is such a subtle part of the community that most don’t even see it. This meek little piece of the planet can outdo them all though, growing in value by triple the average wage increase.
What an amazing effort! Triple what the average wage grows and just one block making as much in lump sums as many small businesses do in a year. How does it do it? It sits back and waits for everyone else to work away, improving the schools and roads. Don’t worry, someone else’s taxes pay for it. It does nothing, but people flock to the area, wanting to live there, pushing its value higher and higher.
Poor Maxxy, stuck in front of his Nintendo Xbox after quitting his latest telemarketing job, decides to take a break. Walking to the video shop he stops to take a leak. Pissing through the fence he realises he’s hardly noticed this place. A giant block of vacant land, with grass that cows would lick their lips for.
It used to be a Socks factory. Then it was vacant. It got sold. It got sold again. It got sold again again. Then someone knocked it down. Then it got sold another few times.
All along, nobody did anything useful with it. It was wasted.
So was the hope of Maxxy and his mates. How could he afford a roof over his head when people can waste something that others so desperately need? Shooting away on his gamebox, he wondered whether his people had been excluded from the game of life.
The next few times he walked past he started thinking about this block more and more. Then he happened to roll past during an auction. He stopped and watched as a crowd of serious looking men and women huddled around the auctioneer. Some nodded and the auctioneer winked. Others waved a hand whilst a few held mobile phones out for listeners to listen. It all wound up with someone smiling and someone in the background smiling even more.
Chatting to his mate Billy in the aisles of the video shop, Maxxy heard that the vacant block went for $900.000. ‘Yeah they made $140,000 in 9 months’.
Doing what?
‘Oh nothing, just waiting round, you know, sitting on it until the time is right.’
“Gee that sounds a bit rich! How do I get a job for doing nothing?”
Maxxy started checking this game out. He read an article by a guy from the Institute of Public Affairs, a renowned right wing think tank, where it was stated ‘The value of a block of raw land is only a few thousand dollars but the government restricts the use of land for housing.’
“Well that’s not what I’ve seen” boiled Maxxy. $900.000 for a $140,000 profit sounds like it’s actually worth quite a bit. Maybe this dude should have a look at rich people wasting the supply of land! For all those years Maxxy had walked by the old Socks factory and never smelt a whiff of what’s curbing his chance to get his own place.
Maxxy’s brother heard about his new interest. As a successful businessman he invited Maxxy along to a “Tax Minimisation for Lawyers” seminar he’d heard a few whispers about. Situated at the top end of Collins St, the room was packed with the sorts of people Maxxy saw at the Socks factory auction. Long trench coats and silver spoons were the flavour of the day. Just like in the movies, the little guy running the show had all the legal books behind him, the pretty blond assistant with the attitude and the hands moving like a conductor.
But he was conducting a different sort of show to what Maxxy had seen before. The projector had facts and figures coming from all angles. Cash at 5%, International sharemarkets at 8.7%, Oz shares at 12.2%. Then the property graph hit him with a 15.5% growth rate over the last decade in Melbourne. Anyone could understand that this was the game to be involved in. And the conductor didn’t let him forget it either.
“It’s your job to be out on Saturday mornings, looking for the trendy alternative types. Find the cool café and see who’s visiting. The locals and their prams, the hippy clothes and the cute dog. Keep an eye on them. That’s where you want to be investing. Even better, move to the next happening café, further out. If there’s a few coolio’s there, that’s where you want to buy up.”
“And the tax system is made for this. I can get you depreciation on concrete, as if it’s falling off the walls.” Snigger, snigger. “And then there’s negative gearing. Don’t forget I can save you on cap gains”. The list of tax evasion techniques continued.
All the time the conductor made no connection to the fact that the tenants these investors would be renting to were the ones who paid for the roads and schools with their tax. No, our trench coat mob wont be paying squat with an accountant like this guy. “$450 million at my fingertips”.
And to think some are saying it’s the councils and governments causing the housing troubles! “It’s that bloody boring tax law!” thought Maxxy. He left feeling like he’d been a spy in a secret battle, where the victims have no idea of the battle they’re in.
Maxxy saw Dr Internet that night, finding a report by the UN’s Special Rapporteur for Housing, ‘With Australia’s negative gearing policy, perhaps the most generous of all developed countries, and the tax benefit from capital gains, a subsidy of $21 billion is given to the high end market.’
Soon he found a few alternatives to make housing affordable. Instead of paying taxes, we should just pay one simple fee, a Site Rental, based on the land we own. Land would then be used efficiently. Why should workers and businessmen have to be super efficient, but landlords subsidised to be wasteful? The simple things often work the best, he thought.
He started to read a little faster as he learnt that inner city blocks then won’t be left idle for years. Owners will make them economic by renting them, starting a business or selling this unique asset. This hidden supply of vacant blocks and empty investor apartments would push down the price of land. “Yes” he thought, “that’s why there’s a few empty apartments over at Susie’s, mmm and I reckon there’s one or two at Reggie’s too”. Land is now 65% of the cost of a mortgage, reverse of the 70’s when it was only 35%.
One line brought a smile to Maxxy’s face. “Then no one could hide their money in tax havens.”
They even say this is what economists really want. Capturing land rents is the most efficient way for government to raise revenue. Prices to goods drop by 50% plus when you remove the fifteen plus taxes that contribute to the cost of each purchase. That’s how Hong Kong, South Korea and the East Asian Tigers have done so well. Maxxy read with amazement that 92% of people in Singapore own their own house.
The thoughts started flying through his head “Why pay someone to have a place on the earth? Isn’t finding a home the most important thing we do in life? The Great Australian Dream…anyone? It’s the government’s job to look after us all. Why help the rich get richer? Who cares if they donate money to the politician’s campaigns! We don’t need to sprawl any further, we need to use the land we’ve got more efficiently. Melbourne is already bigger than the City of Greater London.”
Maxxy trudged off thinking that this debate over land supply and building costs was a great diversion plan. ‘Keep the tax breaks rolling’ say the Collins St cruisers, ‘Let’s speculate on future generations un-affordability.’ Will their conscience ever awaken for a bruising? Or a car jacking?
Riding his bike later that week, Maxxy started a new trend. Every time he passed a vacant block of land or a derelict old house with the mailbox overflowing, he jumped off his bike and slammed a picketed sign hard into the ground – “I want to live here!”
Karl Fitzgerald is the Project Coordinator for Earthsharing Australia, a Melbourne based NGO concerned with economic justice for all.