Mirvac: Land is for Hocking, Not Housing

Karl FitzgeraldCommentary15 Comments

Creative Commons License photo credit: lrargerich

Karl Fitzgerald

as published in Crikey 20/02/09

Mirvac yesterday admitted what many affordability watchers know. The housing market is manipulated to suit shareholders over householders.

Due to the fear that an $81.4m half yearly operating profit is insufficient, first home buyers will have to pay higher land and housing prices to support Mirvac’s Executive Incentive Scheme.

Mirvac managing director Nick Collishaw admits to the immense power of land monopolists in Mirvac to delay land releases in existing estates:

“Effectively what we are doing for the bulk of the projects that we have in Victoria is managing a staged release — rather than have a release with 100 lots in it, the stage sizes will be much smaller.”

This behaviour exhibits why Brumby’s land supply handout to the property lobby will do nothing to assist affordability. Land and housing releases are manipulated to suit profiteering over people.

As Australia’s affordability epidemic gets left behind in the backwash of the GFC, the genuine land supply issue is that controlled privately by land banking developers.

Compounding these issues, the write-offs on Mirvac’s investment properties total more than $800 million dollars. Top and tailing the benefits of the system, Mirvac has the power to drip feed land and housing to market such that home buyers of all generations are guaranteed to pay 40% of their income on rent or mortgages.

And the government is silent on this market manipulation.

Governments at all levels are complicit in the rights of land speculators over and above the future of its people. One need only refer to the recent AEC figures to understand the power of lobbyocracy.

For the productive economy to survive, we must push for more effective public finance policy. Higher holding charges on land are needed to force land prices back to affordable levels. Spin-offs include the abolition of payroll, GST and a massive cut in income taxes. Investment in new infrastructure becomes self funding through land value capture.

When this occurs, the land and housing market will no longer be seen as a casino. The risk of global meltdowns will be reduced when we no longer have to borrow so much to put a roof over our heads. Speculators will become producers, hopefully funding the inventions needed for a sustainable rather than sprawling society .

Relatively speaking, who really benefits from rising land and housing prices?

15 Comments on “Mirvac: Land is for Hocking, Not Housing”

  1. I think with the focus on developers we are letting the government off the hook. If the developers were collecting monopoly rent on land they should be rolling in cash, shouldn’t they. I’m not sure that they are. Are they? Has anybody looked into it? I’d be very interested. I think governments (state and local) are the real evil ones passing on infrastructure costs that used to be public costs onto home buyers via the marginal house price. Or even more subtle – building zero infrastructure and therefore increasing the relative value of houses with existing infrastructure.

  2. Yes – Earthsharing’s idea of having everyone pay a holding tax on the land over which they have title is an excellent one if Australia really wants to address housing affordability.

    Provided, of course, there is the trade-off of abolishing all the taxes that add to the cost of a site, such as stamp duties on conveyances and up-front development levies. Probably payroll taxes and GST could be abolished too and also rolled into a reformed land tax.

    But our federal politicians feverish attempts to resurrect the real estate market (and hold prices up – presumably in an effort to “save” our banks) rather than letting the land bubble burst, shows where their real interests really lie! Joe Citizen cops it in the neck again!

  3. Jeff Smith has hit the nail on the head. Mirvac have a market cap of $1.4B – a return of around 5% is not a good investment. They are not rolling in cash when you consider every investor (who gave them that $1.4B) expects better than 5% return.

    The government on the other hand has walked away (or blindly ignored) this problem in the hope that the community will attack them. Lack of investment in infrastucture to diverse and competing new and developing outer areas of the city would have negated the need for high housing.

    If north, east, west and south regions are all competeing for new land buyers, and the infrastructure was such that it was reasonable to live in those locations – then this problem would be negated to a large extent.

  4. Unfortunately Grant, if infra was provided in all these areas then the price of housing would be even higher! Monopolists of unique locations have the power to withold supply until their price is met.

    Agreed tho, the developer charges are destined to fall to criticism. A return to the more effective system of council rates (on site values only) where infra is paid off over 20 years via the use of council bonds is desperately needed.

  5. I think Grant is saying they can’t be a monopolist and make a very ordinary 5% return on capital at the same time. Evidence of market power should be excessively high return on capital (not absolute profit). I don’t see it. I’m more in the debt fueled speculative bubble camp but I think the supply issues due to government incompetence (land and infrastructure and inner city infill regulations) were a secondary and strong supporting force. It’s all unravelling now. The ironic thing is while state and local governments squeeze every last cent out of the “industry” we have the federal government bailing out property developers. It’s a money go round with my tax dollars!

  6. Jeff,

    Infrastructure charges are completely fair in my opinion. Let’s say a developer gets a hold of a nice big parcel of land 5km from an exiting population centre. They get approval for let’s say 100 lots and they clear it, put in water/sewer pipes, dedicate road etc and generally get it ready for people to setup houses there. The developer sells the lots and leaves. In the meantime 100 new families move in. These 100 families add use on the infrastructure they connect to. Roads, sewer, water treatment, parks, community facilities, stormwater, water supply etc. So why should the public at large pay for the strain created by new developments while the people who profit from it walk away scott free? Infrastructure charges mean that the costs of development are worn by those who benefit from it. Yes, these charges are ultimately born by the purchaser but contrary to the claims of the housing industry, on a lot per lot basis, they are not at levels high enough to explain Australia’s crisis in affordable housing.

  7. “Scott free”, Mark? Developers must be penalised for subdividing and providing services? Why should this be so, particularly as it obviously adds significantly to the cost one must pay for a home site?

    As land values rise over a period of time, why shouldn’t the owner contribute some small part of this uplift in value back to the community? That is, initial headworks charges and maintenance become recouped by the state over a protracted period of time.

    Trying to get it all back ‘up front’ from developers is the sort of arrant policy nonsense into which the community has slipped, clearly adding enormously to the cost of a piece of land. We usen’t do it this way, and we shouldn’t now.

    Once it’s known that headworks charges will be recouped gradually over time in property rates or land tax, this must act to reduce homeowners’ initial land purchase costs. It used to work quite well this way – and the only change is nonsensical public policy.

    Surely, slugging the property developer up front really only sends the purchaser’s costs up, Mark?

  8. Yes, it does up the purchaser’s cost as I mentioned. Again, only fair as they are the people using and creating the new demand on infrastructure. As I also mentioned, on a lot per lot basis these costs are a tiny fraction of the jump in property prices witnessed in the last ten years. Up front infrastructure charges are not to blame for unaffordable housing prices (I’d place the blame for that on easy credit, landbanking (as this article clearly demonstrates) and rampant speculation on what is a basic human need). Somewhere along the line the cost of infrastructure must be met. Hitting developers up front gets that money in the kitty fast where it’s needed to meet the new demand generated by development. At the end of the day, it’s a far superior system if we want to create orderly, well-planned development.

  9. I agree that upfront developers’ costs are far from the main reason for rising land costs, Mark, but they do add significantly to the price of a block, and if the developer simply adds them to the cost, it seems to me that hitting homeowners for wanting to live somewhere seems a bit perverse.

    I agree we need to address urban sprawl, Mark, but wouldn’t the Earthsharing idea of higher taxes on property tend to discourage sprawl and encourage more intensive development within the existing urban footprint?

  10. Ultimately infrastructure charges are a “user pays” system; but yes, I agree that the taxation system could also be used to great impact in preventing urban sprawl. As you mention, other techniques such as urban growth boundaries can also be highly effective. Ultimately though, urban sprawl will require a cultural shift in Australia; away from the ideal of the detached dwelling with a private yard. The efficiency of high density development is obvious but that doesn’t mean it will be desirable to those accustomed to “their own space”. There really is no one method that will see Australian cities reach that almost utopian ideal of sustainability in growth based, capitalist economy. It’s a problem that is so complex that it needs to be confronted from many different angles. Infrastructure charging is just one of these but I believe it has a positive effect.

  11. May I also mention how refreshing it is to see a rational and civil, internet based discussion!

  12. Mark,

    I’m sorry but as author of the above article I can’t let you have the last say! Using your mentality we should have $20 tollways for driving and similar $20 train fares. Using user pays mentality always fails because it does not consider the holistic effect of infrastructure on the surrounding communities. The benefit of a new train = higher land values.

    Please check out the Developers Map of Sydney and also please please read Wheels of Fortune (scroll down) to see how East Asian train companies can be profitable with minimal user fees.

    Why should one generation have to foot the bill for developer charges when for over century council rates have funded them over 20 years and a multitude of owners? For an understanding of effective council rating please read this report prepared for the Aust Institute of Urban Planning

    ahh that feels better!

  13. If the house owner is now paying up front for infrastructure that used to be paid over time in the past, does that mean that new home buyers have lower council rates ( or whatever the appropriate fee is called ) because of what they have already paid up front?

  14. Unfortunately not – first home owners and the like are hit at least three times. They have to pay the higher land and house price with the developer levy passed on. Then they have to borrow more from the bank to pay the levy (higher interest payments for the entire mortgage), and lastly they have to pay substantial rates to keep the council running – so they can provide all the extra services the new residents will need.

    Meanwhile 46,220 properties lie dormant, many in inner melbourne with utilities already provided.

    Additionally, many of the sites in the new development will be drip feed to the market, as Mirvac demonstrates in this article. Due to our CIV rating system, the family home will pay 20 – 30% more in council rates than their neighbouring land banker. Add on top HECS payments for education, the burgeoning costs of pensioners, the fact that superannuation levies prop up CEO bonuses, the carbon challenged future …and you wonder when Gen X., Y will be in the streets…

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