Planning Minister Matthew Guy has just handed his mates a conservative $420 MILLION dollars.

The 7000 hectare expansion of the Urban Growth Boundary is the equivalent to a golden pen tick, turning those who are lucky enough to own land in the right locations into millionaires. Urbis calculates that a $60,000 windfall is delivered to each re-zoned hectare near the UGB. This re-zoning results in a $420 million windfall.

Quite simply, this is welfare for the wealthy.

Thanks to the golden pen tick, this is a leakage in economic wealth from publicly created land value into private hands.

The windfall will be lightly taxed, with one hectare to pay $95,000 in a one off fee, which at 16 dwellings per hectare takes close to $6,000 per dwelling.

As previously stated here, the GAIC is less than perfect.

Urbis calculates the golden pen tick’s value at:

• Land outside but near urban growth boundary $50 000 – $100 000 per hectare
• Rezoned urban growth zone away from existing development:$250 000 –$400 000
• Rezoned urban growth zone next to existing development: $60 000 hectare

There was talk that land bought prior to 2005 was exempt from the GAIC. This would suit the old land game players nicely. Many a fortune has been made by those ‘buy and wait’ proponents of ‘wealth creation’. I cannot confirm this exemption at this point (awaiting answer from the GAIC) but can confirm that land holdings of less than one acre are exempt.

The tragedy of this handout is that with Melbourne’s already large overhang of land supply, this sprawl-athon is destined to be held as Real Estate 4 Ransom for the next 20 – 30 years. If not, the extra supply guarantees that Melbourne’s property market will continue to fall. Which behaviour does the Liberal Party support? Or have they called the development industry’s bluff?

Compounding this is the supply of speculative vacancies held by investors in lieu of expected future capital gains. The use of Self Managed Super Funds to buy real estate and pay zero capital gains tax is the latest nifty move by the lucky few to avoid paying their fair share in windfall profits back to the people. Day by day we are being conditioned to accept a GST on our food and medicines rather than collect this naturally rising value of the earth.

Anything less than a 30% fall in land prices over the next two years must be seen as a policy failure.

This is possible because land sales on the fringe are already plummeting , with a 42% fall in volumes between the March 2011 and 2012. As Royce Millar notes in the Age article, the land supply coming through the system will douse expectations with some 200,000 lots to be ready in 2013/14 (according to Oliver Hume).

For those listening to our Dont Buy Now Home Buyers Strike, we are being gifted an interesting economic spectacle. With demand brought forward by the June 30 axing of the First Home Onwers Grant, will market forces prevail on the dwindling existing demand to force prices down to long term averages? Or will the daunting 200,000 lots coming through the pipeline in the next two years be held to ransom and drip fed to the market to maintain prices? The concern is that few will notice.

Repeat – anything less than a 30% fall in land prices will confirm that real estate is being held for ransom.

Please note that Land Taxes on an average 1/4 acre block are barely $460, when capital gains delivered by the naturally rising value of land have dwarfed this over the last decade. The paltry $460 fee is the only thing applying any pressure on land holders to make valuable locations available to the market. With falling land values amidst current behaviours, we will see plummeting construction rates (as currently witnessed) rather than plummeting prices.

In closing, this extra supply must finally prick the bubble of expectations and result in the steep land price falls we need. So far, land prices have only fallen by 2 – 8%. Is Minister Guy smarter than we think and called the development industries bluff and said ‘the game is up’, or confident that the have’s can hold the market to ransom?

For the locked out generations, this is your future at play.

Check the press release from our colleagues at Prosper Australia.