With the federal election campaign today seeing Opposition Leader Tony Abbot promoting Infrastructure bonds with a 10% tax concession for investors, there is an urgent need for better understanding of infrastructure financing.

Abbot’s plan should be written off as the interest rate spread between Australia and the rest of the world is significant enough not to need any incentives. Such a 3 – 4 % interest rate advantage does not require another handout to the top end.

Presumably these same investors would also snap up land in prime locations and benefit two-fold.

The following is a document I prepared for a contact at Infrastructure Australia.

Land Value Capture
Infrastructure adds enormous value to land in prime locations according to proximity and serviceability.

Land Value Capture (LVC) is a simple technique to recycle the publicly funded windfall gains that accrue to land owners.

Importantly, these windfalls are captured over the life-cycle of the infrastructure, such that one generation is not hit with the total infrastructure costs (ie Developer charges).

How it works:
Macro:

• Government bonds finance the infrastructure project.
• Government bonds + infrastructure = windfall gains for nearby landowners
• Yearly land valuations quantify the windfall gain.
• Council Rates and Land Taxes capture a share of the increase.
• Over time (20 years) this higher government income repays the government bonds.

Micro:

• Fixed costs are covered by LVC.
• Marginal costs are covered by marginal revenue (ticket sales).

Political machinations:
A Metropolitan Regional Improvement Tax, similar to Perth’s, could be included in the Federal tax mix. However, it must be set at a higher rate than the 0.14% Perth has used to provide Australia’s most modern PT system.

Revenue from this Betterment Levy type charge could be used to fund the abolition of payroll tax and stamp duties at the state level. We propose a change in the tax mix so that future infrastructure pays for itself by expanding the tax base without increasing the tax burden. A number of submissions to the Henry Review have been made with this in focus.

Examples:

• MTRC – Hong Kong: has returned dividends for the last decade, dispelling the myth that PT can never be profitable.
• Japanese Railway East – the efficiencies of LVC have enhanced profitability such that ticket prices have remained at 1987 prices.

We should take stock of how past generations financed public transport:

• Glen Waverly Station (Vic): How did they do it? Residents were asked and agreed to donate £30,000 worth of land (1925) to build the train station and rail line. Additionally, they were asked to pay a Betterment Levy of £10,000 per annum to cover the first five years operational costs.
• Sydney Harbour Bridge – 30% financed by council rates on the land only component.

What we are asking:
Windfall gains from infrastructure add up to several times the cost of the infrastructure to surrounding properties. We propose that a sufficient contribution from this windfall be recycled back to the government so that other infrastructure projects can be funded without substantially burdening one generation over another.

At present land speculators baulk at paying barely 10% of the land bounty (windfall gain) back to the community via government’s Land Tax, Council Rates, Stamp Duties and Capital Gains. This abstinence from the public good is limiting government at all levels from funding infrastructure. The LVC rate can be set so that landowners still receive the majority of gains.

Consider:
Northbridge railway redevelopment in central Perth – 50,000 square metres of prime commercial land will be made available by the Rudd government’s recent Federal Budget infrastructure initiative (and local WA government efforts). At present it seems that the plan is to sell this prime location to private interests by moving the station underground. It would be in the community’s best interests if the government could lease the land so they capture the upkick in land values over future years.

For example, the Northbridge railway station tunnel development has a Federal budget of $236 million. Conservatively estimated at $3000 p/square metre, this would see the site worth $150m in today’s figures. With an average 6% growth rate in land values, this would see all such site holders pay the majority of the $236m back in just 7 years. Land values would no doubt have grown by more than 6% p.a since the infrastructure announcement.

Seven years is perhaps too much, over a 20 year lifetime the costs would be shared amongst multiple owners.

Bonds finance the initial investment. Land owners pay the community back for the new services over the lifetime of the asset.

Such an LVC would also keep a lid on land prices (the extent reliant upon the rate set at). With land comprising over 70% of a mortgage, the reduced land-based interest payments would assist the creative small business Perth needs to compete with Fremantle.

By widening the tax base, more Infrastructure Australia proposals could get off the ground.

Advantages:

• Common sense: Those that benefit, pay
• Can be revenue neutral
• Cheaper public transport ticket prices
• Widens tax base
• Expands public transport and public services as financed with minimum leakage
• Spreads load over the entire community, rather than slugging commerce (ie trucks on tollways)
• Encourages walkable communities by providing a dis-incentive for land speculation
• Can prevent future GFC’s by deterring land speculation

Resources:

• Wheels of Fortune – Fred Harrison (available in our bookshop or free download)
• Scottish governments LVC review
• Scottish list of global LVC report references
• Taken for a Ride (Jubilee Train line)
• Adequacy of Land Value Capture for the funding of infrastructure – Gavin Putland
• Betterment Levy – Steven Spadijer
• Wiki page on LVC
• Property Takes Us there
• Developers Map of Sydney

Interesting facts – no unemployment in squatter cities! With free access to land we can always keep busy helping someone. Read more on population.

At least land gets one mention! How are people to envisage that the most important commons created resource is not immediately visible or apparent? Land values must be the anchor to this new commons based future.

Bryan Kavanagh says

Although publicly-generated land rent was $325 billion, we chose to fine labour and capital to the extent of some $285 billion for daring to work, allowing eighty-six percent of Australia’s land rent to be privately capitalised into the bubble – and thereby establishing the conditions necessary for an extraordinary financial collapse.

photo credit: cdsessums

Daniel Kocieniewski reports in the NY Times on how the US oil industry is using tax havens to avoid repaying the community for the privilege of mining the earth for all it’s worth.

Kocieniewski reports that the oil and natural gas industry has spent US $340 million on lobbyists since 2008 for a $4 billion annual saving in tax liabilities. An investment of just 2.8% of the sum subsidy reflects for how cheaply our democracy has been sold off. If we also added the lost economic rents to this $12bn total, the investment return on lobbyists would be astronomical.

The recent ousting of Kevin Rudd from office was undoubtedly linked to his determination for the public to capture some of the mining rents

Please read Daniel’s excellent piece:

WHEN the Deepwater Horizon drilling platform set off the worst oil spill in American history, it was flying the flag of the Marshall Islands. Registering there allowed the rig’s owner to reduce significantly its American taxes.

The owner, Transocean, moved its corporate headquarters from Houston to the Cayman Islands in 1999 and then to Switzerland in 2008, manoeuvres that also helped it avoid taxes.

At the same time, BP was reaping sizeable tax benefits from leasing the rig. According to a letter sent in June to a US Senate committee, the company used a tax break for the oil industry to write off 70 per cent of the rent for Deepwater Horizon – a deduction of more than $US225,000 a day since the lease began.
Advertisement:

With US officials considering a new tax on petroleum production to pay for the clean-up, the industry is fighting the measure, warning it will lead to job losses and higher petrol prices, and a greater dependence on foreign oil.

But an examination of the American tax code indicates that oil production is among the most heavily subsidised businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

Read more

Pi-O delighted us with two awesome poems while I donned the magnificent Tote carpet dress crafted by Kathryn Jamieson

The festival sparked a fair bit of media attention, most objective and/or supportive such as our interviews with 3CR’s DIY Arts show, ABC 774’s Derek Guilles & Radio National’s Life Matters program and Dewi Clarke’s piece ‘Fitzroyalty snubs gentrification’ in The Age, some rather less than positive like Marcus Westbury’s article ‘Artists kick-start gentrification’, also in The Age, & some down-right hostile such as this blog post by a bloke called Brian.

We were happy with all of these responses,  feeling quite proud that our festival has given the media a chance to address the issues of housing affordability and community displacement WITHOUT causing mass nap-attacks. We would have liked to have discussed the fest with Marcus first, though, & because this didn’t happen, we asked The Age if we could write a response piece. They turned us down, but we’ve decided to just publish it here anyway.

Here it is:

Artists sick of living on borrowed time & borrowed land

The cycle of artists moving into areas, establishing desirable communities and then being displaced by the wealthy repeats like a stuck record and most people are familiar with it. So depressingly familiar that we’ve grown used to meekly following its flow and moving further & further out into the ‘burbs with hardly a complaint.

Many will tell you this process is unavoidable, but in fact, it doesn’t have to be this way!

It’s true that we’re not the first artists to complain about being kicked from our stomping grounds. We’re quite pissed off about it. It may come as a shock, but as crafters and activists we’re poor (in Aussie terms). Generally this is okay as there’s not much we want for that we can’t craft but we have yet to devise a way to craft land and we’re getting pretty sick of the rich not wanting to share it with us and of the Government facilitating their greed.

This does not mean that we want our communities ‘preserved’. Artists by definition are creative and the prospect of living in static suburbs is unbearably restrictive. We don’t want our homes and communities to stagnate; we want the right to be involved in their evolution.

Artistic communities aren’t the only ones being displaced, of course. Even in a world with no artists (visualise Perth if you find this concept hard to imagine…) the gentrification process rolls on. Under a system that encourages inflated land prices in prime areas, all low income groups are eventually pushed out to the fringes of society. The problem isn’t about individual landlords and wealthy people acting like bad guys – it’s about the Government tax policies encouraging this behaviour.

As a centrepiece for the festival we ripped up the old Tote carpet, chopped it into doormats and branded them, ciggie-style, with a branding iron of the pub logo. The carpet reeks of community history (literally), so yes, the festival has elements of nostalgia, but the point is, people didn’t collect pieces of the Berlin Wall because they wished it still stood, they collected them because the falling of the wall marked a seminal time in their history.

The carpet itself is stinky and revolting. We’d much prefer some deep plush pile, thank you very much. But it is symbolic of a seminal time in the history of Melbourne’s artistic community, when thousands marched in the streets to protest the closure of yet another inner city artistic venue, displaced by gentrification.

There’s nothing wrong with reflecting on times gone by and getting a bit nostalgic now and then but the thing we find sad is not the loss of our past in these areas – it’s the loss of our future. We are aware that there is only one Earth and we’re going to have to share it. We don’t want to close the good bits off to others; we just don’t want to be pushed out of them ourselves.

Many will say that resisting the gentrification cycle is futile because government policy is set up to encourage it. This is true but whatever happened to system overhaul big picture thinking? We’ve gotta stop being wussy and start lobbying for some real reform.

After thousands marched the Tote is once again opening as a band venue – a welcome stall in the process of the displacement of a community but, unless government tax policy is changed to encourage the opening up of land in prime areas to people of all economic levels, there will very soon be no locals of the type it caters for (low income artists) to visit it.

The truth is that there is a lot of underutilised land in the inner-city. A recent Earthsharing report showed that the vacancy rate was 6.9% overall and as high as 29% in Carlton South! Housing supply and affordability in the inner-suburbs is a problem because our tax structure encourages speculative land vacancies. Land transactions and developments are taxed (stamp duty etc.) but land holding is not. There is no motivation for landlords to make their properties available for rent or development so supply falls behind demand, prices rise and less people are able to live in communities than could be easily accommodated.

If land value was taxed, the profits from community resources we create would return to our communities, speculative land hoarding would be discouraged, more properties would come onto the market, land prices would fall and more people would be able to afford to live where they want to and where the infrastructure is best. Challenges relating to how the denser communities could co-exist harmoniously would inevitably arise and ideas flagged for discussion at our festival to cope with these challenges include the introduction of art zoning and increased social support services.

We’re holding this festival to encourage the community to brainstorm practical solutions like these. Gentrification is by no means unavoidable and we’ve decided to stand our ground. Because it is our ground too.

Check out upcoming festival events at The Workers Club

photo credit: fMoya

With auction numbers at record levels, it seems that the pursuit of the greater fool is well underway. Melbourne’s May auction levels were the highest on record and this coming weekend could see almost double the June average of properties up for sale.

Yesterday’s ABS figures on housing lending shows how genuine home buyers are being increasingly crowded out of the market. Peter Martin writes:

New finance figures from the Bureau of Statistics show that while lending to buy homes in which to live slipped a seasonally adjusted 10 per cent in the first four months of this year, lending to real estate investors climbed 11 per cent.

In the past year, lending to investors surged an exceptional 30 per cent nationwide, and by an extraordinary 44 per cent in Victoria.

Why are investors so bullish? Martin reports on the refusal to reform negative gearing and the sharemarket’s rocky road. Let’s hope not too many of these investors are mum and dad investors jumping on the bandwagon after it has left the station.

Concern must be mounting at the underlying health of the economy when you read that without the government’s stimulus, our GDP growth would have been -0.2%.

The pump priming inherent in the school building program is due to finish this Spring. Will many buy a house in the Spring auction silly season to offset this?

Adding to the uncertainty is news that mortgage stress for our sub-prime sector is up 0.19% to 1.44% according to Standard & Poor’s.

With August seen as the next possible interest rate rise, will this push the mortgage stress figures up towards 2%? A rate of 2.5% would spell alarm bells for the property market. Is the RBA setting up a Spring selling season frenzy?

George Megalogenis, one of the nation’s better economic commentators, writes in Property Boom to End:

The total number of men in full-time work is the highest on record, while the total number of home loans approved is the lowest since the GST buyers strike a decade ago. It doesn’t get more counter-intuitive: more people working but fewer people willing to borrow.

Research Officer Gavin Putland believes that we are still 3 – 6 months off any possible calls of a recession. Whilst falling home loans are a proxy for sales, there also needs to be a sustained dip in auction clearance rates for prices to drop.

With household debt at chronic levels, perhaps the panic will be more dramatic and the falls occur more quickly? Whichever way, this Boom Bust 2010 is going to be an interesting one!

Please remind your friends – do not buy now.

If you are a renter and your lease is coming up, double check that it is a monthly lease so you have the ability to move to cheaper locations when the crash kicks in.

We are witnessing a game of truth or dare as housing investors kick back in the knowledge that with every interest rate increase they can put their hand out for greater negative gearing write offs.

With immigration rates having dropped off in recent months, will investors hold their nerve and keep this ponzi game alive? Or will more and more opt for the exit door over the coming weeks to beat the Spring sellout?

The risk inherent in housing investment credit is a boon for the banks and a daring game of chance for the investor. In terms of economic output, this is dead money and should be deterred with the Henry Reviews preference for greater sharing of the spoils from land and natural resources, and less taxes on those who provide the majority of our jobs.

Visit here where you can donate whilst you write down what a terrific show the Renegades is! We need to raise over $600 to keep the show in prime time drive time.

We’re on the air today at 5.30pm with none other than investigative journalist Kenneth Davidson.

3CR Radiothon TVC 2010 from 3cr on Vimeo.

As you may have read in the original report, we uncovered a genuine vacancy rate five times that reported by Real Estate Institute of Victoria; 6.9% compared to REIV’s 1.4%.

By collating data from Melbourne water suppliers we were able to assess the number of Melbourne properties that are genuinely vacant, as opposed to the number of properties on the rental market. The results were alarming.

The report indicates that just one in five vacant properties are being advertised as such, the rest are being withheld from the market in the form of speculative vacancies. This is very disturbing when you think that government policy is being based on figures that are so dramatically understated.

How can they possibly expect to effectively combat a shortage of affordable housing when they’re not even acknowledging the real amount of housing available?

Other key findings of the report, which identifies suburbs and municipalities hardest hit by speculative land hoarding, include a 29% vacancy rate in Carlton South and a 17.3% industrial and commercial vacancy rate in Melbourne’s South Eastern Suburbs.

The accompanying graphs are shocking for a city supposedly beset by land shortages. Download the report here.

There is a clear need for land tax reform – this would discourage land hoarding by encouraging landlords to focus on rental income rather than capital gains.

If housing is a human right then our tax policies must genuinely reflect this.

What role is there for artists in a community? Long looked down upon as dole bludgers, why is life such a struggle for those who like to use image, texture and craft to express rather than words or numbers?

After yesterday’s excellent article Fitzroy Snubs Gentrification on our upcoming Anti-Gentrification festival, a poorly written piece by Marcus Westbury must be re-butted.

Artists need to exist on the edge of the system. Wages are required to pay for basic living expenses such as rent and food. Time is required to be creative.

Cheap rent gives artists more time for their passion. This sees many creative communities develop on the periphery, often in rundown ghetto-like communities that are close to the city.

Unfortunately, land speculators know this.

How many times do we have to see an artistic community moved on from the community they create?

Chapel St central to Chapel Windsor, Brunswick St moved on to Gertrude St, then to High St, Northcote – now out of the city to Castlemaine?!!!

A few years after change agents set up the sort of community we should all aspire to, the fabric of the community is undone through it’s own success. Willingly. By our government’s policies.

Higher rents acts as a large paint brush, smothering a creative community with beige.

What are the economic forces behind this?

Attend a “Tax Minimisation for Lawyers” seminar and you will hear how land speculators are given a racial cultural profile of what a hipster looks like. “It’s your job to find them on a Saturday morning and figure out what they look like and what atmosphere they look for. Then you have to try and find that look, that feel, in another suburb further out. Buy there and wait”.

Artists are pawns under the current system. Artists give the ghetto a makeover with some tactile graffiti, a few cool cafes and bars emerge and then the wanna bees start to move in.

Aha! But the speculators are already there, rubbing their hands with glee.

Why should they take all the benefits of community creation?
Is it fair to blame the land speculator for a systemic failure?

If taxes were moved off our wages, off goods and services and yes dare we even say off corporations (the average paid is closer to 3% than 30%) and placed on natural resources and licensed monopolies, then the speculative incentive is minimised.

By far the most valuable and most sustainable resource of all is land value, particularly in urban locations. Every year land goes up 4 – 6% (4 out 18 years are a downturn – see Fred Harrison’s Boom bust 2010). Land speculators know this.

They understand that with a dash of population here and a mash of social progress there (volunteers planting trees to public art, let alone a new train station) the community becomes more desirable.

A higher and flatter land tax slows the growth in land prices, removing the speculative intent. This slows the pace of gentrification as the desire to live in a community encourages us to grow upwards (more apartments or lofts), helping to meet the supply of an area.

With lower land prices there are massive spin-offs. Consider your life with a 70% lower interest bill on your mortgage (no interest on the land component now)! Wow you could now afford organics.

You could also imagine your artistically repressed sister starting to do art in her community down south. Why? Because she doesn’t have to work so many hours to pay her rent/ mortgage.

Thus the spawning of a multitude of artistic communities is possible in many suburbs. This isn’t naive whinging. Read Ken Henry’s Tax Review and you will see this thinking is bound in the most efficient form of economics possible.

Just remember – the earth will always get more valuable. Who do you want to profit from that?

Thanks to Groundswell for the link and Signal Fire for the photo

Watch a video describing how artists create the scene but speculators wipe it clean, then proposing the much needed solution: