photo credit: euthman

Renegade Economists Podcast 213

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Author Christopher Ketcham hits the forces of Monopoly Capitalism with an overview of how the market system became a host for greed.

www.realestate4ransom.com

Host Karl Fitzgerald: out of the 25 largest cities in America, New York is the most unequal for income distribution. If it were a nation it would come in at the 15th worst amongst 134 countries ranked by extremes of wealth and poverty – a banana republic without the death squads – so writes today’s special guest Christopher Ketcham. He’s a regular writer in Orion magazine.

Yes, today’s special guest is Christopher Ketcham – the next up and comer behind Matt Taibbi in terms of investigative journalism within the world of monopoly capitalism we are enduring. He writes for Vanity Fair, Harpers and GQ and is currently writing a book about secession movements in the north east of the (United) States. He really rose to prominence with an article called The Reign of the 1%’ers that buzzed around the internet in the lead up to Occupy Wall Street and thereafter and he’s also got another couple of killers called “The New Dog in Town” and the “Curse of Bigness”. I encourage you to find them on the Orion website.

I started off by asking Christopher about the writing process and what is the most rewarding facet of it?

C.K: I tend to prefer hate mail because then you know you’ve actually woken people up and sparked a nerve and done some sort of trouble making out there. I mean this article for Orion – the Reign of the One Percenters was written almost entirely for my daughter who’s 16 and for whom, I think the, future is quite bleak given the current situation – given the control that the 1%, the very rich, the oligarchy has over her fate, and my fate and the fate of the political economy. So the satisfaction I had in that article was really just writing a down and dirty polemic against the oligarchy.

And the article opens with her – she and I are taking this tour through the Wall Street area back in the summer of 2010 and I just decided “alright Leah (her name is Leah) – Leah lets take a tour and look at the various institutions of socio-pathology that really run this city”. So we walked by the AIG building, the Goldman Sachs building, or at least its ancillary headquarters in the Wall St area because you know a lot of these big corporations, these big investor banking firms have moved out. There not based entirely in Wall Street. They’re up in the Avenue of the Americas, they’re in New Jersey but there is still enough concentration down there. For example Bank of New York Mellon at 1 Wall St., Duetsche Bank at 60 Wall St., so we took the big tour and, walked by the NYSE, walked by the Federal Reserve where the criminality starts. I was trying to give her a sense as a 15 year old, I was trying to give her a sense of who really runs New York and who is behind the money power that really runs things in this country and, you know, generally, world wide.

K.F: and did she have a filter that she could empathise with what you were discussing. Did she study economics or history or any of those frontiers at school?

C.K: not really – the best part was that we started coming up with all sorts of really venomous invective for the various characters we were seeing. We were just engaged in open satire of the Wall Streeter’s who we were observing, the almost charactertures of wealth and privilege. So it was more a matter of satire and fun than of deep learning – if you will. But she has in her school studied the French revolution, the Russian revolution and the American revolution and understood that where there’s too much wealth concentrated in too few hands that you will have the people rising up and guillotining the very rich.

K.F: its amazing though that during a time when everyone’s after the elusive dollar it seems that very few are studying it (economics) as part of the syllabus at high school and I just wonder whether maybe out of this growing association with inequality there will be a pushback at high school for more kids to study some form of economics that is based on reality.

C.K: well the whole field of economics, what’s called neo-classical economics today is based on un-reality. It is based on the idea that there is no free lunch in any economic system. That for example the financier, the hedge funder, the usurious banker all contribute to society in some fashion, some productive fashion, whereas classical economists – old school progressive economists – throughout late 18th century and throughout the 19th century understood that there were all kinds of free lunch to be had in capitalism and the point of a progressive society was to enact laws that prevented those people from parasitically benefiting from society or from the capitalist system.

So what we have today is we have an economics curriculum in the high schools and in universities – more in universities than in high schools – that basically teaches that parasitism is A ok – parasitism is the way to go. And that’s why you have all those business schools, the major business schools in the United States, producing all these kids who want to go straight to Wall Street to make a billion bucks doing nothing. Basically,you know, pressing a couple of buttons and enjoying incredible profits while actually adding no productivity to society or producing no real goods or services.

K.F: And in Christopher Ketcham’s landmark article – the Reign of the One Percenters he writes “the 1%’er in his Wall Street tower creates value by tapping on keyboards and punching in algorithms. He makes money playing with money – manipulating abstractions. He manufactures and chases after financial bubbles and then pricks them. He speculates on mortgages, car loans, credit card debt, the price of gas that keeps the real economy moving, the price of food that keeps the labor pool alive, always hedging his bets so that he comes out ahead whether society wins or loses.” And that was a killer line for me – I said, right, I’ve got to get this man on the show. So let’s go back to the interview with Christopher Ketcham.

C.K: so if we were to adjust, to transform the way economics was taught I think it would go a long way towards changing the viewpoint of the younger generations in terms of how they see Wall Street, how they see big capital, big corporations, etcetera, etcetera.

K.F: and so much of this modern era is talking as if we have reached new levels of economic discovery and what you’re really telling us there is that 100 years ago our forefathers knew a lot more and were keeping an eye on what you have termed as the Gilded Age. Could you perhaps take us a step back in time to that era and what was learnt in the 1800s?

C.K: well what happened after the civil war in the United States is that there had been enormous increases in government spending and enormous expansion of the industrial plant – infrastructure was expanded – and at the same time you had the failure of the regulatory apparatus to keep up with technological increases or technological innovations and innovations in finance and banking. So the industrial infrastructure and the transportation infrastructure of the United States was captured by monopoly corporations.

Corporations themselves were under the law given all the rights and privileges of the citizen, under the fiction of corporate personhood, and so you had this monopoly power of big money over the political economy of the United States which accrued more and more wealth into the hands of the few who were then able to determine economic policy from top to bottom in the United States. Corporations were acting as states, as governments, as private governments that were liberated from public government. So the Gilded Age was really about the hijacking of the country by private corporations and by the very wealthy.

So what happened in response? The progressive era rises up. You have the populist movement in response. You have the campaign for the mayoralty of New York by Henry George in 1886 who was one of the earliest of the progressive voices. You have the Populist party of 1892 and 1896 vying for the presidency as a 3rd party. You have all of these populist, progressive movements rising up saying “no – we have to reign in the power of the monopolist, reign in the power of the corporation, reign in the power of the very few – the oligarchy – and free the market place so that it will be a level playing field. So that we can all compete freely” and they called this radical republicanism; they called it democratic capitalism.

This lead to some amelioration of the problems of corporatism – the graduated income tax for example. The corporate regulatory apparatus was put in place with the interstate commerce commission, and with various anti-trust acts – the Sherman anti-trust act, the Clayton anti-trust act, etc, etc, and this was all through the period let’s say, 1890 – 1914/1920.

You have huge, aggressive, disruptive labor movements rising up with the Industrial Workers of the World, with the Congress of Industrial Organizations in the 1920s and the 1930s that seek to basically say “alright big, corporate America we’re going to disrupt your operations until you play fair”. And so these disruptions lead to the reforms of the New Deal – you have social security put in place, you have all sorts of systems put in place to protect the citizen against the depredations of corporations.

And then what happens? Well you have a period between 1945 and roughly 1975 where the country is the most equal its ever been. The incomes equal out, more or less, the very rich are heavily taxed. There is still a growing and continuing trend during that period towards increasing size in corporations, towards corporatism – the marriage of big government and big corporate power – but there are regulations in place that prevent corporations from going whole hog and just becoming savagely predatory in the market place.

All that ends with the election of Ronald Reagan in 1980 when you have the beginning of a long period of deregulation which basically means that the government steps into the marketplace and regulates the marketplace to benefit corporations against the interests of the citizenry. And this is a period, and rather this is a trend that continues irrespective of Republican or Democratic administrations. It begins with Ronald Reagan but it really accelerates under Bill Clinton – the great traitor to the Democratic Party, well to the old school, democratic, populist, roots – the populist, labor roots of the Democratic Party.

Bill Clinton was the corporate whore par excellence in the Democratic Party. Under Bill Clinton there were more mergers than ever in the history of the country. That is you had larger and larger corporations establishing larger and larger monopoly control over markets and the political economy. You had skyrocketing income inequality that begins under Bill Clinton and then of course the trend continues apace under George Bush, George W. Bush and now under Barrack Obama. So we are now in a new Gilded Age in a sense that we have returned, we have regressed to the point we have lost a 100 years of political, economic, progressive thought in action. That is we have dismantled all of those various apparatuses that had been put in place by the progressive movement to reign in the power of private, corporate governments.

K.F: and so what are some of the frontiers of monopoly you are seeing develop now? Where are the so called entrepreneurs pushing this control of independence, that’s essentially what’s been locked up is our ability to look after ourselves and our community on each and every front and we’re told that this monopolistic power is a good thing. Are there any new developments that are things people should be looking out for? We’ve seen our DNA’s start to be privatized – we’ve got all sorts of issues going on with electro magnetic spectrum, and pharmaceutical buy-ups of indigenous plants around the world are going full steam ahead. I just wonder over there in America, are there any new whisperings about that we should be looking out for?

C.K: Google. Google is one of the most dangerous monopolists out there because Google is increasingly securing its place as the gatekeeper and possibly the toll keeper for the internet. I mean when people go on the internet where do they go? They go to Google.

Google becomes an informational gateway and just take the monopoly that I think is developing in email … in email systems like Gmail for example. At OWS I’ll go around, I’ll be interviewing people and I’ll ask “so what’s your email?” and I’d say that 75-85% of all the people – these activists, these protestors – radical dissidents who are operating at OWS and participating in the marches etc, etc – they’re all on Gmail. Well, Gmail, it’s known that you have no privacy on Gmail and Google can read your email, can read the contents of your email at anytime.

The emails that you write and receive through Gmail are all in the end the property of Google. They sit in the Cloud in some remote computing location and you don’t actually download them to a computer where you can hold on to them and consider them yours, consider them your private data. So that’s an interesting monopoly that’s developing.

Amazon is also a huge monopolistic power on the internet which is exercising nefarious power over the marketplace and then all the various elements that you mentioned earlier whether it be GMO’s, whether it be crops, whether it be seeds, the patenting of genes, you name it, corporatism has run amuck.

Corporatism is a wild, rabid, predatory creature that is savaging the planet with its bloody jaws and something has to be done.

K.F: do you think following this extended recession/ depressionary period – will property bubbles be seen as a dangerous thing or are they just going to run onto the next bubble as can be imagined with these poor economic policies. Are they trying to enforce this lost decade? Is this what you’re seeing? Because from down here in Australia we’re still doing okay in our economy but were seeing all of these bail-outs as policies extending the recessionary forces and to think that austerity is the way forward I just don’t know how much pain they’re trying to inflict on the 99%.

C.K: well the way forward is to destroy the banks. The way forward is a debt jubilee. The way forward is to end the control of private institutions over money supply. The way forward is to create public banking systems to control our currency through the public – not through debt backed money. And barring that, barring a truly revolutionary transformation of our monetary system, we will continue to have bubbles because that is all we produce now in the west. We produce bubbles and that is how our economy survives. It survives entirely on leveraged investments … that then drive up asset prices… and so then you have more people leveraging themselves in order to buy more assets. So this is what you saw in the internet bubble of the late 1990s, that’s what you saw in the bubble that followed – the housing bubble of 2001-2008, so we will be seeking as many bubbles as possible.

You don’t know how many people I’ve talked to that say housing prices have to go back up – …. they have to go back up as “it’s the only way I’ll survive, all my money is tied up in property – all my money is tied up in the idea.” And these are people are good old Americans – middle class Americans – who invested in housing and considered it to be their means of retirement.

They say “I need this house to go up in value in order for me to survive”. Well for it to go up in value to the extent that they want, to the extent that they need to survive, they need another bubble, they need another housing bubble. So everyone’s implicated. Everyone’s tied up in this monstrous system. And the only way to end the monstrous system is for a calamitous transformation of that system and that would be very bad. That would be chaotic. And yet sometime you’ve got to have some chaos in society. Sometime you’ve got to have upheaval. We need upheaval. We need a revolution. We need this monstrous system to be destroyed in order to move forward.

K.F: so I dare say you’ve got some veggies growing in your back garden?

C.K: nah man. I mean I’ve got a couple of guns. I’ve got a bunch of guns. You have veggies growing in the garden? I’ve got a couple of veggies. I’ve got garlic – some garlic to keep away the vampires.

K.F: well it’s a massive, massive decade or so we’ve got coming up because were just really dealing with peak debt here and peak oil, peak demographics, climate refugees – its all coming our way. Do you think that just reforming the public banking system is enough though? We’re talking huge systemic change here.

C.K: its just one element …. that would have to happen. Because, look, in a system where money is backed by debt, that means you have to have constant growth in order to pay off the interest accrued on that debt. So you borrow 10 bucks. The 10 bucks is brought into the money supply at an interest rate of 2 or 3% or whatever. So the actual money that must be paid back compounds. And you have to continue to grow and grow and grow. That is you have to have this constant growth economy. A constant growth economy implies constant use of resources – increasingly scarce resources.

What we have today is an economy that is both delusional and suicidal. Delusional in the expectations that it can grow forever and suicidal in that we know it can’t grow forever and yet we continually say we need to grow – we want to grow. So you’re also talking about a societal transformation. A transformation which people are no longer engaged in the consumerist hallucination: no longer sickened with affluenza – with this desire for unabated and unhinged affluence. You know, the continual amassing of possessions that you really don’t need.

Then you’re also talking about a transformation of massive brainwashing and propaganda systems inherent in Madison Avenue in the promotion and publicity relation complexes which are all dedicated to deceitfully… basically lying to people in tricking them in to buying things they don’t need – selling sugar water to children. These are sick, demented, degraded, degenerate industries – I don’t see them going away anytime soon. So again were talking about transformations …that maybe are so quixotic, so idealistic to consider that they will never happen.

One of the guys that I got to know at OWS over weeks and weeks of just going there every night and just hanging there and talking to people was a guy called Jeff Smith – formerly in advertising – totally a clean cut dude. Here’s a guy who spent 15 years, as he put it, “selling sugar water to children” and repenting of it and finding now that he had worked for as he put it – quote – the most evil industries. So now he’s down at OWS fomenting disruption and marches and helping to organize the media working groups – so called – that engage in outreach with people like me. So you have the entire spectrum down at OWS in Zucotti Park in Lower Manhattan.

K.F: were talking to Christopher Ketcham, author of Reign of the One Percenters, and Christopher, in closing, can you tell us in about the next level of development for the OWS movement. What has been happening down there? We’re seeing that there’s plenty of goodwill still continuing – meetings going on in various public buildings around the city. But what are you feeling is going to happen once this winter is over in the north?

C.K: well, you know, November 15 rolled around and the park was raided and many people were assaulted and pepper sprayed. It was a bloody scene. It was violent and there was some talk that that was the end of it. That OWS with the scattering of the encampment at Zuccoti Park that that would also be the scattering of the movement. But in fact it rebounded astonishingly. Two days later, on November 17, OWS organized with a labor coalition the largest march it has ever organized to date – 32,000 people marched through lower Manhattan and across the Brooklyn Bridge.

Forty labor representatives in protest of the violent crackdowns of police in New York and elsewhere across the United States were arrested. Now that hasn’t happened since the 1930s. Labor has not come out in a cross-trade coalition to support each other – to support a political movement. That is to support radical political change. So you got a labor coalition coming together with OWS.

OWS now has an office and its got a central core of organizers. Its got lots of support. They’ve got lots of money. They have got their encampments that are still surviving and fighting off the police all over this country whether it be in LA or in Oakland where there’s been a lot of violence.

So you know the movement is not over. And in a sense the destruction of Zuccoti Park, which had become the symbolic centre of the movement, handed to OWS the moral high ground. And, so in a sense, it was a tactical error of huge proportions on behalf of the Bloomberg administration. So I see the movement growing. I see it building coalitions. I see it turning into I’m not sure what, but it will have some sort of effect on the 2012 elections.

K.F: and what would you say to Australian listeners in respect of the northern hemisphere at the moment?

C.K: I would say that the enemy is in NYC and the enemy is the 1% and they’ve got to be taken down – peacefully. That’s what I would say. And the 1% is everywhere.

The 1% is a global elite that want to steal, and plunder, and privatize and sequester the wealth and resources of this planet unto themselves and I think we have to band together, worldwide, and stop it. Stop it so that the world, the planetary commons can be shared among all and so that we can have some sort of dignified survival in the future, you know, as a race – as a human race: as homo sapiens. That’s my message.

Adam Schwab wrote up our fourth report on speculative vacancies in Crikey yesterday.

Shortage or glut? Feast or famine? The question of whether Australia is suffering a housing shortage continues to be hotly disputed, with the real estate and construction lobbies arguing a desperate shortage exists, while other independent bodies, such as Prosper Australia, disputing the notion of a shortage.

The housing glut argument is led by Earthsharing Australia, which last year produced a report suggesting that the vacancy rate in Melbourne (until recently, one of Australia’s hottest property markets) was about 5%. In fashionable suburbs, such as East Melbourne or the Docklands, vacancy rates exceeded 8%. Earthsharing’s report, which was based on water statistics provided by City West Water and Yarra Valley Water, suggested that more than 60,000 properties lay vacant in Melbourne — substantially more than the reported vacancy report suggested by the real estate lobby.

While not a perfect measure, there is a degree of commonsense to Earthsharing’s report. Rather than attempt to guess whether there is a housing shortage based on economic assumptions, the group simply checked whether to see water was being used in a property — it is not unreasonable to suggest that if no water is being used for a length of time, the property is unoccupied.

That view was contrasted by a report released by the National Housing Supply Council, which echoed the sentiments of construction groups and claimed Australia was in the midst of a housing shortage. In fact, according to the council, the shortage actually increased by 28,200 to 186,800 during 2011. Even worse, the alleged shortage is forecast to widen to 640,000 within 20 years.

The National Supply Council is a strange beast — formed by the federal government in 2008, the organisation is a strange mix of academia, property developers and the even respected Saul Eslake. Included in the council are Mark Hunter (CEO of Stockland Residential), Nigel Satterley (property developer and BRW Rich List member), Ruth Spielman (executive officer, National Growth Areas Alliance) and Simon Norris (Clarendon Homes Queensland).

The council’s rationale for deeming a housing shortage is worth considering further. That is because rather than look at actual demand for housing, the council uses “underlying” demand. This leads to strange results.

Last year, the population of Australia increased by 320,000 — this was through a combination of immigration and births (less deaths). This figure is sourced from the ABS, so we can assume it is about a correct a figure as we can locate. According to the council’s report, there were 131,000 dwellings added last year (this figure is lower than what other sources claim, but we’ll accept it).

The council’s own report noted that there are 8.7 million households in Australia — with a population of 22.4 million, that means there are 2.6 people per household. Using fairly simple arithmetic, that means with 2.6 people per dwelling, and 131,000 new dwellings, enough housing was built last year for 340,000 people.

But wait, the population only increased by 320,000 people — that means, despite the council’s claims, there is a surplus of housing being built (even with dwelling construction being less than forecast). This appears to contradict the council’s finding that the shortage increased in 2011.

The council claimed that “on the demand side, at any given point in time underlying demand may not feed through directly into effective (actual) demand” — basically, what that appears to mean is that while there isn’t really a shortage, it will make some assumptions that allow a shortage to appear.

Later, the council noted that “the level of underlying demand is driven mostly by migration and other demographic factors”. Essentially, it appears the council is claiming that demand may increase in coming years (even though immigration levels are falling, rather than increasing), and that is why a shortage exists. The fact that a surplus of housing was built last year is disregarded.

More mysteriously, the Supply Council also claimed that “there were about 8.7 million households in Australia in June 2010. The number of households is projected to be 12 million by 2030, representing a net increase of nearly 3.3 million households between 2010 and 2030″.

This alarming forecast again doesn’t appear matched by recent facts.

Based on household numbers, the council is predicting an Australian population of 31.2 million in 19 years. That’s an increase of 9 million from the current level. The problem? That would require Australia’s population to increase by 473,000 per year — 42% more than the population increased in 2011. In fact, that’s a higher population growth rate than Australia has ever recorded. The claim is more difficult to justify given that Australia’s population growth and migration is slowing after spiking in 2008 and 2009 (see table below).

House prices haven’t increased because of increased demand from migrants outstripping dwelling construction — rather, prices have risen because bank lending has created false demand. Supply factors have played little, if any role in the recent house price growth. As soon as bank lending is restricted (and this is happening already), it is likely the illusion of a supply shortage will disappear. Just like what happened in Japan in the 1990s, or California and Ireland after the recent financial crises.

And I owned all the land,
How much would I charge you for your first night’s rent?

That was the statement Red Symons of ABC breakfast radio ran as a lead in to our 6.45am discussion this morning. It is also the opening line in the film, attempting to settle those who blame banking and the money system for everything.

Listen to the interview with Red promoting our debut documentary Real Estate 4 Ransom.

Tickets are available at ACMI for the preview screening of Real Estate 4 Ransom this Wednesday at 7pm. A short Q & A will follow with myself and Co-Director Gavin Emmanuel.

Check our R4R facebook group or twitter for more.

As written up in The Age today, p5:

Speculators ‘locking up’ empty dwellings that could be homes

Michelle Griffin

PROPERTY speculators have locked up 46,220 empty homes in metropolitan Melbourne, the housing campaign group Earthsharing Australia says.

In a documentary soon to be released, Real Estate 4 Ransom, the group says that 4.95 per cent of the city’s potential housing stock is unoccupied, double the rental vacancy rate of 2.4 per cent published last week by the Real Estate Institute of Victoria.

While the institute calculated the volume of available rentals by taking a sample from 45,000 tenancies on the books of its member estate agencies, Earthsharing used water-meter data supplied by City West Water and Yarra Valley Water to determine which residentially zoned properties were empty.

Dwellings using less than 50 litres a day for six consecutive months were deemed vacant. At the height of the drought in 2008, average household daily water use in suburbs with stage three restrictions was about 140 to 160 litres a day.

The group’s Speculative Vacancy Report says that in Docklands, almost a quarter of residential properties there, 23.32 per cent, are vacant. The official vacancy rate for Docklands is 3.62 per cent.

Other established suburbs with many empty homes, according to the report, include East Melbourne (18.64 per cent), Carlton (11.51 per cent) and Essendon North (13.07 per cent).

A spokesman for the Tenants Union of Victoria, Toby Archer, said he regularly heard from tenants who reported that houses sat empty for more than a year after they were evicted by new landlords.

“The report highlights that there may be more houses potentially available to renters than the indicators developed by the REIV,” Mr Archer said.

Earthsharing director Karl Fitzgerald admits that properties with no water usage could include vacant blocks, derelict houses and even homes with water tanks.

But he says the estimates may be conservative, considering apartment blocks or townhouses could be built on many blocks.

“Local councils always overvalue the house and undervalue the land,” Mr Fitzgerald said. “It gives a huge economic incentive for the owner to smash the house down. You could spend $5000 to fix the holes in the wall and make it fit for tenants, but for many property investors, the main thing is to sell this property. The land is the valuable thing.”

To fund the $50,000 documentary about land banking and tax reform, Earthsharing drew on funds realised when it sold off two properties at the height of the boom in 2008, an office building in Hardware Lane in the city and a commercial property in Coburg.

“I used to be really embarrassed [by the properties]; we’ve got to put [them] to use,” Mr Fitzgerald said, adding that the documentary was ultimately an argument in favour of the Henry Review’s proposals for land tax.

The Gillard Government’s Clean Energy Future plan signifies that the game is up for the free rider’s polluting our planet.

The Carbon Tax of $23 per tonne of carbon for July 1 2012 – June 30 2013 sends a clear message that polluters must pay. In this age of compromise politics, the industry lobbyists who seem to have won are the steel manufacturers. The ALP’s union links have been rewarded. The coal and mining lobby have lost out. But have no fear, Gina Reinhart has no doubt flown Lord Monckton to Australia to represent their interests.

Land Locked
Of immediate interest will be to see how land prices in sun drenched locations near major power transmission lines behave. If it is anything like California’s Mojave desert land rush, land prices there will sky rocket. Land speculators will get in first, with solar operators forced to pay more for land to meet their ransom price.

Rainforest land values
How will land prices for carbon sinks in the Pacific Islands react to this announcement? One expects there to be a gold rush of land grabbing for rainforests. Reports of cashed up mining companies hedging their bets has been prevalent for a number of years.

We remind you that these precious carbon sink resources, the lungs of the world, will only get more valuable in the future. Selling carbon permits off per annum is a much more sustainable solution for tribal elders. Then when carbon prices increase to $100 – $200 per annum, they get a share of the rising prices too.

Selling rainforest lands outright should be avoided at all costs.

Pressures on Housing
The exemption of petrol form the carbon tax means that sprawling home owners won’t be penalised. Some in the housing industry are complaining:

“Competing against imports from non-CO2-e taxing countries, Australian building product manufacturers face a cost collage as the carbon tax is passed on down the line into the inputs for each production and fabrication phase,” HIA Chief Executive Graham Wolfe said.

Construction costs have largely flat-lined during this land and house price boom. However, there is next to no commentary from the HIA on the role of land speculation in holding prime locations bare and forcing the rest of us to travel further to our work, our home.

Land speculation is an issue that will increase in importance as the drive to a more sustainable future becomes intrinsic to humanity’s survival. Listen to this recent podcast where second only to energy production was the importance of living in central locations (as the surest way to reduce our carbon footprint by 70%).

Some are complaining that Negative Gearers would be hurt by the rising of the tax free threshold from $6000 – $18,200. This will deter property investment/ speculation as there will be less of a tax write off for those hard working property flippers. This is a good thing. First home owners and the market in general continue to prefer established housing in centralised communities, rather than McMansions in ‘Master Planned Communities’.

Some commentators are concerned at the $4 billion budget hole over the next four years from the Clean Energy Future package. Compare that to some $24 billion we will be giving to negative gearers to both bid up existing house prices and support the building of unwanted McMansions in unwanted areas.

The Big Sell

Now we are set for a campaign like fever of salesmanship from both PM Gillard and Opposition leader Abbot. When will anyone in politics use the golden words ‘tax switch’ as a means of describing this momentous shift?

To see Abbot in his fluro vest working amongst the people, one wonders when a government MP will hit him over the Mining Tax. Abbot wants small business in manufacturing and services to pay the same company tax rate whilst miners benefit from record price gains for their products. That does not sound like a strategy towards lowest operating costs. It sounds like the end of the eastern seaboard manufacturing industry. The Liberal Party have become little more than a protectorate for monopolists, rather than the shepherds of efficient pricing systems.

Land Value Capture
Our aim for a sustainable society will not be maximised until we adopt a Geonomics system, where the earth’s scarce values are recycled back to the community. Page 7 of today’s AFR reported the high cost structure of the proposed high speed railway as one of its biggest hurdles to competing with discount airfares. Melb – Sydney is the world’s fourth busiest air route. A high speed train emits 1/4 of the greenhouse gases per person than what air travel does.

Land values along this train route would sky-rocket, especially at linking train stations. The $32 – 59 billion infrastructure price tag could be met if landowners paid back just 6% of the windfall land price gain they receive from this new service (over 20 years). Then train ticket prices could reflect the Marginal Operating Costs, keeping their price structure low.

That would certainly continue the positives.

“With 46,220 properties vacant in Melbourne, the myth we have a housing shortage cannot go on much longer,” Earthsharing Australia spokesperson Karl Fitzgerald said today.

Earthsharing’s Speculative Vacancies report highlights that tightness in rental stock does not equate to a lack of housing. The much quoted REIV’s 1.7% vacancy rate (Nov 2010) only refers to dwellings for rent, a subgroup of Melbourne’s total housing stock.

“Victoria’s Minister for Planning Matthew Guy is relying on poor data in contemplating to sprawl Melbourne even further when 46,000 homes lie dormant.

“Capital gains for Melbourne properties averaged $120,000 in boom years like 2009. Why would all investors bother to rent out a property for $17,000 when they could hold some of their portfolio empty to enhance massive capital gains?” asked Fitzgerald.

“When iconic suburbs like Carlton South have Estimated Genuine Vacancy rates of 11.5 per cent, Melbourne East 18.5 per cent and Docklands a staggering 23.32 per cent, there is something wrong with the economic incentives society feeds off” Fitzgerald said.

The report analysed 64 per cent of Melbourne’s residential stock using water meter data supplied by City West Water and Yarra Valley Water. Dwellings using under 50 litres a day for 6 consecutive months were deemed vacant.

“Extrapolating this to all Melbourne real estate, there are over 61,000 empty homes and apartments lying empty.

“The Speculative Vacancy report is an urgent warning to potential buyers. This is not the time to make a life-long commitment to buy a home – the market is flooded with stock as investors bail out of the market. With supply overwhelming demand, prices must fall.

“First home buyers are being told it is a ‘buyer’s market’. “Transitioning from one of the world’s biggest property bubbles into a genuine buyers market is a process that takes years, not days.

“SQM Research’s figures on the volumes of Melbourne houses offered for sale shows a staggering increase. March volumes are up an enormous 48 per cent compared to last year; April is up by an even larger 68 per cent over 2010.

“Buyers are being deliberately misled by incomplete statistics further transformed by real estate ‘spin’. We urge the federal government to instruct the ABS to collect and publish a monthly statistical series on housing vacancy rates in the interest of a fully informed market”

“Experienced players in the land game know the bubble has peaked and have already sold out.” Fitzgerald concluded.

Read the report

Australia’s endless debate about property prices pivots on the balance of supply and demand.

Earthsharing’s Speculative Vacancies in Melbourne 2010 Report demonstrates that nearly five percent of all houses in Melbourne are simply empty and unused.

The report identifies and measures the scale and extent of speculative vacancies – properties held out of use in the pursuit of capital gains – using water meter data collated by the various utilities.

“The REIV consistently points to it’s Rental Vacancy rate of 1.7 per cent as the sole measure of vacancies in Melbourne,” Earthsharing Research Director Karl Fitzgerald said today at the release of the report. “Our survey shows one in twenty houses and apartments are just sitting there vacant.

“Recent increases in house prices have been driven by speculation, not a housing shortage. Property owners are restricting the supply of housing by holding properties off the rental market.

“We estimate the Speculative Vacancy Rate for Melbourne in 2011 to be 4.94 per cent or 46,220 of 935,305 properties surveyed.

“More than 20 suburbs surveyed had estimated vacancy rates in excess of 8 per cent. There are notable hot spots in Docklands, Williams Landing, East Melbourne and Truganina,” Fitzgerald said.

“Supply and demand in these suburbs is significantly mismatched and should be monitored carefully for distress as housing prices recede.

“Docklands (23.3 per cent vacant) is particularly interesting as builders there have been obliged for some years by their financiers to offset risk by pre-selling a very substantial proportion of apartment before commencing construction. The vacancies there are largely owned by individuals, many of whom paid a very small deposit and signed a water-tight contract obliging them to pay the remainder on completion. These contracts are coming due just as the price trend turns down decisively,” Fitzgerald concluded.

Read the report

Executive Summary

We estimate the Speculative Vacancy Rate for Melbourne in 2011 to be 4.94% or 46,220 of 935,305 properties surveyed.

Our Estimated Speculative Vacancy Rate is more than twice the REIV’s Rental Vacancy rate for the same period of 1.7%. The rental vacancy rate is the rate most commonly referred to in media coverage as ‘housing vacancy’.

Recent increases in house prices have been driven by speculation, not a housing shortage. Property buyers are restricting the supply of housing by holding their properties off the rental market.

More than 20 suburbs surveyed had estimated vacancy rates in excess of 8%.

15,237 properties surveyed consumed on average 0L of water per day.

The Speculative Vacancy rate was down from 2009’s rate of 6.84%. It is unclear how much of this fall is from an improvement in property usage and how much is attributable to changes in methodology/sample.

This report sampled 64% of dwellings in Greater Metropolitan Melbourne.

Download the 2010 Speculative Vacancies in Melbourne report

Introduction

The Speculative Vacancy 2010 Report sets out to answer the question ‘how efficiently is housing allocated by the market?’ We specifically look at properties in greater metropolitan Melbourne.

How many are empty?

Reported vacancies of 1.7% reflect the rental market. These are published and acted upon by the Real Estate Institute of Victoria (REIV), as at November 2010.

This report seeks to measure the vacancies in reality, regardless of property rights. It looks at whether there is a ready and waiting housing supply to provide homes to people who want to live in Melbourne and which could potentially provide lower costs of living through greater competition in the rental market.

This report will be of interest to those concerned with social and economic justice, and those concerned that Melbourne may have a property asset bubble. Vacant properties can be used to create a supply side shock and deflate the housing bubble dramatically. The genuine vacancy rate is a key factor in determining how big that bubble is.

About Earthsharing

Earthsharing Australia is a self-funded non government organisation, of people from all walks of life inspired by the economic justice that can be achieved by distributing the wealth produced from land among the entire community.
www.earthsharing.org.au

Methodology

The Speculative Vacancy Report follows the methodology used in the ‘I Want To Live Here’ reports (2008 and 2009). This involves obtaining data regarding the consumption of water at serviced properties. Water consumption is used as a proxy measure of vacancy. In this, and in previous reports, we assume that an average daily water consumption of less than 50L over six months indicates vacancy.

There are limits to this methodology. The 50L/per day maximum is significantly lower than Victorian Government campaign targets for daily individual water usage. A leak, such as a dripping tap, can consume up to 200L per day. An unoccupied dwelling may have an active sprinkler system that pushes water use above 50L/day.

Conversely, somebody who commutes between residences (e.g. occupying their Melbourne dwelling on weekends only) may end up achieving a daily average less than 50L. Therefore, it is possible our figures can understate or overstate vacancy for any given property.

However, the simplest and most likely explanation for low water consumption remains vacancy. We therefore provide a ‘definite’ speculative vacancy rate for properties averaging 0L per day, and an ‘estimated’ speculative vacancy rate for properties averaging 0-50L per day.

Findings

We successfully obtained the required data from City West Water and Yarra Valley Water. A third provider, South East Water, did not provide the data requested.

Data was organised by suburb. Suburbs where the total properties serviced (by both providers) were less than 100 have been excluded from our findings. For example, East Keilor had three properties serviced, only one of which met our definition of vacancy. This would lead to a 33% vacancy finding, which we feel misrepresents the true state of vacancies in the suburb. Therefore East Keilor has not been included in this report.

Overall, 935,305 properties were included from 261 suburbs. This represents 64% of the total dwellings captured in the 2006 Census for the Melbourne statistical division. Of these, 15,237 properties consumed 0L of water per day over the last six months and are definitely vacant. We estimate true vacancy to be as high as 46,220 properties or 4.94%. Almost 5% of properties consume less than 50L of water on average a day.

Our estimated total speculative vacancy rate is more than double the REIV’s published figures for rental vacancies for the November quarter. The REIV employ a different methodology to determine vacancy. They take the number of rental properties listed to let and divide it by the total number of rental properties listed with their member real estate agents. This method only captures vacancies that are made available to let.

Compared to the previous ‘I Want To Live Here’ Reports for 2009 and 2008, the findings suggest that the vacancy rate has dropped. This may be due to the more conservative exclusion of suburbs with less than 100 dwellings. Each year the sample size has increased, providing a more reliable picture of the speculative vacancy rate.

We believe it is an error to equate ‘rental vacancy’ with ‘genuine vacancy’. It overlooks the practice of speculating on the housing market. Speculation is the practice of buying property purely for anticipated capital gains, not rental income.

Top 20 Vacant Suburbs

Our estimated speculative vacancies represent the number of houses that could flood the market given a downturn in confidence. Many suburbs boasting high vacancy rates are in prime inner city locations. Given their preferential location, this would have a domino effect on house prices in more distant suburbs.

Limitations

It is beyond the scope of this study to detect ‘land banking’. Land banking is property that is completely undeveloped and not serviced by a water company. The practice of land banking contributes to urban sprawl but does not provide immediately available housing. We cannot detect these properties because if they have never been connected to water utilities (i.e. have no meter) they will not show up in the data.

This potentially applies to the entire Melbourne ‘Urban Growth Boundary’. This survey is unable to measure, advance or record how efficiently this land is released to the market to achieve housing affordability.

Conclusion

Our findings show increases in house prices since 2007 are mostly attributable to speculative market behaviour rather than a housing shortage.

Demand does exceed supply, but housing is not being used efficiently to accommodate our population. These speculative vacancies are inflating housing prices and driving urban sprawl.
Melbourne has a Property Asset Bubble, with a potential supply shock of housing ready to enter the market and reduce prices, given a loss of confidence in property. Speculative behaviour is unpredictable in nature but is definitely occurring. Property speculators are foregoing rental income in the hope of realising capital gains.

The myth of the housing shortage is being perpetuated by equating a ‘lack of housing to let’ with a ‘lack of housing’. The response from government has been to make more land available for residential development without addressing the underlying inefficient use of housing in Melbourne.

Recommendations

As in previous ‘I Want To Live Here’ reports we find a pressing need for regular and comprehensive gathering of data on the Genuine Vacancy Rate to be referred to by government so that policy can be formulated in response to real and accurate figures.

We urge people to consider the risks of buying property in Melbourne given the potential for a sudden increase in supply to generate a crash in property prices.

We urge all levels of government to rethink their taxation policy and the impact it has on the efficient use of land. Speculation occurs largely because property speculators can afford to sit on vacant housing given the low holding costs and tax incentives to do so. We call for a shift in taxation bases from income and consumption to land and natural resources as per the Henry Review recommendations.

Appendix 1:
Further International Vacancy Studies

The interest in housing vacancies has increased following the US property crash that precipitated the global financial crisis.

Californians were convinced in the mid 2000s that affordability issues were due to lack of land supply. ‘We need more re-zoning’ was the catchcry from developers.

In 2006, Thousand Oaks Acorn reported:

The California Building Industry Association (CBIA) continues to express alarm over what it calls an ongoing housing crisis in Southern California.

“lan Nevin, the association’s chief economist, projected in a 2006 CBIA Housing Forecast that only 185,000 to 205,000 building permits will be granted this year, far short of the 240,000 new homes needed each year.” 

By April 2009, this building industry call was dispelled – houses were bulldozed in California’s ghost estates as a means to re-balance supply and demand as property prices were in free fall.

The importance of an accurate, unbiased source for housing supply figures has gathered importance. There are many different techniques.

Syracuse, USA relies on $400,000 software to track vacancies.

Some enlist homeless aid groups to survey the land on foot in New York.

Ireland’s UCD Urban Institute Ireland has deducted there were 170,000 vacant homes in 2010.

They extrapolate Census figures.

“The number of housing units completed from 2006 to 2009 has been aggregated from DoEHLG data. The numbers vacant and occupied have been estimated by use of data on population and population to stock ratios over this period allied with discussions with financial and market sources indicating that over one third of additional stock over the period remains vacant.” (p16, Managing an Unstable Housing Market Williams, Hughes and Redmond, 2010).

Watch the related youtube clip

The State Grid Company of China recently revealed another tactic, releasing data using a similar utilities-based survey of land and housing usage, this time with electricity usage. They found a staggering 65.4 MILLION empty homes using zero power over six consecutive months.

Watch the SBS special

Appendix 2:

Tables of all 261 suburbs and their water usage, vacancy rates.

Download the 2010 Speculative Vacancies in Melbourne report

Renegade Economists Podcast 176

As broadcast on the almighty 3CR, Wed 6th April, 2011.

Bryan Kavanagh from the LVRG and one of our most active blogs, The Depression, brings his 40 years of experience in the land game to the show. We discuss the Buyers Strike and why now is not the time to buy property.

Listen to the show
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Karl starts the show comparing the 1596 properties that have been for sale for over two months in Point Cook versus the 750 that sold for the entire year of 2010. Compare your suburb via SQM Research with this handy top suburbs for transactions list from RP Data. Something dramatic is happening in one of the world’s last remaining housing bubbles right now!

Listen to the REIV’s Larocca defend the have’s over the have not’s.

Home ownership getting tougher

Share the photo and the sounds. Don’t Buy Now – the market is crumbling!

A special thanks to all those people sharing stories on our Home Buyers Strike Facebook page. We’ll put your hard work to good use. Join the community as we build the numbers so that Gen X & Y cannot be ignored! Housing is a human right, not a speculative might.