Tag Archives: housing affordability

EU’s 11 million empty homes a speculators paradise

houses_stand empty_DHoffman

Here at Earthsharing we could argue to be world leaders in the measurement of vacant housing. For 6 years we have quantified vacant housing with the Speculative Vacancy report. For five of those years we have been using water consumption as a proxy for vacant housing.

This was a likely inspiration for the Chinese State Grid Power company to use electricity consumption as a proxy for vacancy. In 2010 they found 65.4 million empty apartments.

We have been advocating for similar groups such as the UK’s Empty Homes to adopt the water consumption method as a vacancy measure. Here in Australia we have been lobbying the ABS and other government agencies.

Unfortunately there is slow progress to report, despite the fact the global economy is screaming head first towards another land bubble so soon after the last one catalysed the GFC. Vacant housing is a sure sign that the economic fundamentals have departed from reality as insiders chase ‘unearned incomes’.

We should have learnt more from the GFC. Instead, we have increased taxes on our food in the UK, Spain, Greece, Japan, over 300 times in US states, NZ and soon here in Australia. This is exactly the opposite to what we should be doing – shifting taxes off our food (GST is regressive), off our productive work (incomes) and onto the naturally rising value of the earth (and natural monopolies). The tax system then has the ability to reward producers whilst operating on a progressive basis.

Wealth is redistributed to those who employ and create rather than those who hoard and wait.

Vacant housing would significantly fall as the tides of investment money are channeled back to the productive economy.

Long time member and Treasurer Karl Williams penned this excellent letter to the Guardian regarding their recent EU article.

GUARDIAN WEEKLY 14 February 2014

Aren’t homes places to live?

Are homes meant to be investment opportunities or places for people to live? Anyone reading Scandal of EU’s empty homes (28 February) would wonder whose interests Europe’s decision makers are serving.

But if one casts an eye at the west’s tax systems, one can only conclude that we have governments of the speculators, by the speculators and for the speculators. Honest work is frequently hammered by the highest tax rates, whereas those who “reap where they do not sow” are beneficiaries of tax favouritism.

Australia’s sweeping 2010 tax review recommended that properties be encouraged to be put to optimal use by a substantial federal land tax, which is almost impossible to avoid no matter how large one’s battalion of tax lawyers. Why are we not surprised that our system of lobbyocracy soon committed nearly all of these recommendations to oblivion?

Karl Williams
Melbourne, Australia

How many empty homes this year?


Thurs Oct 31st, 6.30pm
Presenter: Philip Soos

2/22 Punch Lane, CBD

Download the report from our Prosper website.

Its time for the 6th annual Speculative Vacancies report. Yes that time where we ask – what could thousands of empty homes do for affordable housing?

The tragedy is – few understand how supply and demand work any more. Do a vox pops of your friends to see what say 20,000 new homes would do for rents, prices. People are so conditioned to the mantra that ‘property always goes up in value’ that a correct answer often eludes.

Invite your friends as Philip Soos is set to release our most comprehensive report, with over 94% of Melbourne’s residential property surveyed for a full 12 months.

The findings are of immense interest to anyone concerned about the housing. At current growth rates, investors will soon dominate first home owners in the housing market at a ratio of 3 to 1. How does that affect the number of vacancies? What have flat market conditions for the last year meant for the number of vacant homes?

Come and hear the findings to the world leading report – a report whose methodology is of increasing interest to public institutions around the world.

The policy recommendations are crucial for those wanting to buy a house.

See previous Speculative Vacancy reports.

RSVP to assist with our event planning

Co-authored by Paul Egan.

Passive income the affordability curse


Renegade Economists show 303

As broadcast on 3CR on Wednesday 21.08.13.

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Karl Fitzgerald: Property spruikers, spruikers, spruikers. Today we go into the heart of the battle zone, into one of the biggest property spruiking seminars in Australia. One of 15 tour stops for Dymphna Boholt.

Dymphna Boholt: Hey guys, my name’s Dymphna Boholt, and I’m here to invite you to a full one day of training that I’ve got coming up very close to you. Why is this going to be important to you? Well let me tell you what I’m going to cover and why I’d love you to be there. I’d love to meet you and love you to be part of the journey with me. Here’s what we do. First of all, I’m going to talk about how the ownership of property has become so important, and how you need to own your properties, not just for now but for tax reasons, so when something goes against you, someone’s not going to take it away from you. It’s a big problem in this country and it’s getting bigger, and I really want to stress that. And I really want to teach everybody how they can start to grow a significant portfolio safely and keep it. Keep it as a legacy. Keep it as a portfolio that will live on long after you’re dead and gone. So the kids have got it, the grandkids have got it. Something really creating that long family trust fund. But how do you do that? That’s a long way out in the future. So what I’m going to do in this one-day event is I’m going to cover some economic stuff. I’m going to tell you about hot spots around Australia. I’m going to tell you about where our economy is at right now, and what we need to be doing right here right now to change your life.

KF: Alright, this is Renegade Economist Karl Fitzgerald signing in from a property spruikers event: I love real estate, being conducted by Dymphna Boholt who is one of Australia’s leading property proponents. She’s traveling Australia at the moment doing a national tour. There’s some 400 people at this seminar today. It’s fast paced, it’s full of facts and it’s all about pushing real estate higher and higher as the ponzi game rolls on.

Spend $5,000 on her investment material, and she’ll guarantee you’ll earn 10 times that within the next 12 months or your money back. Amazing! Discretionary trusts are the vehicle to protect your assets – that is the key. What are some of the other things? You’ve got to have a bucket company set up. You’ve got to have each property you own set up with its own trust and its own company structure above that and then a bucket company, which is the parent holding account. There’s piggy bank trusts involved. She has buzzwords for everything. But the big one this morning was all about superannuation. “It’s our last remaining tax haven”. She said, “with self managed super funds, now you can borrow via your super entity”. You only pay 15 cents in the dollar on income earned there in your pre-retirement phase period. And your capital gains tax at 10%, but when you’re in that pension phase, no income tax, no capital gains tax. You only need 20% deposit to buy the house, “so dip into you super and do it” was the sort of vibe coming through. It’s all about passive income. “What changed my life was passive income”, she said. It’s all about risk analysis, reverse feasibilities, fear of success. Can you do it?

Some of the other buzzwords coming through were ‘chunk deals’. It’s all about buying big blocks of land, subdividing and cleaning up. Some people she’s quoting are making $100,000 in just 3 or 4 months. There’s something else she calls a grid variance analysis, which is one of her big plays, looking at location, location I dare say. Are you a serious investor or are you a BBQ investor? You’ve got to be in the know.

Phenomenal, sitting in the room with 400 people hearing about all of these examples of how people are buying real estate at prices that match the rental incomes. This is the trick she’s saying. Don’t negative gear by spending more than what the property can actually deliver to you in income. That is sensible. That will help keep a lid on this bubble. But what she’s really saying is buy regional. Buy regionally! That’s where you get these large blocks of land. You can have these chunk deals and earn some quick cash. Alright, let’s go back to the seminar now. We’ve got another 2 or 3 hours. We’re going to be hearing about some of the theories Phil Anderson and Fred Harrison talk about, W. D. Gann. Essentially pulling some of the Georgist knowledgebase I talk about, of the business cycles; real estate cycles and using that to make easy money. So everyone is in it to win it. It’s all about passive income and setting that up in 18 months. So I will report back after this session.

DB: Imagine whatever you earn now, whether it’s $40,000 a year,
$60,000 a year, $100,000, $200,000, whatever! Whatever you earn now, imagine earning that same amount of money, but passively. What’s passive income? Passive income is about having that money coming into you regardless of whether you get out of bed or not. Regardless of whether you go to work, regardless of whether you pick up a pencil, regardless of whether you do anything. It’s passive. It comes in from income. Now I’m about real estate, I’m not about shares; I’m not going to talk about anything else. It’s about real estate. So real estate income that comes into you over and above all of the expenses related to that property. And you’ve still got some left over. So you’ve got rent coming in, you pay the interest on your mortgage, you pay your rates, you pay your insurance, you pay someone to manage it, you pay some repairs and maintenance, and you’ve still got some left over. And that some left over, imagine if that’s 100 dollars a week. That’s $5,000 a year. That’s $5,000 a year you never have to get out of bed for again forever. You never have to earn that money again, and you know what?

The funny thing about passive income in real estate is that it actually increases in value. So if it’s $5,000 this year, chances are it will be $5,400 next year. Might be $6,000 the next year, might be $7,000. You turn around in 5 years time or 10 years time, and its $20,000, $30,000. Passive! That’s after paying all of the expenses. Now that money comes in regardless of what else you do.

But that’s just one property. Imagine if you’ve got two of them, or 3 of them, or 4 of them. Imagine if it’s not just $5,000 income by $25,000 in passive income. For some of you, you’re getting uncomfortable. For some of you you’re not really getting this, you’re going, “Ahh that’s not possible, they don’t exist. Not in Australia… We’re one of the most expensive countries in the world because that’s what the media tells us”.

Well listen to this media, there’s plenty of good property around. There’s plenty of passive income, around but you need to be educated. You need to be looking at certain types of property, certain styles of investing. And you need to be doing this in a calculated, logistic fashion. To a business plan that works for you. And remember that your business plan is going to be different from the guy sitting next to you, because he’s got a different personality. He’s got a different amount of money starting with, he’s a different person, he’s got different dreams, goals, and aspirations to you. So I’ll teach you how to do that business plan for yourself. I’ll teach you how to go on a journey to make that happen for you.
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Negative Gearing 92% Ineffective

Negative Gearing 92% Ineffective from Real Estate 4 Ransom on Vimeo.

Renegade Economists Podcast 257

As broadcast on 3CR, Wed Oct 3rd.

The Name of the Game: Philip Soos answers questions from the floor at the Negative Gearing report release. Karl talks about economics as if location matters.

Listen here

From Philip’s report:

In 1993-94 there were 980,471 investors, with just (51%) negatively geared. The number of investors increased to 1,751,679 in 2009-10, a significant rise of 79%, with 640,757 positively geared and 1,110,922 negatively geared. This is a remarkable increase of negatively geared investors compared to those who are positively geared. The number of negatively geared investors increased by 122% over this period, while those positively geared increased only 33%. The trend shows that negative gearing is becoming central to residential property investment.

The report was written up on News

Philip also had a piece at The Conversation – It’s Time to Abolish Negative Gearing

Also mentioned:
Council rating survey

Housing shortage questioned again

With recent doubts on Census data winding in the mainstream opinion on housing shortages (down from 228,000 to now just 23,000) we were pleased to have our 5th Speculative Vacancies report written up by Chris Vedelago on Fairfax’s Domain blog:

A study by Earthsharing Australia estimates there are 90,730 vacant properties around the city, enough homes to provide housing for 35,000 families.

It amounts to a vacancy rate of nearly 6 per cent, challenging industry claims the city is facing a housing shortage.

It must be noted the report did not include land banks that have unmetered water mains. 47,000 hectares have been re-zoned to residential here in Melbourne but yet some such developments have an unemployment rate for land of 99.94% ie Lend Lease’s Atherstone development.

So why is it happening?

Earthsharing Australia, which is affiliated with tax reform group Prosper Australia, believe it’s the direct result favourable tax and incentive-driven housing policies that encourage speculation, land banking and drive up house prices.

”The rapid run-up in housing prices has provided a lucrative torrent of windfall gains via capital appreciation for investors while rents have not kept pace,” Soos writes.

”Faced with this set of circumstances, investors may conclude that renting properties make for dubious investments when factoring in the wide array of costs associated, including time and effort.”

In other words, it’s a better deal to turn a viable home into a lock-up-and-leave investment.

This is exactly the outcome our tax system is designed to encourage.

Why bother working on a 45% income tax rate when you can adopt a Self Managed Super Fund and pay ZERO capital gains tax? The incentives for hoarding over housing are extortionate at all levels of housing policy. For some reason few dare talk about the role of speculation on affordability.

Vacant land is another matter. Some councils already charge a premium to rates for residential land left fallow.

Others do not, meaning owners are able to reap a windfall in rising land prices while paying less than others to hold their property.

In one case, a vacant 167-square-metre block was charged $991 for the year, while the liveable house next door on a 158-square-metre allotment paid $1540.

Valuers will also tell you that vacant blocks and derelict homes can hurt the values of other property holders in the street, especially direct neighbours.

For their part, Earthsharing Australia and Prosper Australia argue that a ”substantial” land value tax would help ”blunt” capital growth and encourage owners of unused homes to put them on to the rental market.

We do not support differential rates on vacant land. It leads us down the dangerous wealth-envy path of politicking as Wayne Swan and K-Rudd know so well post the mining tax bash. Victoria should return to a flat but higher rate on land value alone – Site Value Rating.

The Vedelago reference of higher council rating on the family home than the larger block of neighbouring vacant land is due to Capital Improved Valuations. This sees the family home paying about 30% more in council rates than a land banking speculator. This distortion actually provides a motivation for investors to smash down what could be affordable rental housing. With no improvements, the land banker gets a tax discount under CIV/ NAV.

So called ‘progressive’ politicians have decided that anyone with a large home is wealthy. They should be penalised. Anyone with solar panels or a water tank faces the same maddening fate. No wonder people don’t like the rating system. KISS.

This goes against the grain of decades of research showing that municipalities that actually encourage improvements to a house or shop encourage higher employment and economic activity. Location as represented by land value is a better indicator of ‘capacity to pay’. This is our timeless reminder to municipalities like Ararat, where moves are afoot to remove council rates. Perversely, it is the poor utility of the council rating system that sees local ratepayers wanting the regressive GST to replace the subversive CIV/ NAV system.

The core issue is that land in prime locations benefits from improved community services. A new community library or a redeveloped train station can add tens of thousands to a property owner’s land value. Those who benefit by living closer should pay for that improvement by the increased windfall gain they did comparatively little to receive. The rating system naturally does this over time – not in one hit.Can one argue with these principles? Instead, we are seeing a growing move to replace beneficiary pays with a regressive user pays system. When the windfall gains to land owners is significant, it is within their interest to squash chances of a more equitable system of public finance. For this reason we see fraudulent economic analysis published as mainstream news.

The fact is a land banker pays about $450 in Land Tax and about $1,000 in rates on an average location in Melbourne. When the windfall gains have been over $30,000 per annum for most of the last decade, we have to ask who are rising property prices good for? Banks and speculators win, whilst the community struggles to pay for services.

Earthsharing’s Speculative Vacancies report finds that 19 of the 20 highest vacant suburbs were in Melbourne’s west. As economists of note could tell you, the price has followed the change in the Land Tax threshold, having increased from $85,000 – $250,000 over the last decade. This western trend has grown because land is barely $250,000 in value. Thus investors pay next to no Land Tax.

The usual argument for investment is that when price goes up, supply will follow. Investment in land, no matter by how much, cannot produce any more land. It is as if neo-classical economists believe in flat-earth economics.

There are 842 vacant properties in Footscray. 860 in Essendon. 90,700 in total – about a year’s auctionable supply of property. But yet we sprawl further. With a higher holding charge on land holdings (Land Tax and Site Value Rating), these properties would put significant pressure on prices. However, with the Real Estate 4 Ransom mantra we live under, ‘developers’ can simply remove stock off the market to choke price falls.

The most affordable land was in Mitchell at $171,500 and a median lot size of 512sqm. Mitchell recorded the largest shift in supply, dropping from a 20-month supply in the March quarter to 8.5 months in the June quarter. However this was due to stock being withdrawn from the market, rather than sales.

With that in mind, we hope this report helps raise the importance of penalising lazy land use so that land is used for housing not hocking.

Read past reports.

Listen to Karl Fitzgerald on the weekly Renegade Economists podcast

photo by: Bilal Kamoon