• Blame the pseudo left for high house prices

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 • Blame the pseudo left for high house prices

Posted by DavidMc at 2008-04-20 09:50 PM
Near the top of the list of the many crimes of the pseudo left we would have to place their success in sending housing prices through the roof.  This is all in the name of "smart" growth and preventing the dreaded "urban sprawl".

Australia is heavily afflicted by this lunacy with average house prices being over  6 times average household annnual income.  This is more than double the figure for those parts of the US where the pseudos have so far failed to get their claws into housing policy.

Fort Wayne in Indiana is renowned for its cheap housing. I looked up a local real estate web site and found a nice three bed room house on a quarter acre block for under $60,000. Then there was a place for around $650,000 on a 2.4 acre block with 5 bedrooms, 6 bathrooms, huge kitchen and diningroom and a living room big enough to hold  a basket ball match.

In Melbourne where I live new land for housing is confined to about a half dozen tiny little pockets and  the city is completely encircles by so-called green wedges. At the same time increasing the density in existing areas is slowed down by nimbies.

As well as the artificial scarcity of land we have excessive infrastructure charges and greeny building codes. Consequently a house in the outskirts which should cost $200,000 costs $350,000.  High house prices are fine if you are swapping or down sizing but if you are new home buyers on average incomes you're stuffed.

There is a growing literature on this bastardry. Here are some good places to start:

http://www.demographia.com/

http://www.ipa.org.au/publications/pubsbycategory.asp?category=Housing

 • Re: Blame the pseudo left for high house prices

Posted by youngmarxist at 2008-04-21 04:14 AM
This post reminds me of Gavin Putland's "Little People versus Littler People". Putland appears to be a Georgist, who lives and works in Brisbane - the article is about how nimbyism in the fashionable, cosmopolitan suburb of West End - especially "pro-community" arguments against raising the allowable heights of buildings - contributes to keeping housing costs high.

 • Re: Blame the pseudo left for high house prices

Posted by keza at 2008-04-21 08:49 AM
I think that we need to draw some lines of demarcation when we talk about the pseudo-left.  There are many basically good people who are influenced by p-leftism. We need to focus our attacks on those who spend their lives actively propogating p-left ideology rather than on the large numbers of people who have embraced that general outlook without bothering to think about the consequences of such  views.  Many people who go around espousing p-left views are ignorant rather than active enemies. It is the "chattering classes" toward whom we should direct our fire.

With regard to the housing crisis, some relevant material  can be found on this site (it's a site established by a  couple of Labour Party members who believe that the ALP has stopped being a party of the working class but don't have any understanding that it never really was.)

http://www.thenewcity.info/index.html

 • Re: Blame the pseudo left for high house prices

Posted by owenss at 2008-04-22 12:07 AM

Are restrictions to urban sprawl really driving up house prices?

 

House prices have risen in the last 10 years in England, the USA (recent price drop excluded) and Australia. Have they all restricted urban sprawl? Wouldn't restricting urban sprawl be more likely to increase urban density? I know the area where I grew up house are being torn down at a great rate so that 2 houses can be built.

 

More likely rather than some misplaced P-Left conspiracy to stop urban sprawl, what we are seeing is a phenomenon called Capitalism's speculative boom and bust cycle.

 

Interest rates have been low in the countries mentioned plus credit has been readily available leading to lots of people entering the housing market (often referred to as increased demand) Governments particularly Australian ones have historically built houses to compete with the private sector and keep prices down ( also known as increasing supply) In the last 20 years Australian governments have all but ceased to build houses and have preferred to do what the Howard government did. Give new home buyers $7000 as a grant. ( this is really a grant to the housing industry and was sold on the basis that it was compensation for the Goods and Services Tax, at the time this tax was expected to reduce demand for houses)

 

In America the days of easy credit are over and they now have a credit squeeze, prices are falling at a great rate. There has be no recent change to the American restrictions on urban sprawl but we have seen great price fluctuations only to underline my point that house prices are much more affected by access to credit rather than access to land.

By all means blame the P-Left but I think that the real blame belongs to Capitalism.

 • Re: Blame the pseudo left for high house prices

Posted by owenss at 2008-04-22 03:52 AM

David Mc in addition to the above your first link is to a property developers propaganda page. Are we really to believe that property developers have joined the ranks of the saved? I do believe that land supply does affect house prices but nowhere near the one to one relationship the your link would have us believe.

 

In Australia house prices will boom when there is full employment, low interest rates, available credit, tax breaks like negative gearing and straight out subsidies such as first home owners grants. Oh look we have had until recently all of the above factors. If and when the economy goes into recession and the   the credit squeeze bites we will see house prices drop but they will remain out of reach to those who cant access the credit to buy them no matter how much land is released.

 

Just to give some examples of what drives the property market in the 1970's the government pegged interest rates at 13%. Real interest rates rose above 13% so banks stopped lending to house buyers. House buyers had to access the second mortgage market at rates well above 13%. This was not resolved until the Hawke government deregulated interest rates which eventually hit about 18%. During this time there was the 1983 house price boom. As I recall this boom came about at the end of a recession and a long period of static house prices. I don't think that land availability played a roll in the stasis of prices or the boom that occurred in 1983.

 

We have just lived through another house price boom. For the argument that land availability plays a decisive rather than secondary role you would have to prove that land availability had changed ie been greatly restricted in order to stimulate the boom. I am sure that the property developer lobby can find a link but I would be more impressed by a more independent source

 • Re: Blame the pseudo left for high house prices

Posted by Cyberman at 2008-04-22 02:54 PM

There may be some truth in what David Mc writes about the supply of land affecting house prices. I've more sympathy with Youngmarxist's point that planning regulations need to allow for an increased density in an urban environment. Given the choice, many people would opt for a smaller home close to the city rather than a the traditional quarter acre block situated in the surburban outer fringes.

 

However I would suggest that high real estate prices are a symptom of the wider problem of a changing capitalism and to try to understand the phenomena we need to dig a little deeper. Our economy has evolved into something quite different from what most people imagine it to be. The current system is not well described by classical academic economic textbooks. Today’s problems also strike me as somewhat different from those which Marxists have traditionally described.  To Marx, capaitalism was synonymous with industrial capitalism. Marx held that profits under the old industrial capitalism stemmed from the employment of wage labour,and the retention of created surplus value,  which he defined as exploitation. The capitalist made his profit by selling the products of labor at a higher price than the labour cost him. Wage labor therefore was the source of surplus value.

 

There is now a new vigourous, but less progressive, capitalism, at least in the western world, which is perhaps better desribed by the term finance capitalism. It is reckoned that the real estate value of Manhatten alone is worth more than all the industrial assets of the USA combined.  Whereas the old industrial capitalism sought profits, the new finance capitalism seeks capital gains mainly in the form of higher share prices, land prices and prices for other rent-yielding assets.  Modern finance capitalism has found a new way of exploiting labour, by mobilizing pension funds, and other retirement savings to bid up stock-market and real estate prices. This gives the new capitalism the opportunity to appropriate an increased amount of wage revenue in the payment of interest on personal debts. This has the further added benefit, to the employer, of weakening the working class's traditional sense of unity. To strike is extremely difficult in today's circumstances. One or two missed mortgage payments can bring about financial calamity.

 

I could well be that  financial capitalism that we have seen develop in the last 20 years is a phase and will disappear as quickly as the financial bubble, that it has created, bursts. It certainly seems quite unsustainable. The old industrial capitalism looked to be built on much more solid foundations and yet it too has declined rapidly. If the bubble does burst , or maybe deflate slowly, banks will fail, pensions will disappear, asset prices will collapse. Bankrupties will soar as businesses and real estate values plummet. We could be in for interesting times.

 • Re: Blame the pseudo left for high house prices

Posted by dalek at 2008-04-22 04:44 PM

There is no Capital Gains Tax (CGT) on owner occupied houses in Australia, nor is there death duties thus you have the phenomena of the monetarisation of this asset , it is used as collateral for share trading. This has created the bubble and the concomitant rise in house "values" that we are experiencing now.

In the US there is CGT and death duties but tax can be offset against home improvements.

Interestingly, freehold title is not universal in Australia, Canberra Gympie, Mt Morgan, Mt Isa have a large cohort of leasehold land. In Australia crown rights prevail whereas in the US they have been abolished. Thus here you do not own the oil or gas or water under your feet. 

Long lease of privately owned assets is common in Paris, London and many European cities (The city of London has almost no freehold land).

The rise in house prices is a direct result of the special position of the owner occupied home vis a vis tax.

The efforts of the "pseudo Lefts", "greenie scum" and other "tree hugging vermin" have only a second order effect on prices I'm afraid.

Dalek

 

 • Re: Blame the pseudo left for high house prices

Posted by Cyberman at 2008-04-22 05:57 PM

Dalek,

Yes you are right , the factors that you mention are all second order. But so is the question of Capital Gains Tax and death duties. The phenomenon of over-valued real estate is worldwide and you can't view it from a purely Australian perspective. The economies that are most 'deregulated', the ones most in the grip of finance capitalism,  the UK, Australia, the USA, even India, have some of the world's highest real estate prices, whereas in Germany, which some would argue is relatively old fashioned, and can be still described as an 'industrial capitalist country' you'll find that real estate, both industrial and domestic, is more reasonably priced. Incidentally I am told  that, unlike in the USA and the UK in recent years, German dogs and cats do not automatically qualify for motgages on properties that they cannot afford.

 

The bubble will burst in Australia too in the next twelve months just as it has in the USA, and is starting to now in the UK. Negative equity is not pleasant for those who hold it, but you'll hear the phrase more in Australia too in the next few years.

 

 

 • Re: Blame the pseudo left for high house prices

Posted by DavidMc at 2008-04-22 06:38 PM
Increased demand can only drive up prices if it is not being met by supply. And if it is being met there will be no speculative demand.

Germany is a great example of this. In that country, the constitution makes it very difficult to prevent people from building houses. As a result prices are very low have been static in real terms for decades. Also home ownership is only around 40 per cent because people don't feel an urgent need to purchase a house before prices rise or fear selling without buying for the same reason.

The political constraints on factory produced housing are also worth looking at in this context. Such housing would be far cheaper than those built on site.
 
Land could be bought from a farmers for a little bit more than it is worth for grazing cows or growing vegetables, then a factory could be built in the area to churn out houses at a great rate.

I think the term "urban strangulation" is a good counter to snide remarks about "urban sprawl".

 • Re: Blame the pseudo left for high house prices

Posted by Cyberman at 2008-04-22 08:06 PM

Well from my travels in Germany I would say that their cities suffer from less Urban sprawl than either the UK or Australia.

 

The Germans aren't known for their 'laissez -faire' attitute to anything and I would question that their planning controls are any less stringent than other European countries or Australia. Anecdotally I've heard that even painting your house the wrong colour, or using too large a TV antenna, is disallowed in some German villages 


 

In any case, it isn't just the left, either in Australia or elsewhere, which supports the idea of planning controls, it's generally accepted by the population as whole. Sydney, like anywhere else, has its housing problems but there would be hardly any support at all for selling off the National Parks which surround the city to building developers.

 

PS Sorry about the long link but I've never been able to work out how to condense them on your site.

Link shortened by anita

 • Re: Blame the pseudo left for high house prices

Posted by dalek at 2008-04-22 08:54 PM

No it's market "churn" that is forcing up the prices in Australia because the proceeds from the sale of the family home come tax free (No CGT). Thus there is a large incentive to improve the property and then to trade up. No other investment asset comes free of CGT. The US where house prices are lower than here is a case in point. Here there is a vast disparity between working class and "middle" class housing and little chance for the average worker to trade up - as improvements to the property are effectively taxed - despite the offsets; however a tax offset on inputs is of little use to a worker on the US minimum wage. Thus only middle class people improve their property and trade up.

Increasing the supply of middle class housing in Australia will simply create more market "churn". I cannot see any government (except those wishing for electoral suicide) abolishing the CGT on residences. 

DavidMC said:"Australia is heavily afflicted by this lunacy with average house prices being over  6 times average household annual income.  This is more than double the figure for those parts of the US where the pseudos have so far failed to get their claws into housing policy."
The lack of a CGT is a far more logical cause than some vast "Greenie"/ "Pseudo" /Developer conspiracy.

What to do?

Factory built housing is already available; the house arrives on a truck or two and is erected in days. It is sort of looked down upon by "aspirational' types and sort of languishes in the market.

IMV we should be building more cities of about 100,000 to 300,000 population; with income generating high tech industries inbuilt. Also low cost housing that is not easily churned. Then link all the cities up, and the capital cities, with high speed low cost mass transit. (I know that no bourgeois government will deal with the CGT - that's going to be a problem).

Dalek 

 

 

 • Re: Blame the pseudo left for high house prices

Posted by Cyberman at 2008-04-22 09:42 PM

Dalek,

 

Has there ever been CGT on first houses in Australia? There wasn't any in the nineties when prices were both affordable and relatively flat. So, on that score your theory doesn't fit the facts. Its not that CGT has suddenly been removed and prices have shot up. There has always been CGT ( 25% I think? )  on investment properties and that is where the demand has really soared in the last ten years. There is no evidence to suggest that CGT on first properties would depress prices. All it might do is discourage people from selling when they wished to move and instead encourage to put their home on the rental market.

 

As one of the few contributors on this website who is happy to be called socialist I would suggest a few socialist housing policies be adopted. For a start, it seems quite wrong that tax advantages should be given for second and subsequent investment properties rather than the one that is used for living in. That can and should be reversed. Probably those who need the most help would be families with young children and I would certainly like to see the tax system altered in their favour.

 

 

 • Re: Blame the pseudo left for high house prices

Posted by youngmarxist at 2008-04-22 11:19 PM
Cyberman, re condensing links here:

1) You can type in the words that you want to be the short version of the link. Then highlight the words with the mouse and click the "globe" icon in the bank of buttons above the box you are typing in (to the immediate left of the "chain"). A box will pop up - cut and paste the URL of the site you are linking to into the box and you will have condensed the link.

2) If you are not using the same comment editor as me, you won't see the 'globe' button. If so, you can go to http://www.tinyurl.com. Paste the long link into the box there and you will get a much shorter link you can use instead. For example, it converted your link above into http://tinyurl.com/3nhujk

 • Re: Blame the pseudo left for high house prices

Posted by dalek at 2008-04-22 11:28 PM

Cyberman you are correct there has been no capital gains tax on residences in Australia since September 1987 when the tax was first introduced. At the same time the bank liberalisation of the 80's meant that the funding model for financial institutions changed to one that sourced most of its funds from household savings to the wholesale financial market, including overseas sources. Also the introduction of compulsory superannuation at the same time introduced the concept of self managed funds for retirement and provided sustenance for a whole "parasite" (collective noun) of Financial Advisers.

These financial advisers took a few years to seize upon the tax free status of the family home as a means of "wealth creation". Sure there was an increase in population that helped to drive the property prices up and virtually no incentive for "developers" to build low cost rental housing (see par below) the advice was to improve the property and use it as collateral for loan trading and to trade up to a bigger and better Mc Mansion. So the empty nesters leave their two bedroom suburban home and buy a Mc Mansion: The McMansion requires the resources and capital required to build 4 bedrooms, three garages a spa and 4 bathrooms etc etc. (Probably the equivalent to 3 ordinary 3 bedroom suburban homes) This replaces one ordinary 2/3 bedroom home in suburbia that once housed 4-5 people, it now houses a young first home buyer couple.

Now it gets worse: 40years ago 21% of the retail price of land was down to services (sewerage, water, electricity, access) today it is 44% (In Sydney it is 50%). In the 21% days the governments borrowed to provide these services and recovered the cost in rates/taxes. The new model is that the developer covers all these costs and charges the buyer upfront, who then has to repay the loan to the bank, thus the cost has blown out (NPV any-one?). Thus the cost has been transferred up-front to the owner and the Banks clip a neat little coupon on the way.

The talk about "Pseudo leftists", "greenies" etc is absolute rubbish. The standards applied to the developers are basically the minimum required to supply modern amenities (Maybe the greenie blamers would like to live in an unsewered street ?). Sure they might have to build a nice fountain and provide a park or two but this is seldom more than 8% of the total services build.

So the "Aspirationals" sell their house to their kids, capitalise themselves and move into one of the MCMansions or luxury inner city apartments. These take 3 times the capital and labour resources that are required to build a tract of low cost housing: We now require 1 huge house and one smaller one to house the same number of people that we once housed in the small one. We wonder why we cannot build enough houses?

Dalek

 

 • Re: Blame the pseudo left for high house prices

Posted by Cyberman at 2008-04-23 12:11 AM

Dalek,

Yes I think we are moving to an agreement. Over -liberalisation of the credit market, the plethora of 'financial advisers', compulsory investment in the stock market, 'wealth creation'. These are all features of what I'm calling finance capitalism. Our old enemy was perhaps the industrialist employer.  Henry Ford would be the most famous of them. They may have been anti-union but at least they organised the means of production and actually produced something. I'd rather deal with them any day than the new breed of finance capitalists.

At present we are all living under a  huge financial overhang and the younger generation are suffering as a result. What particularly irks me is that rising property prices are supposed to make those of us who are lucky enough to own a house better off. Roll on the day when property prices crash. It will hurt those who have just bought but be better for all in the long run.

Incidentally this is worth a read. It was written a few years ago and is quite prophetic.

link

Youngmarxist,

Thanks for the advice . That seems to work well.

 • Re: Blame the pseudo left for high house prices

Posted by owenss at 2008-04-23 06:33 AM

Well done Dalek showing that 50% of the cost of a block of land belongs to the cost of bringing that block to market.

 

Wonder what the property developers running dogs will make of that?

 

To David Mc I ask, you have said that prices are basically determined by land supply. Prices in the USA in the last 4 months have plummeted almost 20% with no accompaning change in land supply. What do your property developer friends have to say?

 

The reality as I said before is that access to credit has been restricted and prices have fallen.

 

God damit for once admit that you dont know your arse for your elbow.

 • Re: Blame the pseudo left for high house prices

Posted by DavidMc at 2008-04-23 03:41 PM
Dalek wrote

DavidMC said:"Australia is heavily afflicted by this lunacy with average house prices being over  6 times average household annual income.  This is more than double the figure for those parts of the US where the pseudos have so far failed to get their claws into housing policy."
The lack of a CGT is a far more logical cause than some vast "Greenie"/ "Pseudo" /Developer conspiracy.
Are you saying that some US states have their own CGTs and others don't and there is a correlation with house prices?

At the federal level there is quite a large exemption according to Wikepedia:


Primary residence

Under 26 U.S.C. §121 an individual can exclude up to $250,000 ($500,000 for a married couple filing jointly) of capital gains on the sale of real property if the owner used it as primary residence for two of the five years before the date of sale. The two years of residency do not have to be continuous. An individual may meet the ownership and use tests during different 2-year periods. However, both tests must be satisfied during the 5-year period ending on the date of the sale. There are allowances and exceptions for military service, disability, partial residence and other reasons. See IRS Publication 523. Although §121 is helpful to taxpayers who have a gain on the sale of their home, it provides no benefit if there is a loss on the sale of the property. You are not able to deduct a loss on the sale of your home

Dalek wrote:

The standards applied to the developers are basically the minimum required to supply modern amenities (Maybe the greenie blamers would like to live in an unsewered street ?).

The cases against this makes two points:

(1) Infrastructure charges now cover things that used to be covered by general tax revenue; and

(2) Housing construction is burdened with an increasing range of dumb regulations.


 • Re: Blame the pseudo left for high house prices

Posted by dalek at 2008-04-23 04:41 PM

David, Yep my information on CGT in the US was a bit out of date. However the entire value of the property in Australia is free of CGT unlike in the US where only a fixed sum comes tax free. Thus there is a massive incentive to "improve" the value and build huge McMansions on 1/4 acre blocks.

You can have housing developments that are free of infrastructure charges, they are called Favelas in Brasil or if you want to quickly see housing developments that are free of infrastructure up close and personal take a plane to Mumbai you can see them out of the plane window as you taxi to the terminal. They go right to the edge of the airport. Even quicker would be a trip to Port Moresby in PNG, there you can find large unserviced squatter camps on the outskirts. 

For a person who embraces Modernism you seem to be very backward looking and nostalgic for the old weatherboard house with kerosene lights and a water tank and a drop dunny.

Yes there has been a shift of infrastructure charges from Government (Tax revenue) to Private Providers, this is the Friedmanite economic view that you seem to espouse. All services should be provided by Private Enterprise. The problem as I have pointed out is that it is plain dumb policy because the infrastructure that would have been provided by long term low cost loans, derived from private savings, to the government and paid for by taxes to the entire community are now shifted exclusively to the home owners in a particular development. In effect they attract two sets of interest one for the developer who borrows to build the services and another to the home owner who borrows the money to provide capital repayment and profits to the developer. It's Friedmanite coupon clipping at its best. The community at large contributes nothing to this transaction.

Here are some of the "dumb regulations"

Underground power - Let me tell you that overhead power is the dumbest option of all, Australia has one of the longest overhead power networks in the world , it is 50+ years old and has not been maintained and it is totally fucked, the pending bill for replacement is billions of dollars. it is kept going by patches on patches and it breaks every-time there is bushfire or a windstorm. 

Water Let them drink the water they buy from the guy with the trolley as they do in Jakarta?

Sewerage Bring back the night soil man ?

Roads Well the residents can use the same horse track that the night soil man does

Parks and sports grounds for the kids to play in (<10% the cost of services in the average developments). Well let them play on the horse track as long as they get out of the way of sewerage cart.

Which of these are "dumb" regulations would you abandon?

Dalek

 

 

 • Re: Blame the pseudo left for high house prices

Posted by DavidMc at 2008-04-23 06:01 PM
Dalek, the dumb regulations I was referring to were in the house construction not the infrastructure, for example, energy ratings.

Owenss said:
To David Mc I ask, you have said that prices are basically determined by land supply. Prices in the USA in the last 4 months have plummeted almost 20% with no accompaning change in land supply. What do your property developer friends have to say?

This is what I said:

Increased demand can only drive up prices if it is not being met by supply. And if it is being met there will be no speculative demand.




 • Re: Blame the pseudo left for high house prices

Posted by owenss at 2008-04-23 07:46 PM

David Mc What makes you think that Fort Wayne is not in the grip of the P-Left

 

May be land in Fort Wayne is cheap because Fort Wayne is also known for its devastating floods. These have been controlled by a lot of flood mitigation work by their free wheeling free market Republican city administration. Ooops sorry I mean their Democrat administration (yes Americas P-left. Last 2 mayors Democrat)

 

Look on their web site lots of ridiculous stuff about saving the environment and lots of stuff about public housing.

 

Maybe that's a clue commitment to public housing equals cheap housing.

 

I'm glad you mentioned Fort Wayne but that's all you did you just mentioned it as if citing a city on the other side of the world represents an argument.

 

Blocks of land in Peterborough South Australia are ridiculously cheap but so what is not an argument its just a fact.