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Bryan Kavanagh Land Values Research Group

State of the Market. Have we been here before?. Bryan Kavanagh Land Values Research Group. Total Real Estate Sale Prices: Five Major Australian States. 80. New South Wales. 60. Queensland. billion dollars. Victoria. 40. Western Australia. 20. South

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Bryan Kavanagh Land Values Research Group

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  1. State of the Market Have we been here before? Bryan Kavanagh Land Values Research Group

  2. Total Real Estate Sale Prices: Five Major Australian States 80 New South Wales 60 Queensland billion dollars Victoria 40 Western Australia 20 South Australia 0 1986 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 2005 Source: State government departments

  3. Total Real Estate Sale Prices: Tasmania, NT and the ACT 4 ACT Tas 3 billion dollars 2 NT 1 0 1986 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 2005 Source: State & Territories

  4. Total Australian real estate sale prices (at current prices) 2004 $245.04 bn bn 250 200 150 Increased 3 times since 1996 1989 $87.7 bn 100 1981 $26.90 bn 1996 $75.52 bn 1973 $10.65 bn 50 0 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '05

  5. Total Australian real estate sale prices (in 2005$ bn) 2004 $251.1 1989 $140.6 1973 $77.501 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '05

  6. Total number of Australian real estate sales 2003 766934 thousands 1988 694106 750 1973 651588 1994 579678 1984 579145 long increase from 1996 interrupted only in 2004 650 1981 556352 1976 501997 550 1986 508473 1990 486812 1983 483399 1996 475898 450 1974 406643 1978 382808 350 1972 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '04

  7. The Economy’s Barometer total real estate sales prices divided by GDP % 30 25 20 15 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  8. The Economy’s Barometer total real estate sales prices divided by GDP % 30 1973 comm/ind peak 25 20 15 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  9. The Economy’s Barometer total real estate sales prices divided by GDP % 30 1973 comm/ind peak 25 20 15 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  10. The Economy’s Barometer total real estate sales prices divided by GDP % 30 1973 comm/ind peak 25 1981 residential peak 20 15 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  11. The Economy’s Barometer total real estate sales prices divided by GDP % 30 1973 comm/ind peak 25 1981 residential peak 20 15 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  12. The Economy’s Barometer total real estate sales prices divided by GDP % 1988/89 comm/ind peak 30 1973 comm/ind peak 25 1981 residential peak 20 15 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  13. The Economy’s Barometer total real estate sales prices divided by GDP % 1988/89 comm/ind peak 30 1973 comm/ind peak 25 1981 residential peak 20 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  14. The Economy’s Barometer total real estate sales prices divided by GDP % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 * 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  15. The Economy’s Barometer total real estate sales prices divided by GDP % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election Keating federal & Goss Q’land governments defeated in 1996. Queensland recession only 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  16. The Economy’s Barometer total real estate sales prices divided by GDP 2004 residential peak % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election Keating federal & Goss Q’land governments defeated in 1996. Queensland recession only 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  17. The Economy’s Barometer total real estate sales prices divided by GDP 2004 residential peak % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election Keating federal & Goss Q’land governments defeated in 1996. Queensland recession only 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  18. Let’s define a bubble ... 2004 residential peak % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 19% 'bubble' line 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election Keating federal & Goss Q’land governments defeated in 1996. Queensland recession only 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  19. The Economy’s Barometer total real estate sales prices divided by GDP 2004 residential peak % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 19% 'bubble' line 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election Keating federal & Goss Q’land governments defeated in 1996. Queensland recession only 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  20. The Economy’s Barometer total real estate sales prices divided by GDP 2004 residential peak % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 19% 'bubble' line 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election Keating federal & Goss Q’land governments defeated in 1996. Queensland recession only 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  21. The Economy’s Barometer total real estate sales prices divided by GDP 2004 residential peak % 1988/89 comm/ind peak 30 1973 comm/ind peak Queensland boom, and end of distress sales from late 1980s boom in other States 25 1981 residential peak 20 19% 'bubble' line 15 '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election Keating federal & Goss Q’land governments defeated in 1996. Queensland recession only 1982-'83 recession. Fraser government defeated 1974-'75 recession. Whitlam government dismissed 10 5 0 1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

  22. Stock markets don’t drive economies .... 1.25 ASX GDP 2 1.20 1.8 1.6 1.15 ASX growth 1.4 1.10 1.2 1 1.05 GDP growth 0.8 0.6 1.00 86 88 90 92 94 96 98 '00 '02 '04

  23. ... real estate markets do 1.25 1.7 real estate sales growth 1.20 1.5 1.3 1.15 1.1 1.10 0.9 1.05 GDP growth 0.7 1.00 1972 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '04

  24. The economy’s barometer GDP growth % % 30 25 25 20 20 15 15 10 10 5 5 0 0 1972 1982 1992 2002

  25. The economy’s barometer GDP growth % % 30 25 25 20 20 15 15 10 10 5 5 0 0 1972 1982 1992 2002

  26. Land value/GDP: Australia Australia’s population increased 1.36 times (from 15.0 million to 20.4 million) over the period 1984 to 2004 Real GDP increased 1.86 times Real land values increased 3.2 times 2.5 2 1.5 1 0.5 0 1911 1924 1932 1944 1953 1972 1976 1989 2004 From Terry Dwyer’s The Taxable Capacity of Australian Land and Resources Australian Tax Forum, Vol 18 No. 1, 2003

  27. The charter of the Reserve Bank of Australia is to ensure ... • (a) ... the stability of the Australian currency; • (b) ...the maintenance of full employment in Australia; and • (c) ...the economic prosperity and welfare of Australians • It breaches its charter each time it permits a bubble, such as the recent housing bubble, to develop

  28. At a recent RBA meeting ...

  29. So our barometer is indicating that “Mr Housing Bubble” is about to mock the RBA once again

  30. If cartoonists can joke about it ....

  31. If cartoonists can joke about it .... ... Can’t the RBA or APRA fix it?

  32. If cartoonists can joke about it .... ... Can’t the RBA or APRA fix it? APPARENTLY NOT!

  33. Modern economists have been reduced to playing a placatory role ....

  34. Neo-classical economics a scandal?

  35. Neo-classical economics a scandal?

  36. Neo-classical economics a scandal? • "Land-based revenue systems are inappropriate because we are no longer agricultural economies” • There is a general ignorance of the dynamics between the annual value of land and the economy - and the amount of economic rent is usually grossly understated, eg. ... • “Henry George’s ...theory still has it adherents, likeable and mainly older people who overlook the fact that land rent forms such a small percentage of national income: that 2% is nothing compared to the present tax percentages, which are around 30.” - Jan Pen (Groningen Uni) in Income Distribution

  37. The heartening story of growth of publicly-created resource rents .... 100% 9% Resource rents 31% 80% 60% 32% 85% 40% 20% Based upon Dr Terry Dwyer,The Taxable Capacity of Australian Land and Resources in Australian Tax Forum, Vol 18 No. 1, 2003 0% 1911 1924 1934 1944 1954 1964 1974 1984 1994 2004 Land Values Research Group 2004

  38. ... degenerated into the privatisation of rents and the levying of taxes to such an extent ... 100% 9% Resource rents 6% 31% 80% taxes 60% 31% 85% 40% 20% Based upon Dr Terry Dwyer,The Taxable Capacity of Australian Land and Resources in Australian Tax Forum, Vol 18 No. 1, 2003 0% 1911 1924 1934 1944 1954 1964 1974 1984 1994 2004 Land Values Research Group 2004

  39. ... that the legacy is a sad tale of declining after-tax incomes 100% 9% Resource rents 6% 31% 80% taxes 60% 31% 85% 40% NET Incomes OF Labour & Capital 38% 20% Based upon Dr Terry Dwyer,The Taxable Capacity of Australian Land and Resources in Australian Tax Forum, Vol 18 No. 1, 2003 0% 1911 1924 1934 1944 1954 1964 1974 1984 1994 2004 Land Values Research Group 2004

  40. How we distribute the GDP ‘pie’ now • Less than $30 billion (12%) of Australia's publicly-created $245 billion in resource rents was collected to the public purse in 2004 • 99.9% of those in BRW’s “Richest 200” list are rentiers • As rentiers and homeowners were allowed to privatise $215 billion in publicly-created resource rents, it was necessary to tax incomes and goods and services to that extent • Consequently, household debt has risen from $289bn in 1996 to $818bn in 2004 ($41,000 for every man woman and child) • The bottom line is that as a proportion of GDP since 1972: • net incomes have declined by 40% • taxes have grown by 28% • annual land values (resource rents) have grown by 150%!

  41. Land-based revenues cannot be passed on in prices? “Pure rent is in the nature of a ‘surplus’ which can be taxed without affecting production incentives” - Samuelson Hancock and Wallace, Economics, 2nd Australian ed., p. 623

  42. Land-based revenues cannot be passed on in prices • The case of the Poor Widow is always trotted out when increased land value charges are proposed • Even when she’s a pensioner, the “Poor Widow” pays for food, clothing and shelter, much of the price of which is the accumulation of cascading taxes • She would be greatly advantaged by substantially cheaper prices under a land value charge, provided other taxes are reduced accordingly • Any landholders with real payment problems, can defer the charge against their estate

  43. “As is” Tax 31.0% Rent 31.0% Net incomes (L&C) 38.0%

  44. If we captured land values Rent 31.0% Net incomes (L&C) 69.0%

  45. The Australian GDP pie since 1972.... 100% 12% Resource rents 31% $250 bn 80% 25% taxes 31% $250 bn 60% 40% 63% 38% of $811 bn or $308 bn NET Incomes OF Labour & Capital 20% 0% 1974 1984 1994 2004 Land Values Research Group 2004

  46. .... could have looked like this had we taken more resource rents to eliminate real estate bubbles 100% 12.5% $250 bn 12% Resource rents 12.5% $250 bn 15% 80% taxes 60% 75% of $2000 bn or $1500 bn 40% NET Incomes OF Labour & Capital 73% 20% 0% 1974 1984 1994 2004 Land Values Research Group 2004

  47. Australia’s actual and ‘repaired’ GDP $2005 million 2500 $2050 2000 Effect of doubling charges on land in the early 1970s and then graduating land value capture up to 50% in 2004 1500 1000 $830 actual 500 $302 $302 0 1972 1982 1992 2002

  48. GDP growth (current prices): Australia % 25 1975 20 15 growth off low base 10 5 0 1952 1962 1972 1982 1992 2002

  49. GDP growth (current prices): Australia % 25 “Property taxes are out of control !” 1975 20 15 growth off low base 10 5 0 1952 1962 1972 1982 1992 2002

  50. GDP growth (current prices): Australia % 25 1975 20 15 growth off low base 10 5 0 1952 1962 1972 1982 1992 2002

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