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Senator Bob Day slams Australia’s housing rentiers
Topic Started: 8 Sep 2014, 09:06 PM (1,028 Views)
Travis
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In this speech, Senator Bob Day tackles two major issues:

1. Australia’s budding youth unemployment crisis, where he proposes to allow younger workers to ‘opt-out’ of current workplace laws and set their own terms in order to gain work.

2. Australia’s housing affordability crisis, where Day is scathing on rent-seeking vested interests – including the property industry and state governments – who have colluded to bestow ridiculously expensive housing on the younger generations.

The issue of housing policy starts around the 10 minute mark.
Quote:
 


The single most important factor affecting housing affordability has been land. In no other area of the economy has the interference of government been so pronounced, so unsuccessful in its implementation and so catastrophic in its effect. The deliberate policy to limit urban growth—that is, limiting the supply of land on the urban fringes of our cities by introducing urban growth boundaries and, at the same time, promoting urban densification—has been a disaster socially, economically and environmentally. And it was all designed for one purpose: to make money. It had nothing to do with the environment, the cost of infrastructure, public transport or any other reason put forward.

Land developers, in cahoots with state government land management agencies, have made billions of dollars and, at the same time, ruined the home ownership prospects of a whole generation of young Australians. If there is one commodity Australia is not short of, it is land. Yet, to buy a block of land on which to build their first home, young couples are forced to camp out overnight by rent-seeking land developers and their state government cronies for the privilege of paying an exorbitant amount of money for a measly one-tenth of an acre of former farmland—land that developers and state governments between them managed to convert from $10,000 a hectare to $1 million a hectare. It leaves all other forms of price gouging in its wake. When challenged about this and asked, ‘Why are you letting this happen?’, a senior state government politician admitted, ‘We need the money.’ It is why politicians are so easily captured and conned by the constant procession of rent-seeking crony capitalists whose job it is is to enrich one group of Australians—themselves—at the expense of another: first homebuyers. Rent seekers are the scourge of business and politics. They tarnish the political process, distort the market and, in the case of land development, distort the entire economy.

The second barrier is the proliferation of federal, state and local government planning and building controls, which add cost, confusion and delay. Let me give you one example. A few years ago I bought a block of land on a very busy main road in one of Australia’s capital cities. I submitted plans to the local shire council to build 12 semidetached home units on the land and, as the zoning allowed for such a development, I did not expect any problems. That was, of course, until I came up against the shire council town planner, who said he would recommend the development for approval subject to the provision of noise attenuation devices across the front of the property. ‘Noise attenuation’ is a fancy name for soundproofing.

I tried to point out to him that there were thousands of kilometres of main roads across the country with many hundreds of thousands of dwellings along them and that it seemed to work in most places without sound attenuation. In any event, I told him that the project was actually geared towards older people, many of whom prefer the noise of traffic and pedestrians. They say they feel safer on a main road than in some quiet backstreet or cul-de-sac. But he was having none of it. He wanted his noise attenuation devices. Naturally, I tried commercial arguments on him, saying that people who did not like noise would not buy them and that the market would sort it out. But, for reasons known only to town planners but obscure to common sense, he rejected all my pleas and I had an acoustic engineer design a front fence to assist with noise attenuation. No sooner had I finished the job than the royal society for the deaf bought the units—all 12 of them. The point in telling that story is not just to mention the addition of unnecessary cost to say that there is no greater insult to the integrity of a human being than for the state to presume that it knows what is best for you.
Day’s position is far too ideological for my liking.

He wants to believe that government interference (artificial barriers to entry) are the reason for unemployment and unaffordable housing – because that suits his preconceived ideology. Everyone has an ideology, not saying there is anything wrong with that, but it should be taken into account at least.

Is the main problem in the labour and housing market really government interference on the supply side? Its arguable.

- If unemployment was a supply side problem wouldn’t standard economics say that high unemployment should be coupled with high inflation and low real wages growth?

- If housing affordability was purely a supply side problem – no question it is important – how does Day explain historically low rental yields? Remember that the cost of housing is the actual or imputed rent. Low rental yields suggest that the real problem is an artificially low required return on housing as an investment – i.e. its a demand problem. The way to solve that would be to raise the after tax cost of capital for housing investment – i.e. remove the tax rorts. Alternatively the government could cap rents through below market public housing – would Day support that? Probably not.

Perhaps he could explain why rents as a share of household income haven’t exploded anywhere near as much as prices as a multiple of household income – as they surely should if supply was the major problem.
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Bardon
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Travis
8 Sep 2014, 09:06 PM

Day’s position is far too ideological for my liking.

Yes his speech seems a bit contrived, given his partaking in the rentier side of the equation something doesn't sit right for me either.
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Steve
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I don’t agree with this analysis.

It is wrong for the same reason that so much economic analysis in Australia is wrong: it fails to account for the effects of constitutional political economy.

The question one should ask is not, “Why is land so expensive in and around the State and Territory capital cities?”

The questions one should ask are:

a) “Why is an increasing proportion of Australia’s population squeezed into the State and Territory capital cities?”

b) “Why are cities like Newcastle or Mackay or Townsville not vast metropolises?” and

c) “Why does the proportion of the population in and around the capitals increase even as the population increases (contrary to the ‘critical mass’ hypothesis of city formation)?”

The answer lies in Australia’s system of “elective dictatorship”.

Under the Westminster system – with its generally supine Legislature – the Cabinet has vast discretion to disburse economic rents to the Ministers’ favourites. Combined with the psychological phenomenon of “presenteeism” (he tendency of human beings to look more favourably upon – and to reward – those who are physically present) this creates a powerful centripetal force drawing people in towards the “Fountainhead of Rents”, the Cabinet. Proximity to Cabinet is a “positional good”. You simply cannot increase its supply, even in principle.

This phenomenon has been known to historians – if not economists – for centuries. It is the reason that Courtiers had to remain at Court. Absence from Court was a death sentence.

With the evolution of Absolute Monarchy into the Elective Dictatorship of the modern Westminster system, this effect has not gone away. Court has simply been replaced by Cabinet. Ministers reward those modern-day courtiers – the “primary rent-seekers” – who are physically proximate. The elevated incomes of the primary rent-seekers draws in a second circle of “secondary rent-seekers”, who in turn draw in further circles, the ripple of rents radiating outwards from the “fountainhead”.

At some distance from the centre there is a circle of equilibrium (like the Heliopause around the Sun with the flow of rents corresponding to the solar wind) at which the costs of approaching the fountainhead exceed the benefits. This is the capital city urban boundary. Beyond it lies the geographic equivalent of inter-stellar space.

Reducing costs at this boundary may push the “Metropause” outward slightly, but only by drawing in more people from smaller towns far beyond it. (In addition, any relaxation in pressure will encourage the Rulers at the centre to import more people from beyond the borders of the country.)

Increasing supply at the Metropause may provide some temporary relief. But don’t expect it to last.
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Norbert
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It is for example quite remarkable to see the extent to which the Americans, the ultimate capitalists, have managed to build private infrastructure and public services throughout their country. Wherever you go, hundreds of miles from the nearest large town, you can find first rate schools with excellent teachers, local authorities that actually deliver and are not busting with management talk and impaired response, large malls full of outlets out in the middle of nowhere,

Why don't we have them here when the country is superficially so similar? The answer is our federal system which frankly does not work but which the public supports sso deeply. The last time it was attacked in any meaningful way was by the Whitlam government and look what happened to them.

The problem is the Feds starve and have always starved the States of infrastructure funds. The States are monolithic and self important and spend almost everything with in the State capitals. Local government is so weak that it is has no local tax base to speak of. Hence – States in which almost everything is poured into the capitals.
And even there the infrastructure is dysfunctional – look at Melbourne still trying to join together half a dozen freeways that go from nowhere to nowhere and which were planned in the sixties.

Anyway, local governments got sick of having no money so they decided to bully it out of developers who passed it on with a 1.8 multiplier to the consumer. And whoopee, what do we have, half million dollar houses on the periphery, million plus housing near the centre and regional towns that are emptying instead of filling.
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Bardon
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Steve
8 Sep 2014, 09:37 PM
I don’t agree with this analysis.

It is wrong for the same reason that so much economic analysis in Australia is wrong: it fails to account for the effects of constitutional political economy.

The question one should ask is not, “Why is land so expensive in and around the State and Territory capital cities?”

The questions one should ask are:

a) “Why is an increasing proportion of Australia’s population squeezed into the State and Territory capital cities?”

b) “Why are cities like Newcastle or Mackay or Townsville not vast metropolises?” and

c) “Why does the proportion of the population in and around the capitals increase even as the population increases (contrary to the ‘critical mass’ hypothesis of city formation)?”

Very interesting post there Steve.

Reminds me a little of what was said to be Dr Jung's favourite story:

"The water of life, wishing to make itself known on the face of the earth, bubbled up in an artesian well and flowed without effort or limit. People came to drink of the magic water and were nourished by it, since it was so clean and pure and invigorating. But human kind was not content to leave things in this Edenic state. Gradually, they began to fence the well, charge admission, claim ownership of the property around it, make elaborate laws as to who could come to the well, put locks on the gates. Soon the well was the property of the powerful and the elite. The water was angry and offended; it stopped flowing and began to bubble up in another place. The people who owned the property around the first well were so engrossed in their power systems and ownership that they did not notice that the water had vanished. They continued selling the nonexistent water, and few people noticed that the true power was gone. But some dissatisfied people searched with great courage and found the new artesian well. Soon that well was under the control of the property owners, and the same fate overtook it. The spring took itself to yet another place—and this has been going on throughout recorded history."
Edited by Bardon, 8 Sep 2014, 10:04 PM.
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peter fraser
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I was amazed that they worship Day over at MB.

Day is a property developer, that's where his sympathies lie. It's entirely logical for him to want cheaper apprentices and easier access to fringe land for development, I would think he was crazy if he didn't use his position to press for that.

I don't get his rentier comments though. Australia is a wealthy country, everyone has savings or property or superannuation or all three. All investments want a return. Whether its a rent, or a dividend, or interest on the savings it's all an economic rent. No one is holier than thou here.
Any expressed market opinion is my own and is not to be taken as financial advice
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Bardon
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peter fraser
8 Sep 2014, 10:50 PM
I was amazed that they worship Day over at MB.

Now that convinces me that there is definitely something strange going on with this guy.
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peter fraser
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Bardon
8 Sep 2014, 11:13 PM
Now that convinces me that there is definitely something strange going on with this guy.
I think that he is perfectly normal, He has an interest and he wants to promote that interest.

Essentially I don't have a problem with starting apprentices below the basic wage as long as it isn't too low, and I don't have an issue with more development land being made available to developers.

I do wonder why Day avoided any reference to the developer contributions that jack up house prices, but I guess he didn't want to be controversial.

Any expressed market opinion is my own and is not to be taken as financial advice
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Foxy
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Zero is coming...

Travis
8 Sep 2014, 09:06 PM
In this speech, Senator Bob Day tackles two major issues:

1. Australia’s budding youth unemployment crisis, where he proposes to allow younger workers to ‘opt-out’ of current workplace laws and set their own terms in order to gain work.

2. Australia’s housing affordability crisis, where Day is scathing on rent-seeking vested interests – including the property industry and state governments – who have colluded to bestow ridiculously expensive housing on the younger generations.

The issue of housing policy starts around the 10 minute mark.
Day’s position is far too ideological for my liking.

He wants to believe that government interference (artificial barriers to entry) are the reason for unemployment and unaffordable housing – because that suits his preconceived ideology. Everyone has an ideology, not saying there is anything wrong with that, but it should be taken into account at least.

Is the main problem in the labour and housing market really government interference on the supply side? Its arguable.

- If unemployment was a supply side problem wouldn’t standard economics say that high unemployment should be coupled with high inflation and low real wages growth?

- If housing affordability was purely a supply side problem – no question it is important – how does Day explain historically low rental yields? Remember that the cost of housing is the actual or imputed rent. Low rental yields suggest that the real problem is an artificially low required return on housing as an investment – i.e. its a demand problem. The way to solve that would be to raise the after tax cost of capital for housing investment – i.e. remove the tax rorts. Alternatively the government could cap rents through below market public housing – would Day support that? Probably not.

Perhaps he could explain why rents as a share of household income haven’t exploded anywhere near as much as prices as a multiple of household income – as they surely should if supply was the major problem.
He could always donate his parliamentary wage to establish a charity to help the very people he is talking about, but oh no, the rich can do that, i will just show them how. Take the money, do my time then disapear to live out my life on the public purse.
Roll on socialist utopia baby.
Where are you Ayn when we need you???

https://www.youtube.com/watch?v=nT_RpzYohdI

Ayn i hope we meet in another life.

Peter
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