House prices in Australia have soared over the past decade: they are now two-and-a-half times what they were in 2000.
While prices dipped a little at the height of the global financial crisis, they have since resumed their onward rise.
In fact, they rose a whopping 20% in the 12 months to the end of the first quarter.
And according to The Economist, “Australian property is the most overvalued” of any of the 20 countries they track, because the ratio of house prices to rents is well above its long-term average.
With the Reserve Bank of Australia raising interest rates to cool the market, might the bubble burst?
If so, the Lucky Country, which has so far sailed through the crisis virtually unscathed, may be in for tougher times ahead.
Fortunately, it exports a lot to China’s booming economy – and it may need to rely even more on that in future if domestic demand takes a knock.
Filling the gaping hole in the Government’s finances is, in George Osborne’s words, the “great national challenge of our generation”. Unwise spending cuts and tax rises could sap economic growth; unfair ones provoke political unrest; inaction a market panic.
Faced with a national crisis, who better to turn to for advice than Winston Churchill? A century ago, the great man — who, like the present coalition, was both Liberal and Conservative — advocated introducing a land tax as part of a bold package of fiscal reforms. In his emergency Budget on June 22, the Chancellor should set up a commission to consider how best to implement that recommendation.
Taxing land values would be a fair way to help to plug the budget gap while stabilising — and even boosting — the economy. Land is routinely valued each year as property changes hands. With all the land in Britain worth perhaps £5 trillion, a 0.5 per cent levy could raise £25 billion a year — as much as a five-point rise in income tax.
Neither tenants nor leaseholders would pay a penny; only freeholders and landlords would, with the owner of a large estate paying a higher rate than someone who owns a small suburban semi. The proceeds could be used to cut the deficit and national insurance, creating jobs, boosting take-home pay and stimulating growth. Over time, the aim would be to shift the tax burden off hard-working families and on to idle landlords — as in Hong Kong, where revenues from land taxes keep income tax low, there is no VAT or capital gains tax, and enterprise flourishes.
When the Government taxes successful effort, people strive less — some work less, others don’t bother setting up a business, a few relocate overseas — and since hiring is more expensive, fewer jobs are created. But taxing land wouldn’t crimp economic activity, as Adam Smith explained in The Wealth of Nations. It wouldn’t reduce the supply of land, which can’t be spirited away to a tax haven. And it wouldn’t push up rents, which depend on what tenants are prepared to pay rather than landlords’ expenses.
A land tax would actually encourage development. Since it would be payable irrespective of how land is used, it would stimulate the regeneration of derelict sites — such as Battersea power station, where David Cameron launched his election campaign and which has lain idle since 1982. Infrastructure investment that raises surrounding land values, such as Crossrail or a high-speed rail network, would pay for itself and thus escape short-sighted budget cuts. And unlike property taxes, people who do up their homes would not be penalised.
Taxing land values could also limit property bubbles — and the inevitable busts — without discouraging mobility (unlike stamp duty) or business investment (unlike interest rate rises). Relaxing planning restrictions, as Policy Exchange, the Prime Minister’s favourite think-tank, has suggested, would help too. The notion that we can all get rich by swapping more or less the same stock of houses at ever more inflated prices is a dangerous delusion. Property speculation diverts funds from productive investment in promising companies — and when the bubble bursts, the economy plunges into recession, home-owners are stranded with huge debts and banks laid low by bad loans seek bailouts from taxpayers. Isn’t it time we learnt from our mistakes?
Above all, a land tax would be fair. Land in Britain is parcelled out more unequally than in Brazil: 0.3 per cent of the population owns 69 per cent of the land. The country’s biggest private landowner, the Duke of Buccleuch, owns 277,000 acres, not because of his talent or industry, but because his ancestors seized vast swaths of Scotland.
These “land monopolists” — as Churchill dubbed them — get richer not through their own efforts, but that of others. The Duke of Westminster owns 300 acres of what was once fields and is now London’s priciest real estate — Mayfair and Belgravia. And because so many people have established thriving businesses in the capital, that inheritance is now worth billions of pounds. Surely it would be better to tax that windfall gain, rather than the employees and entrepreneurs who generate it?
For sure, farmers and big landowners would kick up a mighty fuss. But since the typical family of four shells out £750 a year to farmers in higher taxes and food prices because of the Common Agricultural Policy, which also inflates land prices, it’s only fair to claw some of that back. And while landowners would point to the impact on a poor granny in a big house — a bogus argument that Churchill called the “poor widow bogey” — she wouldn’t be forced out of her home; her tax bill could be deferred, or she could even be exempted.
Since nearly all of us earn most of our lifetime income from work rather than from rent, taxing land instead of labour would make most people better off. So the question for the coalition Government boils down to this: do you want to help a big society of enterprising people working hard to get ahead — or a tiny hereditary elite creaming off the rewards of others’ efforts?
Filling the gaping hole in the Government’s finances is, in George Osborne’s words, the “great national challenge of our generation”. Unwise spending cuts and tax rises could sap economic growth; unfair ones provoke political unrest; inaction a market panic.
Faced with a national crisis, who better to turn to for advice than Winston Churchill? A century ago, the great man — who, like the present coalition, was both Liberal and Conservative — advocated introducing a land tax as part of a bold package of fiscal reforms. In his emergency Budget on June 22, the Chancellor should set up a commission to consider how best to implement that recommendation.
Taxing land values would be a fair way to help to plug the budget gap while stabilising — and even boosting — the economy. Land is routinely valued each year as property changes hands. With all the land in Britain worth perhaps £5 trillion, a 0.5 per cent levy could raise £25 billion a year — as much as a five-point rise in income tax.
Neither tenants nor leaseholders would pay a penny; only freeholders and landlords would, with the owner of a large estate paying a higher rate than someone who owns a small suburban semi. The proceeds could be used to cut the deficit and national insurance, creating jobs, boosting take-home pay and stimulating growth. Over time, the aim would be to shift the tax burden off hard-working families and on to idle landlords — as in Hong Kong, where revenues from land taxes keep income tax low, there is no VAT or capital gains tax, and enterprise flourishes.
When the Government taxes successful effort, people strive less — some work less, others don’t bother setting up a business, a few relocate overseas — and since hiring is more expensive, fewer jobs are created. But taxing land wouldn’t crimp economic activity, as Adam Smith explained in The Wealth of Nations. It wouldn’t reduce the supply of land, which can’t be spirited away to a tax haven. And it wouldn’t push up rents, which depend on what tenants are prepared to pay rather than landlords’ expenses.
A land tax would actually encourage development. Since it would be payable irrespective of how land is used, it would stimulate the regeneration of derelict sites — such as Battersea power station, where David Cameron launched his election campaign and which has lain idle since 1982. Infrastructure investment that raises surrounding land values, such as Crossrail or a high-speed rail network, would pay for itself and thus escape short-sighted budget cuts. And unlike property taxes, people who do up their homes would not be penalised.
Taxing land values could also limit property bubbles — and the inevitable busts — without discouraging mobility (unlike stamp duty) or business investment (unlike interest rate rises). Relaxing planning restrictions, as Policy Exchange, the Prime Minister’s favourite think-tank, has suggested, would help too. The notion that we can all get rich by swapping more or less the same stock of houses at ever more inflated prices is a dangerous delusion. Property speculation diverts funds from productive investment in promising companies — and when the bubble bursts, the economy plunges into recession, home-owners are stranded with huge debts and banks laid low by bad loans seek bailouts from taxpayers. Isn’t it time we learnt from our mistakes?
Above all, a land tax would be fair. Land in Britain is parcelled out more unequally than in Brazil: 0.3 per cent of the population owns 69 per cent of the land. The country’s biggest private landowner, the Duke of Buccleuch, owns 277,000 acres, not because of his talent or industry, but because his ancestors seized vast swaths of Scotland.
These “land monopolists” — as Churchill dubbed them — get richer not through their own efforts, but that of others. The Duke of Westminster owns 300 acres of what was once fields and is now London’s priciest real estate — Mayfair and Belgravia. And because so many people have established thriving businesses in the capital, that inheritance is now worth billions of pounds. Surely it would be better to tax that windfall gain, rather than the employees and entrepreneurs who generate it?
For sure, farmers and big landowners would kick up a mighty fuss. But since the typical family of four shells out £750 a year to farmers in higher taxes and food prices because of the Common Agricultural Policy, which also inflates land prices, it’s only fair to claw some of that back. And while landowners would point to the impact on a poor granny in a big house — a bogus argument that Churchill called the “poor widow bogey” — she wouldn’t be forced out of her home; her tax bill could be deferred, or she could even be exempted.
Since nearly all of us earn most of our lifetime income from work rather than from rent, taxing land instead of labour would make most people better off. So the question for the coalition Government boils down to this: do you want to help a big society of enterprising people working hard to get ahead — or a tiny hereditary elite creaming off the rewards of others’ efforts?
House prices rose by 10.5% in the 12 months to April. A typical home now costs £167,800, according to Nationwide – more than in August 2008, the month before Lehman Brothers collapsed, credit seized up and the economy fell off a cliff. It’s as if the financial crisis and the worst recession since the 1930s had never happened.
While home owners – especially those who had fallen into negative equity – will cheer the housing market’s bounce, it is high time Britons were weaned off their addiction to property speculation. It is a dangerous delusion that we can all prosper by swapping more or less the same stock of houses with each other at ever more inflated prices. Unfortunately, few politicians – with the notable exception of Vince Cable– propose to do anything about this nationwide pyramid scheme. After all, another fix of house-price inflation that got consumers spending again would appear to be a pain-free way to stimulate the recovery. In truth, though, it would be recklessly unsustainable.
Fortunately, the housing market is not yet as bubbly as the headline figures suggest. Volumes remain depressed: half as many properties are changing hands as two years ago. And while London prices are being pushed up by bulging City bonuses and foreign investors capitalising on the weak pound to snap up prime property in the capital, the rest of the country is looking less perky. Even so, it is astonishing that prices are notching up double-digit growth with the economy stagnant and houses still extremely expensive. Priced at more than five times average earnings, the typical house is more exorbitant than at the height of the 1989 property boom.
In part, this is because the supply of new houses – which is constrained by planning restrictions and the failure of successive governments to build enough social housing – has failed to keep pace with rising demand. This is notably due to more single people wanting to live alone; blaming immigration is a red herring – while house prices at their peak in 2007 were two-and-a-half times as high as in 2000, they would have been only 7% lower had net immigration to Britain been zero over that period, according to Stephen Nickell, of Oxford University, whose testimony is quoted in an infamous House of Lords select committee report that was hardly pro-immigration. Mostly, though, property prices are buoyed by financial factors: the availability of cheap credit and the willingness of prospective buyers to borrow huge sums in anticipation of future gains.
The belief that the “property ladder” is the road to riches does all manner of damage. It saps long-term growth by diverting funds – and talent – away from productive investment. Three-quarters of bank loans go to the property sector; many would-be entrepreneurs become property developers instead. It also promotes an unhealthy reliance on the financial sector and debt-fuelled consumption. And it destabilises the economy, as euphoric booms are inevitably followed by nasty busts.
Rising house prices force many families to squeeze into smaller homes, prevent many people from buying a place altogether, and inflict long commutes on people who cannot afford to live near their workplaces in city centres. They transfer wealth from poorer young people to richer older ones. And they fracture society between property haves and have-nots. The biggest beneficiaries are Britain’s big landowners – the 0.3% of the population who own 69% of the land – who get richer each year without lifting a finger. The Duke of Westminster, who inherited 300 acres of what were once fields and are now Mayfair and Belgravia – the priciest parts of central London – is laughing all the way to the bank.
What, then, should the government do? For a start, ease planning restrictions and build more social housing. That does not imply concreting over the countryside: 3 million new homes at the government’s target density would take up a mere 0.3% of the UK’s land area – even less if they were built on brownfield sites. Second, the authorities should restrict mortgage lending when the housing market is getting bubbly through targeted measures – such as requiring banks to hold more capital against property lending – that do not crimp desirable business investment.
Last but not least, the government should introduce a tax on land values. Taxing wealthy landowners’ windfall gains would help curb property speculation, fund new social housing and reduce the budget deficit. Over time, shifting the tax burden off labour and on to land would create jobs, reward hard work and promote more stable, sustainable and balanced growth. Fixing the housing market should be a priority for whichever parties form the new government.
House prices rose by 10.5% in the 12 months to April. A typical home now costs £167,800, according to Nationwide – more than in August 2008, the month before Lehman Brothers collapsed, credit seized up and the economy fell off a cliff. It’s as if the financial crisis and the worst recession since the 1930s had never happened.
While home owners – especially those who had fallen into negative equity – will cheer the housing market’s bounce, it is high time Britons were weaned off their addiction to property speculation. It is a dangerous delusion that we can all prosper by swapping more or less the same stock of houses with each other at ever more inflated prices. Unfortunately, few politicians – with the notable exception of Vince Cable– propose to do anything about this nationwide pyramid scheme. After all, another fix of house-price inflation that got consumers spending again would appear to be a pain-free way to stimulate the recovery. In truth, though, it would be recklessly unsustainable.
Fortunately, the housing market is not yet as bubbly as the headline figures suggest. Volumes remain depressed: half as many properties are changing hands as two years ago. And while London prices are being pushed up by bulging City bonuses and foreign investors capitalising on the weak pound to snap up prime property in the capital, the rest of the country is looking less perky. Even so, it is astonishing that prices are notching up double-digit growth with the economy stagnant and houses still extremely expensive. Priced at more than five times average earnings, the typical house is more exorbitant than at the height of the 1989 property boom.
In part, this is because the supply of new houses – which is constrained by planning restrictions and the failure of successive governments to build enough social housing – has failed to keep pace with rising demand. This is notably due to more single people wanting to live alone; blaming immigration is a red herring – while house prices at their peak in 2007 were two-and-a-half times as high as in 2000, they would have been only 7% lower had net immigration to Britain been zero over that period, according to Stephen Nickell, of Oxford University, whose testimony is quoted in an infamous House of Lords select committee report that was hardly pro-immigration. Mostly, though, property prices are buoyed by financial factors: the availability of cheap credit and the willingness of prospective buyers to borrow huge sums in anticipation of future gains.
The belief that the “property ladder” is the road to riches does all manner of damage. It saps long-term growth by diverting funds – and talent – away from productive investment. Three-quarters of bank loans go to the property sector; many would-be entrepreneurs become property developers instead. It also promotes an unhealthy reliance on the financial sector and debt-fuelled consumption. And it destabilises the economy, as euphoric booms are inevitably followed by nasty busts.
Rising house prices force many families to squeeze into smaller homes, prevent many people from buying a place altogether, and inflict long commutes on people who cannot afford to live near their workplaces in city centres. They transfer wealth from poorer young people to richer older ones. And they fracture society between property haves and have-nots. The biggest beneficiaries are Britain’s big landowners – the 0.3% of the population who own 69% of the land – who get richer each year without lifting a finger. The Duke of Westminster, who inherited 300 acres of what were once fields and are now Mayfair and Belgravia – the priciest parts of central London – is laughing all the way to the bank.
What, then, should the government do? For a start, ease planning restrictions and build more social housing. That does not imply concreting over the countryside: 3 million new homes at the government’s target density would take up a mere 0.3% of the UK’s land area – even less if they were built on brownfield sites. Second, the authorities should restrict mortgage lending when the housing market is getting bubbly through targeted measures – such as requiring banks to hold more capital against property lending – that do not crimp desirable business investment.
Last but not least, the government should introduce a tax on land values. Taxing wealthy landowners’ windfall gains would help curb property speculation, fund new social housing and reduce the budget deficit. Over time, shifting the tax burden off labour and on to land would create jobs, reward hard work and promote more stable, sustainable and balanced growth. Fixing the housing market should be a priority for whichever parties form the new government.
