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Bryan Kavanagh Land Values Research Group Have we been here before?

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Presentation on theme: "Bryan Kavanagh Land Values Research Group Have we been here before?"— Presentation transcript:

1 Bryan Kavanagh Land Values Research Group Have we been here before?

2 Source: State government departments billion dollars New South Wales Victoria Queensland Western Australia South Australia Total Real Estate Sale Prices: Five Major Australian States

3 Source: State & Territories billion dollars Total Real Estate Sale Prices: Tasmania, NT and the ACT Tas ACT NT

4 '00'02' bn 1989 $87.7 bn 1996 $75.52 bn 2004 $ bn 1973 $10.65 bn 1981 $26.90 bn Increased 3 times since 1996 Total Australian real estate sale prices (at current prices)

5 '00'02'05 Total Australian real estate sale prices (in 2005$ bn) 1973 $ $ $251.1

6 '00'02' long increase from 1996 interrupted only in Total number of Australian real estate sales thousands

7 '01'03' % total real estate sales prices divided by GDP The Economys Barometer

8 '01'03' % 1973 comm/ind peak total real estate sales prices divided by GDP The Economys Barometer

9 '01'03' % 1974-'75 recession. Whitlam government dismissed 1973 comm/ind peak total real estate sales prices divided by GDP The Economys Barometer

10 '01'03' % 1974-'75 recession. Whitlam government dismissed 1973 comm/ind peak 1981 residential peak total real estate sales prices divided by GDP The Economys Barometer

11 '01'03' % 1974-'75 recession. Whitlam government dismissed 1982-'83 recession. Fraser government defeated 1973 comm/ind peak 1981 residential peak total real estate sales prices divided by GDP The Economys Barometer

12 '01'03' % 1974-'75 recession. Whitlam government dismissed 1982-'83 recession. Fraser government defeated 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak total real estate sales prices divided by GDP The Economys Barometer

13 '01'03' % 1974-'75 recession. Whitlam government dismissed 1982-'83 recession. Fraser government defeated '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak total real estate sales prices divided by GDP The Economys Barometer

14 '01'03' % 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak * total real estate sales prices divided by GDP The Economys Barometer

15 '01'03' % 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak total real estate sales prices divided by GDP The Economys Barometer

16 '01'03' % 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak 2004 residential peak total real estate sales prices divided by GDP The Economys Barometer

17 '01'03' % 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak 2004 residential peak total real estate sales prices divided by GDP The Economys Barometer

18 '01'03' % 19% 'bubble' line 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak 2004 residential peak Lets define a bubble...

19 '01'03' % 19% 'bubble' line 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak 2004 residential peak total real estate sales prices divided by GDP The Economys Barometer

20 '01'03' % 19% 'bubble' line 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak 2004 residential peak total real estate sales prices divided by GDP The Economys Barometer

21 '01'03' % 19% 'bubble' line 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak 2004 residential peak total real estate sales prices divided by GDP The Economys Barometer

22 '00 '02' ASXGDP GDP growth Stock markets dont drive economies.... ASX growth

23 '00 ' '04 real estate sales growth GDP growth real estate markets do

24 GDP growth % % The economys barometer

25 % % The economys barometer GDP growth

26 Land value/GDP: Australia From Terry Dwyer’s The Taxable Capacity of Australian Land and Resources Australian Tax Forum, Vol 18 No. 1, 2003 Australias 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

27 2(a)... the stability of the Australian currency; 2(b)...the maintenance of full employment in Australia; and 2(c)...the economic prosperity and welfare of Australians 2It breaches its charter each time it permits a bubble, such as the recent housing bubble, to develop The charter of the Reserve Bank of Australia is to ensure...

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 ... Cant the RBA or APRA fix it? If cartoonists can joke about it....

32 ... Cant 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

36 2"Land-based revenue systems are inappropriate because we are no longer agricultural economies 2There 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.... 2Henry Georges...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 Jan Pen (Groningen Uni) in Income Distribution Neo-classical economics a scandal?

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

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

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

40 2Less than $30 billion (12%) of Australia's publicly-created $245 billion in resource rents was collected to the public purse in % of those in BRWs Richest 200 list are rentiers 2As 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 2Consequently, household debt has risen from $289bn in 1996 to $818bn in 2004 ($41,000 for every man woman and child) 2The bottom line is that as a proportion of GDP since 1972: 2net incomes have declined by 40% 2taxes have grown by 28% 2annual land values (resource rents) have grown by 150%! How we distribute the GDP pie now

41 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 Land-based revenues cannot be passed on in prices?

42 2 The case of the Poor Widow is always trotted out when increased land value charges are proposed 2 Even when shes a pensioner, the Poor Widow pays for food, clothing and shelter, much of the price of which is the accumulation of cascading taxes 2 She would be greatly advantaged by substantially cheaper prices under a land value charge, provided other taxes are reduced accordingly 2 Any landholders with real payment problems, can defer the charge against their estate Land-based revenues cannot be passed on in prices

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

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

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

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

47 Australias actual and repaired GDP $2005 million actual Effect of doubling charges on land in the early 1970s and then graduating land value capture up to 50% in 2004 $2050 $830 $302

48 growth off low base 1975 % GDP growth (current prices): Australia

49 growth off low base % GDP growth (current prices): Australia Property taxes are out of control ! 1975

50 growth off low base 1975 % GDP growth (current prices): Australia

51 growth off low base 1975 % GDP growth (current prices): Australia

52 growth off low base 1978 % GDP growth (current prices): USA

53 % GDP growth (current prices): USA Property taxes are out of control ! 1978 growth off low base

54 growth off low base 1978 % GDP growth (current prices): USA

55 GDP growth (current prices): USA % 1978 growth off low base

56 growth off low base 1975 % GDP growth (current prices): UK

57 growth off low base % GDP growth (current prices): UK Property taxes are out of control ! 1975

58 growth off low base 1975 % GDP growth (current prices): UK

59 growth off low base 1975 % GDP growth (current prices): UK

60 '01'03' % 19% 'bubble' line 1974-'75 recession. Whitlam government dismissed Queensland boom, and end of distress sales from late 1980s boom in other States 1982-'83 recession. Fraser government defeated Keating federal & Goss Q’land governments defeated in Queensland recession only '91-92 recession. Hewson-led opposition loses 'unloseable' 1993 election 1973 comm/ind peak 1981 residential peak 1988/89 comm/ind peak 2004 residential peak State of the Market: have we been here before?

61 Have we shattered some shibboleths?

62 2 Repetitive cycles of boom and bust are NOT natural 2 Land values DO constitute an adequate revenue base 2 High taxation and land prices are NOT inevitable 2 A revenue switch to resource rents WILL create sustainable economic growth 2 The poor widow will NOT lose out if we capture land values 2 There IS a natural growth fund we can tap for the provision of quality public education, health and infrastructure 2 Untaxing labour and its products and capturing more land value FREES labour and CONSERVES the environment Have we shattered some shibboleths?

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

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

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

66 “For a period of 150 years after the conquest, the whole of the revenue of the country was derived from the land. During the next 150 years it yielded 19/20ths of the revenue. For the next century, down to the reign of Richard III it was 9/10ths. During the next 70 years to the time of Mary it fell to about 3/4ths. From this time, to the end of the Commonwealth, land appeared to have yielded one half the revenue. Down to the reign of Anne it was 1/4th. In her reign it was 1/6th. For the first 30 years of the reign of George III the land yielded 1/7th of the revenue. From 1793 to 1816 (during the period of the land tax) land contributed 1/9th. From which time to the present 1/25th only of the revenue had been derived directly from the land.“ In the 1845 parliamentary Corn Law debates, Richard Cobden ( ) noted how the people had been “cheated, robbed and bamboozled” :

67 “For a period of 150 years after the conquest, the whole of the revenue of the country was derived from the land. During the next 150 years it yielded 19/20ths of the revenue. For the next century, down to the reign of Richard III it was 9/10ths. During the next 70 years to the time of Mary it fell to about 3/4ths. From this time, to the end of the Commonwealth, land appeared to have yielded one half the revenue. Down to the reign of Anne it was 1/4th. In her reign it was 1/6th. For the first 30 years of the reign of George III the land yielded 1/7th of the revenue. From 1793 to 1816 (during the period of the land tax) land contributed 1/9th. From which time to the present 1/25th only of the revenue had been derived directly from the land. Thus the land, which anciently paid the whole of taxation, paid now only a fraction... notwithstanding the immense increase that had taken place in the value of rentals. The people had fared better under despotic monarchs than when the power of the State had fallen into the hands of a landed oligarchy, who had first exempted themselves from taxation, and next claimed compensation for themselves by a Corn Law for their heavy and peculiar burdens.” In the 1845 parliamentary Corn Law debates, Richard Cobden ( ) noted how the people had been “cheated, robbed and bamboozled” :

68 Revenue & Cost of Living = 100 TAXES % LAND REVENUES Derived from Richard Cobden’s parliamentary Corn Laws debate (1845) Land Values Research Group Magna Carta UK revenue base over six centuries

69 “The 15th century and the first quarter of the 16th were the golden age of the English labourer, if we are to interpret the wages which he earned by the cost of the necessaries of life. At no time were wages, relatively speaking, so high, and at no time was food so cheap.... It is possible that as the distribution of land became more general, and the tenancy for a term of years became habitual, the phenomenon which has often been noticed of peasant proprietorship, a high rate of wages paid to the free labourer, may have been exhibited in the period” James Edwin Thorold Rogers, “Six Centuries of Work and Wages”, 11th edition, 1912, p.326 Thorold Rogers ( ): wages decline when people are denied cheap access to land

70 Revenue & Cost of Living = 100 % cost of living line LOW DISPOSABLE INCOMES 'Merrie England' HIGH DISPOSABLE INCOMES Chart by Rev WDP Bliss, based on Thorold Rogers 280% Disposable income of English Labourer (family of five)

71 Revenue & Cost of Living = 100 % cost of living line LOWER DISPOSABLE INCOMES 'Merrie England' HIGH DISPOSABLE INCOMES Chart by Rev WDP Bliss, based on Thorold Rogers’ “Six Centuries of Work andWages” 380% Disposable income of English Carpenter (family of five)

72 Revenue & Cost of Living = 100 % 380% Disposable income of English Labourer and Carpenter (families of five) Chart by Rev WDP Bliss, based on Thorold Rogers’ “Six Centuries of Work andWages” 'Merrie England' cost of living line HIGH DISPOSABLE INCOMES LOWER DISPOSABLE INCOMES

73 Revenue & Cost of Living = 100 % 280% Labourer’s disposable income against revenue base Chart by Rev WDP Bliss, based on Thorold Rogers’ “Six Centuries of Work andWages” 'Merrie England' cost of living line HIGH DISPOSABLE INCOMES LOWER DISPOSABLE INCOMES land rents taxes

74 Revenue & Cost of Living = 100 % cost of living line LOW DISPOSABLE INCOMES 'Merrie England' HIGH DISPOSABLE INCOMES Chart by Rev WDP Bliss, based on Thorold Rogers 280% Disposable income of English Labourer (family of five) land rents taxes Chart based on Richard Cobden 1845

75 Revenue & Cost of Living = 100 % 380% Chart by Rev WDP Bliss, based on Thorold Rogers’ “Six Centuries of Work andWages” 'Merrie England' cost of living line HIGH DISPOSABLE INCOMES LOWER DISPOSABLE INCOMES land rents taxes Carpenter’s disposable income against revenue base

76 Real estate peak stock market collapse Homer Hoyt: the bursting of land price bubbles precede financial collapse - including Wall Street’s in 1929

77 We remember that the OPEC oil crisis in October 1973 created worldwide recession?

78 We remember that the OPEC oil crisis in October 1973 created worldwide recession? Do we?

79 We remember that the OPEC oil crisis in October 1973 created worldwide recession? Do we? Can we remember the land boom that preceded the OPEC crisis?

80 We remember that the OPEC oil crisis in October 1973 created worldwide recession? Do we? Can we remember the land boom that preceded the OPEC crisis? Usually not. As with the 1925 land boom, it’s almost as though it has been written out of history

81 We remember that the OPEC oil crisis in October 1973 created worldwide recession? Do we? Who remembers the land boom that preceded the OPEC crisis? Usually not. As with the 1925 land boom, it’s almost as though it has been written out of history

82 2The first thing Oliver Cromwell did after he conquered Ireland ( ) was to have it valued 2William Petty won the contract using cheap labour 2Physician, inventor, economist.... duellist 2Completed his ‘Down Survey’ in an amazing 13 months 2Understood theory of rent before Ricardo: in 1661 he said Ireland was “worth but 7 years’ purchase” (of its rents), or a yield of 14.3%! Sir William Petty ( )

83 “It is in vain in a country whose great fund is land to hope to lay the public charge on anything else; there at last it will terminate. The merchant (do what you can) will not bear it, the laborer cannot, and therefore the landholder must: and whether he were best to do it by laying it directly where it will at last settle... let him consider.” -Some Considerations of the Lowering of Interest John Locke apostle of freedom

84 - “ Put to the vote: as many are of the opinion that a public tax upon the land ought to be raised to defray the public charge say ‘yea’. “ - “ Yea! “ - “ Carried in the affirmative - none dissenting. ” [Philadelphia's first tax law 30 January 1693] In the beginning...

85 Source: US Bureau of Labor Statistics Constant 1982 $ per week $ $ (1993) Second half of Kondratieff Wave First half of Kondratieff Wave -13.8% $ % $ (1972) workers on non-farm payrolls Average Weekly Wages: USA

86 Source: Australian Bureau of Statistics Constant 1983 $ per week Second half of Kondratieff Wave First half of Kondratieff Wave Average Weekly Wages: Australia $ $ $

87 First Wave Second Wave Third Wave Smoothed - Diagrammatic only Nikolai Kondratieff Kondratieff Long Wave Cycles

88 Nikolai Kondratieff Kondratieff Long Wave Cycles - the seasons

89 Nikolai Kondratieff Kondratieff Long Wave Cycles - the seasons

90 Nikolai Kondratieff Kondratieff Long Wave Cycles - the seasons

91 Nikolai Kondratieff Kondratieff Long Wave Cycles

92 2....from tax imposts upon people and businesses who are doing productive work to revenues based upon the value of privately held lands An impending Kondratieff ‘winter’ could be allayed by switching the revenue emphasis:

93 Australia: A Case Study The Economic Consequences of Bubbles THE RICHES OF OZ

94 % unemployment Burst bubbles and rising unemployment ? total real estate sale prices divided by GDP ?

95 Commonwealth Grants Commission SA NSW Vic Q'ld WA Five major States Australian Land Price Indices

96 2Characterise both sides of the battle to privatise rent 2Grey: soldier, explorer of WA, public administrator 2Wakefield: brat, sociopath, devised ‘Wakefield Plan’ 2Wakefield: England, Canada, New Zealand 2Grey: Ireland, South Australia, New Zealand, Cape Town 2Grey won the battle but Wakefield has won the war - because we have come to accept high land prices and taxation as the natural order of things Sir George Edward Gibbon Grey v. Wakefield


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