Rent seeking in Ecuador

...The incoming Pres. Palacio has accommodated Gutierrez's leftist opposition by appointing Rafael Correa Delgado minister of the economy (Bloomberg). Min. Correa is an economics professor who criticized the decision in 2000 to adopt the US dollar as Ecuador's currency; however, he has said he has no plans to change the currency to something else soon. Financial markets have reacted vociferously, although I think Bloomberg may be overreacting to Min. Correa personally; I strongly suspect there was a lot of rent-seeking afoot in the planned liquidation of Petroleos Ecuador, and with Min. Correa coming to power, a group of sleazoids stormed out of the markets for the country's external debt in a huff. http://www.jamesrmaclean.com/archives/000787.html

The growing wealth gap

The booming economy has been a bust for millions of Americans. Most households have lower inflation-adjusted net worth now than they did in 1983, when the Dow was still at 1,000...Since the 1970s, the top 1 percent of households have doubled their share of the national wealth to 40 percent. The top 1 percent of households have more wealth than the entire bottom 95 percent... The top 1 percent of households have nearly half of all financial wealth (net worth minus net equity in owner-occupied housing), says economist Edward Wolff of New York University. Wealth is further concentrated at the top of the top 1 percent. The richest 0.5 percent of households have 42 percent of the financial wealth...the net worth of the household in the middle (the median household) fell from $54,600 in 1989 to $49,900 in 1997. Median financial wealth fell from $13,000 in 1989 to $11,700 in 1997...The percentage of households with zero or negative net worth (greater debts than assets) increased from 15.5 percent in 1983 to 18.5 percent in 1995—nearly one out of five households. That’s nearly double the rate in 1962 when the comparable figure was 9.8 percent—one out of ten households. The net worth of the poorest fifth of households averaged –$5,600 in 1997. That’s down from –$3,000 in 1983. Many households are deeper in debt. Debt as a percentage of personal income rose from 58 percent in 1973 to 76 percent in 1989 to an estimated 85 percent in 1997. Between 1983 and 1995, the median household net worth dropped 11 percent and the bottom 40 percent lost an incredible 80 percent. The top 1 percent, meanwhile, gained 17 percent. Between 1995 and 1998, S&P 500 stocks had an annualized return of 30 percent. Most of it went to the top 10 percent of households. Almost 90 percent of the value of all stocks and mutual funds owned by households is in the hands of the top 10 percent. According to Edward Wolff, an estimated 42 percent of the benefits of the increase in the stock market between 1989 and 1997 went to the richest 1 percent alone. The bottom 80 percent of households split 11 percent of the gains. Fueled by low mortgage interest rates, the U.S. homeownership rate hit a record 66 percent in 1998, but for people under age 55, the rates were actually lower in 1998 than in 1982...As the New York Times reports (January 10, 1999), for each dollar in tax savings from the mortgage-interest deduction “going to the average taxpayer making $200,000 or more, the average taxpayer in all lower income groups combined saves just 6 cents.” ...For the fiscal year ending September 30, 1999, the mortgage deduction will add up to about $53.7 billion. That’s $23 billion more than total 1998 federal spending by the Department of Housing and Urban Development (under $31 billion). The mortgage deduction costs 23 times as much as the credit for low-income housing investment ($2.3 billion). While tax subsidies for affluent homeowners remained high, federal funding for low-income housing was cut by 80 percent from 1978 to 1991, adjusting for inflation. By Holly Sklar, Chuck Collins, & Betsy Leondar-Wright

Housing Experts Wary of Bubble Fatigue: There's nothing selling!

...mortgage application activity fell 1.6 percent to 672.6 in the week ended April 15, 2005 Fixed 30-year mortgage rates averaged 5.83 percent last week, excluding fees, down 12 basis points from 5.95 percent the previous week, according to the MBA Douglas Duncan, chief economist at the Mortgage Bankers Association "Rates have been so low for so long. But if the 30-year fixed-rate mortgage rate passed the 7 percent mark any time soon, we may see a pause in housing," he said. "I hear things are cooling down significantly." Right now, it would take about 4.2 to 4.3 months to clear the current inventory. During the tough real estate times from about 1988 to 1993, inventory levels approached 13 months. Washington Post 16/4/2005

Russia 1995

It is the Mafia that is emerging as the controller of Russia’s troubled economy. It is the military that may have the only capability to control their activities, given what seems to be a continual breaking down of civil and social structures. Could a dictator with grand schemes of empire building satisfy both camps ? Zhirinovsky’s third great opportunity is the unprecedented level of land speculation now taking place within Russia. Such land deals and associated speculation, made possible only after World Bank advice to “privatise” land, have been well documented. Forbes reporter Paul Klebnikov described the “auction” of just one commercial building in downtown Moscow last year. The first stage of the privatisation was closed to outsiders. Here Moscow city sold the rights to auction off the building to five well connected criminal organisations for 1.5 million rubles. In turn, they organised a second auction, open only to those not-so-well connected, bribe paying developers, who paid 250 million rubles for the building. Within the space of two months, the building was then sold on the open market for 1.5 Billion rubles. Similar underhand deals occurred with the 1,777 room Cosmos Hotel, again in Moscow. The hotel, built for the Olympics, nets around ten million dollars a year. After bribing journalists from two influential business papers to publish poor financial details about the Cosmos, a certain Michail Kharsan then bought a 25% interest for $ 2.5 million. Guaranteed money back in just one year. Ordinary Russians are extremely angry at the present state of affairs, especially the land deals, in Russia. Ordinary Russians are tired of seeing organised crime gangs turfing old babushkas out of their long held apartments and then turning the buildings over to foreigners at a stupendous profit. Ordinary Russians know that more than one half of prime Russian real estate is now in the hands of Russian Mafia, former KGB operators or former communist bosses, adept at intimidation, deceit and rough tactics to get what they want. It is rumored that in Russia the Mafia – the new landed aristocracy, now control much of the speculative land deals, acting in unison with the old communist elite and armed forces. It is unlikely the armed forces will lead a revolt. The importance of eliminating land speculation, to bring the Russian economy back to some degree of normality cannot be overstated. It is not likely that much will be done of course. Vlad ZHirinovsky

Michael Jacques

Johannesburg adopted site value rating in 1918. Decades later it became the shining star in the arcane world of city finances, with its city valuer, John McCullough, a star on the world-wide municipal conference stage. Under his influence, and with the commercial success of Johannesburg as an example, many cities in the US and Australasia changed their rating systems, if not to pure site value rating at least to composite rating with a bigger emphasis on the site value. But Mason Gaffney, a professor of economics at the University of California, visited SA in 1992 for a conference on land value taxation at the University of Pretoria. He was astonished that Johannesburg existed at all, let alone become a commercial success. In a paper written after he returned to the US, he analysed every possible reason for this success and concluded that it was due mainly to site value rating. 1984 62 of the 112 largest towns were on site value. One of the main purposes of the bill is to standardise the method of rating in all municipal jurisdictions. The chosen method is the one that is the least used: flat rating on the market value of a property at the date of the valuation. Firstly, flat rating is not the easiest and least expensive method to administer and, historically, municipalities have always undervalued properties to avoid a mass of objections to the valuation roll. Johannesburg Oct 29 2003 SAPOA Online

Rowland Entwistle

The central theory of English law has never been changed through the centuries, it is this: the land is the property of the whole people, it is vested in the crown as trustee, and all holders (there are no owners) are tenants of the community. Judgement by Lord Darling 1924 Williams “Real Property”

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Transport and City Competitiveness

At the micro level, there are the environmental and distributional issues as well as changes in property and land values resulting from transport investment. There seems to be no comprehensive research methodology in this area. A proposed methodology has been developed (ARW and BSP, 2002), and it is currently (2003) being tested in the Croydon Tram corridor in South London. It covers the necessary conditions for measurable additional impacts are identifiable, such as land value increases, and how to measure them. It is the additionality (or latent demand) and measurability of these benefits that need to be analysed. Llewelyn-Davies, with Professor David Banister and Professor Sir Peter Hall of the Bartlett School of Planning, University College London p31 Jan 2004