Rental Crisis

Today's Perspective ABC Radio Natitional I hope I'm not the only one who sees the irony in Australia's economic crisis du jour-the chronic shortage of rental accommodation? A shortage of houses and apartments for rent? Hang on, didn't we just have Australia's biggest ever housing boom? Wasn't the boom driven by investors, rather than homebuyers? Weren't all those "Mum and Dad" investors building units for rental accommodation? If so, how come we've run out of rental housing, just two years after the boom ended in the Eastern States? And is the solution simply to drive rents up ten or twenty per cent, as seems to be happening? Or should we just abolish stamp duty to kick life back into the building industry and solve the problem with another round of speculative building, as the Property Council recommends? No way! What we should do instead is take stock of precisely why we've ended up in this completely senseless pickle. The root cause of the problem is that speculation, and not investment, has determined how many houses are built in Australia. So-called investors purchased apartments, not to rent them out, but to make a profit by selling them down the track for a higher price. In fact, they expect to lose on their rental income, because that earns a nice little tax break, from the combination of negative gearing and a 50% tax rate on capital gains. This scam worked a treat while housing prices went ever higher, and there was always another "investor" willing to grab the baton on this relay race into the stratosphere. But its days have come to an end. Prices have been driven so high that, not only can first home buyers no longer afford them, but even "investors" no longer believe that there will be other "investors" further down the track. As a result, the supply of new housing has dried up, and simultaneously we've realised that not all that much was being built anyway, relative to demand: why build a new place, when the negative gearing and capital gains tax trick work just as well on a second hand place? Let's face it: this was always a foolish way to run a property industry, and it was always going to come to grief. Many years ago, a certain prescient economist, writing of a similar period of economic madness, put it superbly: "Speculators", Keynes wrote, "may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done." Ill-done indeed! And the legacy of our speculation-driven property market is not restricted to the unpalatable combination of unaffordable houses, excessive rents and inadequate accommodation. The truly insidious side of the housing casino is the debt it's led us to accumulate. The Reserve Bank noted this week that housing prices rose 175 per cent from the mid-1990s. But mortgage debt rose by almost 450 per cent over the same period! As a result, if prices fall, many "investors" will have debts that exceed the value of their investments. We are now in the invidious situation of having house prices that we can't afford, and yet we also can't afford to have them fall. The solution is certainly not to alter policies so that the bubble resumes, speculators once again start building apartments in order to sell them to other speculators, and as a by-product, renters can once again find apartments rented by landlords who are losing money on the deal. Instead we have to find a way to have a housing industry that builds on the basis of demand for accommodation-and not on the basis of tax-supported speculative gains. That policy isn't likely to be found by looking in the Anglophile countries, all of which seem afflicted by the casino approach to property. It's more likely to involve rental arrangements similar to those of Europe, where tenants have-or had-greater rights and longer-term tenancies. Working out the details of such a policy, and introducing it into Australia's home-ownership obsessed culture, won't be easy. But ultimately something like it has to be done. What would be easier now, and what would have been impossible at any previous time, would be to abolish negative gearing and the preferential tax treatment of capital gains on property. Negative gearing, and the concession on capital gains, only work when property prices are rising-and not only is that the last thing we need, at the moment it's also the last thing most Australians expect. Guests Steve Keen Associate Professor Economics and Finance University of Western Sydney

Venezuela to begin imposing tax on idle lands in April

The Associated Press

Published: January 23, 2007

CARACAS, Venezuela: President Hugo Chavez's administration plans to impose an extra tax starting in April on landholders who fail to obey a government plan for their land, Venezuela's tax agency said Tuesday.

Under legislation approved in 2001, landholders must pay a tax if they fail to register their lands and put them to adequate use by following a government-designed production plan.

Jose Gregorio Vielma Mora, superintendent of the tax agency, told the local Globovision television channel that government officials have yet to establish rates for the levy.

The tax falls in line with Chavez's drive to establish what he calls "21st-century socialism," redistributing the country's immense oil wealth to the poor, the agency in a statement.

The government grades land into five different quality ratings based on soil, location and other factors. Owners must use land for products that are best suited to it. The new tax will be applied to those who fail to do so.

Chavez claims large landholdings are responsible for the failure of agricultural production in Venezuela, which depends heavily of oil production for economic development.

Government officials have begun inspecting large estates, many of which encompass more than 5,000 hectares (12,350 acres), to determine if they are underused or if their ownership may be legally disputed.

Critics of the land-reform initiative claim it violates property rights outlined in Venezuela's Constitution.

Vielma Mora said agency officials have not received details about Chavez's plan for a new luxury tax on property such as second homes, expensive cars and art collections. Chavez announced plans for the tax on Sunday during his weekly radio and television broadcast.

"I want you to know that there's no type of passion for taking away planes, helicopters, yachts, motorboats," he said. "We want those who make more (money), who have a superior quality of life, to contribute to improve our country through solidarity."

Low-rent housing system to cover all Chinese cities, towns this

People's Daily Online -- Low-rent housing system to cover all Chinese cities, towns this

UPDATED: 17:00, February 15, 2007 Low-rent housing system to cover all Chinese cities, towns this font size A low-rent housing system tailored to low-income earners will cover all Chinese cities and towns this year, sources with the Ministry of Construction said on Thursday. The sources said that by the end of 2006, 512 Chinese cities had established a low-rent housing system, accounting for 77.9 percent of the nation's total of 657. Money used to build low-rent houses cumulated to 7.08 billion yuan (919.5 million U.S. dollars) nationwide, nearly 50 percent more than the 2005 yearend level. By the end of last year, 547,000 low-income families had benefited from the low-rent housing system. Of the total, 219,000 households joined the system in 2006, a growth of 66.6 percent from 2005, the sources said. The system should cover the remaining 145 cities this year, according to a working agenda of the Ministry of Construction. Source: Xinhua

British banks told to plan for 40% crash in housing

By Patrick Hosking The Times, London Thursday, November 16, 2006 Banks in the United Kingdom have been ordered by financial regulators to assess how they would cope in the event of house prices crashing by 40 percent. The instruction to include a housing slump scenario in their stress-testing models comes after the Financial Services Authority found that some banks were failing to include gloomy enough assumptions in their modelling. The FSA said yesterday that an "appropriate" benchmark was to assume property prices fell by 40 percent and that 35 percent of mortgages in default ended with homes being repossessed. It stressed that this was not a forecast but a "severe but plausible scenario" and one that banks should examine when deciding how robust their balance sheets were. In a speech to the British Bankers' Association yesterday, Clive Briault, the FSA's managing director for retail markets, remarked on banks' differing views over the size and impact of a house market downturn, and hence the need for reference points. He also warned bankers to ensure that they have properly stress-tested their mortgage portfolios in the wake of decisions by some to lend people greater multiples of their incomes. In a letter to bank chief executives last month the FSA accused some of failing to consider scenarios in which they might be forced into losses, dividend cuts or capital shortfalls. "We were struck by how mild the firm-wide stress events were at some of the firms we visited," wrote the FSA's director of major retail groups, David Strachan. A few banks were "weak in all respects" in stress-testing. House prices fell about 15 percent nationwide in, and in parts of East Anglia by 40 percent, leading to repossessions, write-downs, and bank losses. Banks are obliged to stress-test hypothetical adverse movements in asset prices, interest rates, and exchange rates to ensure that they have a sufficient capital cushion. But stress-testing is only as robust as the assumptions made. The FSA move came as UK house prices grew at their fastest for four years, according to new figures from RICS.