Property bubble leads to crash landing

Bryan Kavanagh March 28, 2008 - 12:02am THE AGE

WHEN it mattered, the US Federal Reserve, US banks and rating agencies failed the risk-management test — in much the same way that Australia is now failing it.

This is because none of these bodies comprehends the manner in which the real estate market leads the economy. Many considerations flow from this, because businesses and individuals borrow against the value of their property assets. So when real estate bubbles burst and banks and mortgagors are left exposed, analysts flounder with such hogwash as "business cycles and recessions are a natural part of the financial landscape". Another knee-jerk reaction to systemic failure is simply to blame banks and borrowers. It seems anything will do, rather than tackle the fundamental flaw in risk management.

Here is an unyielding truth. A country cannot go into recession unless there has been a real estate bubble. US land economist Homer Hoyt documented the fact back at the beginning of the 19th century. The Land Values Research Group recently defined and studied the effects of property bubbles in Unlocking the Riches of Oz: A Case Study of the Social and Economic Costs of Real Estate Bubbles, 1972 to 2006, which is freely available at www.lvrg.org.au. It concludes that the current residential bubble has hyper-inflated since 1999 and is about to burst, despite sophisticated financial derivatives, hedge funds, collateralised debt obligations, credit default swaps, all brought into existence to "insure" that it not burst. The failure of derivatives will compound the upcoming financial threat.

It is sobering, too, to note that the relative scale of our real estate bubble is greater than that in the US. It is therefore irresponsible and incorrect to blame a potential recession in Australia on some sort of spiritual emanations from US subprime mortgage lending. The truth is that we have an enormous debt bubble of our own and suffer the same vast hole in credit management that has again been exposed in the US. This will resolve itself with extreme prejudice to Australian society and requires immediate attention.

We may only solve the problem by shifting taxes off "goods", such as earning incomes, onto "bads", such as real estate speculation and escalating land prices. This, rather than the Reserve Bank continually raising interest rates, may actually get to grips with inflation and avert the folly of accepting bubble-inflated land prices as "security" for loans.

Although the relationship between Australia's total land values and gross domestic product has varied since 1911, it has averaged 1-to-1. Although it got to 1.56-to-1 in the 1930s Depression, it now stands at a menacing 2.5-to-1. This mirrors situations around much of the Western world, except France, which doesn't put real estate speculation on an untouchable pedestal as we have been inclined to do.

When viewed as a long-term analysis against rising GDP, it can be seen that land price bubbles are neither merely the result of population growth nor the undersupply of residential allotments, as argued on this page (BusinessDay, 13/3) by Alan Moran of the Institute of Public Affairs. Incredible numbers of existing vacant lots and underutilised sites would spill out into a genuine real-estate market if we redressed the imbalance between taxes on productivity and the puny levels of rates and taxes on socially generated land values that fail to deter speculative land banking.

What form should the "tax shift" take? First, we have to turn a deaf ear to the ever-insistent call from self-interested property groups for greater tax incentives, or for council rates and state land taxes to be reduced to a mere revenue appendage, "so that we may continue to provide housing for all Australians".

Rather, to encourage new housing construction and real wealth creation, we need to do precisely the opposite, by removing unproductive payroll taxes, stamp duties and up-front development charges, and recouping these revenues through state land tax systems. At the same time, we should seize the opportunity to reform state land taxes, removing their curious exemptions, thresholds, multiple rates and aggregation provisions, along the lines thoughtfully proposed in Victoria's 2001 Review of State Business Taxes ("The Harvey Report").

Arguably, the best option would be to hand the governance of reformed state land taxes to the RBA as a tool to complement interest rate policy. A single rate land tax would apply Australia-wide to all privately owned land, the revenue therefrom going back to the states and territories in direct proportion to the land values that raised it. By these means, it might be possible gradually to phase out more than rates, land tax and development charges from the 156 taxes recently condemned by the Business Council of Australia. Although a side effect would be to make housing more accessible and affordable for all Australians, the main thrust would be to reduce the private capture of publicly generated land values. This would finally close the loophole in credit management through which truckloads of new financial "products" have been driven. By eliminating land price bubbles, it would no longer be possible to offer bubble-inflated assets as "security" for loans.

If their children are unable to assist them, people who are asset rich and income poor would be permitted to defer their land tax liability by means of a charge on title for the revenue forgone, to be collected when they pass from this world. And if proper arrangements were made for rates and land taxes to be deducted from incomes in instalments, this would not convert them into income taxes, because it is the revenue base that is paramount in producing an equitable revenue system, not the process by which the revenues are collected.

The property lobby puts out the propaganda that rates and land taxes can be passed on in prices. But why should this trouble them, as it so obviously does, if they are able to pass them on in rents? The truth can be found in most economic textbooks: rates and taxes on land are the only form of revenue that cannot be passed on.

If we are to navigate the upcoming recession effectively, the public should understand the integral role played by perverse tax regimes in risk-management failure.

Bryan Kavanagh is a real estate valuer and honorary director of the Land Values Research Group.

First Home Buyer Grant working for whom?

Victorian Council of Social Service's David Imber writes: I would have thought Richard Farmer would be more careful than to walk into the fog of spin currently circulating in our nation’s media around the first home buyers grant and not report this spin as fact. No-one with any awareness of the history and beneficiaries of the grant should be surprised that its chief supporters -- real estate agents and property developers -- are the very people currently promoting the benefits of the increased grant and then seeking that it be extended or made permanent. It’s just a shame that some in the media and many in government are so uncritically reporting and receiving this news as if it’s fact. The reality is that, rather than benefiting first home buyers, the grant is once again benefiting vendors and developers. All the credible evidence about the grant since its introduction almost a decade ago -- be it from bank economists or housing researchers -- has consistently demonstrated that the grant has gone straight into higher house prices. Given that the grant (in its $7,000 form as well as its stimulus-driven $21,000 form for new stock) is not means tested and broadly available, it is hardly surprising that it's simply allowed vendors to extract more money from first home buyers. And here’s the rub -- the vendors benefiting include all the developers and speculators who now have an increased grant to add to their land banks and staged releases. Investors and real estate agents can now time property sales to ensure that just enough property goes on the market each week, so just enough of it sells, that they can breathlessly report in Monday’s newspapers "property is surviving the boom!" Not to mention the favourite claim (made almost every week of every year) that “now is a great time to get into the market”. The first home buyers grant has no doubt been given to many first home buyers believing it has provided them with the little bit extra they needed to buy their first home. Yet those people forget that almost every other buyer has just increased their budget by the amount of the grant while investors have their own tax breaks to fund a higher purchase price. The grant has been used by the already well off children of well off parents for whom the grant has merely added to the amount that their family has been able to give them. It has also been rorted by those buying property in the name of their spouses, or by a range of first-time investors who have used the grant alongside tax breaks to buy into market. Some of this rorting has been found by State revenue offices, but much has undoubtedly gone unreported. At the same time, the real victims of the housing market, low income private renters, have seen property prices artificially inflated by a grant that actually puts their housing dream further out of reach. The housing market is not a fair and transparent market and the expansion of the grant has only exposed this anew. There is a reason to be concerned that at a time of economic downturn the construction industry is suffering. That is why the investment of over $6 billion into new public and community housing is the right counter cyclical measure (not to mention good, and long overdue, social policy). The $1.5 billion announced last year in expended first home buyer grants that top up the already poorly targeted $1 billion per annum is the wrong strategy. It is poorly targeted industry assistance for new housing and a complete waste of money when spent on existing housing. It would be more honest to call it a government-funded vendor housing payment. Which of course the Government would if it wasn’t such a politically attractive (though misleadingly) named grant. If, as a country, we want to support low and middle income earners entering the housing market then we should do so in a targeted way that helps those who need it without boosting house prices for everyone else. If governments want to subsidise builders and developers then they should do so transparently and see how popular it looks then. The media should look more critically at blatant spin from developers, investors and speculators that purports to protect the very people they’re seeking to make money off. 2009/02/28 David Imber is the Policy and Public Affairs Manager of the Victorian Council of Social Service and was formerly the spokesperson for Australians for Affordable Housing.

Mirvac: land is for hocking, not housing

Crikey.com - 2009/02/28

Karl Fitzgerald writes: Real estate group Mirvac yesterday admitted what many affordability watchers know: the housing market is manipulated to suit shareholders over householders. Due to the fear that an $81.4m half-yearly operating profit is insufficient, first home buyers will have to pay higher land and housing prices to support Mirvac's Executive Incentive Scheme. Mirvac managing director Nick Collishaw admits to the immense power of land monopolists in Mirvac to delay land releases in existing estates: Effectively what we are doing for the bulk of the projects that we have in Victoria is managing a staged release -- rather than have a release with 100 lots in it, the stage sizes will be much smaller. This behaviour exhibits why Brumby's land supply handout to the property lobby will do nothing to assist affordability. Land and housing releases are manipulated to suit profiteering over people. What difference is there between this behaviour and the alleged Richard Pratt school of price fixers? Have a look at the HIA's Land Supply index and make your own decision. As Australia's affordability epidemic gets left behind in the backwash of the GFC, the genuine land supply issue is that controlled privately by land banking developers. Compounding these issues, the write-offs on Mirvac's investment properties total more than $800 million dollars. Top and tailing the benefits of the system, Mirvac has the power to drip feed land and housing to market such that home buyers of all generations are guaranteed to pay 40% of their income on rent or mortgages. And the government is silent on this market manipulation. Governments at all levels are complicit in the rights of land speculators over and above the future of its people. One need only refer to the recent AEC figures to understand the power of lobbyocracy. For the productive economy to survive, we must push for more effective public finance policy. Higher holding charges on land are needed to force land prices back to affordable levels. Spin-offs include the abolition of payroll, GST and a massive cut in income taxes. Investment in new infrastructure becomes self funding through land value capture. When this occurs, the land and housing market will no longer be seen as a casino. The risk of global meltdowns will be reduced when we no longer have to borrow so much to put a roof over our heads. Speculators will become producers, hopefully funding the inventions needed for a sustainable rather than sprawling society. Relatively speaking, who really benefits from rising land and housing prices?

Consumer Confidence Slips as Home Prices Drop

By MICHAEL M. GRYNBAUM

Published: April 29, 2008

Americans’ confidence in the economy continued to plunge this month as their homes lost value at the fastest rate in two decades, according to reports released on Tuesday.

The New York Times

The data suggested that the housing slump was far from a recovery and the job market might continue to weaken, ratcheting up pressure on the Federal Reserve, which began a two-day meeting on Tuesday, to take steps to stave off a prolonged slowdown.

Institutes Urge Reforms to Reverse German Economic Slowdown

Calls for more economic and labor reforms are not what Angela Merkel wants to hear

Leading economic institutes called on German Chancellor Angela Merkel's government on Thursday, Oct. 18, to step up reform and warned that Europe's biggest economy faced slowing growth next year.

The institutes told the government in their autumn report presented in Berlin on Thursday that German growth will slip back to 2.2 percent in 2008 from 2.6 percent this year, with a soaring euro, the global credit crunch and surging oil prices undercutting the nation's expansion rate.

Some economists are more pessimistic and believe Germany will be lucky to reach a growth rate next year of 2 percent. The International Monetary Fund said this week it expects German growth will slip to 2 percent next year from 2.4 percent for 2007.

Thursday's report was drawn up by four leading German economic institutes in conjunction with research groups from other European nations.

Criticism of ineffective reforms

Coming in the wake of criticism by German business about the failure of Angela Merkel's government coalition to press on with economic reform, the institutes said: "Much more additional work needs to be done rather than roll back the reforms so far discussed.

"The labor market reform course of the last few years has not progressed," the institutes added.

The US housing market crisis had a knock-on effect

The report comes as economists attempt to size up the ramifications of the shakeout in global share prices in August following the credit crunch triggered by the US housing market crisis.

At the same time, the institutes joined a growing list of forecasters who have revised down their growth outlook for Germany.

High oil prices, the strong euro and financial market uncertainty will "dampen growth," Roland Döhrn, an economist with the Essen-based Institute for Scientific Research (RWI), told a press conference following the release of the report.

In their last report in the spring, the institutes projected a growth rate for Germany of 2.4 percent in both 2007 and 2008, with strong export demand powering the nation's economic performance.

Export growth likely to decline

Since then, however, the euro has climbed to an all-time high of $1.43 as fears have set in about the US economic outlook, consequently fuelling concerns about the prospects for Germany's key export machine.

The institutes predict German export growth will decline to 3 percent in 2008 from 3.5 percent this year, with stronger private consumption emerging as a key pillar of growth.

The institutes are also forecasting private consumption to grow by 1.5 percent next year compared to just 0.2 percent in 2007.

The release of the institutes' report is expected to lead to the German government also scaling back its growth projections for the nation.

Germany emerged last year from a protracted period of stagnation, with a recent solid growth rate helping to ease the nation's high unemployment.

Larger reduction in unemployment that expected

German unemployment dropped in September

The number of people out of work in Germany fell more than expected in September, data released last month showed, with employers continuing to hire on the back of the economic upswing and years of wage restraint.

The institutes expect unemployment to continue falling to average 7.9 percent in 2008 compared to 8.7 percent in 2007. Germany's jobless rate stood at 10.3 percent last year.

Apart from the RWI, the German institutes involved in drawing up the report included the Kiel Institute for the World Economy (IfW), Halle Institute for Economic Research (IWH) and the Munich- based Ifo Institute for Economic Research.

DW staff / DPA (nda)

Technorati Tags: German, Slow-down

Melb council CEO resigns

• ABC News Story
  
• Map: Melbourne 3000

The Chief Executive of Melbourne City Council, David Pitchford is heading for Dubai. (ABC TV)

The Chief Executive of Melbourne City Council has resigned, to take up a position with a property development company in Dubai.

David Pitchford came under fire three months ago, when dozens of council staff were sacked, after an independent report criticised the council's financial management.

Mr Pitchford says the decision to leave is entirely his and the job cuts he ordered were necessary.

"I think that that's a good thing it happened under my watch because it was certainly well and truly needed," he said.

"It hadn't been done for 16 or 17 years and the fact that I decided to do it was a bold and brave move but I stand by the fact that it needed to be done".

Mr Pitchford says he leaves the council in a solid financial position.

"We've got over $3.5 billion in assets, $250 million in cash reserves," he said.

"We just delivered an operating surplus of $174.5 million and the situation couldn't be more sound".

hdgn16

gettysburg address

Wednesday, September 19, 2007

ALBANY ― Albany Civic Center Director John Mazzola outlined plans to incorporate updated rates at the facility and create a better rate of recovery on tax money spent in what City Manager Alfred Lott jokingly referred to as Mazzola's "Gettysburg Address on the civic center" during an Albany City Commission work session Tuesday morning.

... They were debating tax yesterday morning: reduce the standard rate by 4p, cane the rich, but even that didn't excite them. They talked about VED, LIT, LVT and SVR, and everyone in the hall knew what they meant. But nobody even murmured, still less chanted, "What do we want? Site value rating! When do we want it? As soon as circumstances make it advisable!"

State home prices expected to drop

A real estate trade group says next year will see the first decline in more than a decade. By Annette Haddad, Los Angeles Times Staff Writer 9:20 AM PDT, October 10, 2007 Home values are expected to drop next year for the first time in more than a decade and sales will remain slow as California's housing market continues to languish, the state's top real estate trade group predicted today. The median price of an existing California home is expected to decline 4% to $553,000 in 2008, compared with a projected median of $576,000 this year, according to the California Assn. of Realtors forecast. Sales are likely to fall 9% next year, which would be the slowest rate of decline in two years. The forecast by the state Realtors comes as their national counterparts projected a steeper decline this year in existing homes sales nationwide than previously anticipated. The National Assn. of Realtors today revised, for the eighth consecutive time, its outlook of U.S. existing home sales, which are now expected to fall 10.8% compared to 2006. It would be the worst year for U.S. home sales since 2002. U.S. home prices are forecast to drop 1.3% to a median of $210,200 this year. The median is the point where half the homes sell for more and half for less. In California, lower-priced markets will remain especially weak next year thanks to the sub-prime mortgage meltdown, tighter loan-writing standards and discounting by new-home builders hoping to clear their inventory. "Geographically, more affordable regions such as the Central Valley and Inland Empire will experience greater softness in the resale market because of the large number of new homes coming onto the market in recent years," said Leslie Appleton-Young, the state Realtors group chief economist. But she warned that even higher-priced markets, including Los Angeles, Orange County and the Bay Area, where prices continue to appreciate and sales have been more robust, will start to show signs of stress, though to a lesser extent. "Higher-priced regions of the state will react more to affordability constraints," she said. Appleton-Young declined to offer any predictions for the state's housing market beyond 2008. The last time existing California home prices fell was in 1996, when the median price declined 0.5%, according to the Realtors' calculations. In 2003, 2004, and 2005, home prices rose more than 16% year over year. In 2006, home prices started to moderate, rising 6.2%. For 2007, the Realtors forecast a 3.5% price increase to a record $576,000, even as sales volume drops 23%. The biggest factor facing the state's housing market is the rise in the supply of new and existing homes for sale. In August, the Realtors group found that there were so many existing, single-family homes for sale in California that it would take 11.8 months to deplete the supply if no additional houses came on the market. The ample inventory has prompted the normally optimistic Realtors group to discourage homeowners from selling unless they absolutely must. "Now is not the time for homeowners to 'test the waters.' Only serious sellers should put their homes on the market in what will continue to be a challenging sales environment," said association President Colleen Badagliacco. The California Assn. of Realtors calculates its median price based on a sampling of data about existing-home sales supplied by real estate brokers around the state. The data don't include sales of newly built homes. annette.haddad@latimes.com Technorati Tags: California, Price Drop,

Stressing on mortgages

Liam Walsh

September 22, 2007 12:00am

JILLIAN Fletcher has been a financial counsellor since 2001 and she's seen how people try to manage "mortgage stress".

"They might turn the Foxtel off, they will stop going out, they will probably cut down on the takeaway," the Lifeline counsellor says. There are other cuts that people suffering "mortgage stress" make to cope with paying hefty proportions of their income to keep up with loan repayments. Insurance might go. "Not only the house, but their personal insurance, their car insurance, those sort of things will lapse -- certainly the rates notices as well," she says. Some even skip dental care or just bulk-up on credit cards to pay for groceries. Unfortunately, she could meet more people doing this in the credit crunch stemming from US mortgage woes. But lower spending on those extras is just one ramification for Australia.

Australia might see greater repossessions, less stock-market dabbling from mums and dads, or prolonged housing market malaise. The prices paid for businesses might dip and competition for takeovers dwindle. If things go really pear-shaped overseas, Australian economic growth could slow. But most see Australia's economy as remaining strong despite global shocks emanating from the US sub-prime lending woes. Such sub-prime loans are basically Australia's equivalent of non-conforming loans (those handed to people with bad credit history or the like). But a swathe of Americans have been unable to repay these debts. This triggered problems with big lenders, flowed to credit markets and spread globally. Only this month, British authorities moved to bail out beleaguered mortgage lender Northern Rock where worried customers queued to withdraw savings.

In the US this week, the Federal Reserve Board cut interest rates by 0.5 per cent to improve fund flows. In Australia, investors were so jumpy that a false rumour about Adelaide Bank seeking emergency funding knocked almost 7 per cent from its share price. That reflected a rough time for other financial stocks, although they rebounded the next day along with the market. But Intersuisse analyst Peter Russell says the volatility might prompt greater reluctance for people to invest new cash into shares. "While you might move your existing exposures around . . . it's difficult to see people adding a lot until the picture becomes a bit clearer," he says.

The cash some Australians have for investing might dwindle with mortgage costs rising. Higher costs have especially hit those using smaller lending institutions, which themselves are facing higher costs for funds. A JP Morgan/Fujitsu report this week said US sub-prime issues and subsequent increased cost of wholesale funding (for lenders) would lead to increased pricing for lending. "This will see the number of Australian households under severe stress rise from 70,000 to 113,000," it said, adding the caveat that banks might actually refrain from passing on increased funding costs.

Mortgage stress should mean less cash to spend, especially on those big-ticket items like plasma TVs. But so far, it hasn't crashed retailers like Harvey Norman which last month reported an "insatiable demand" for the latest technology products. Richard Gibbs, global head of economics at Macquarie, links this to Australia's robust employment market. But sub-prime jitters and higher oil prices will trigger greater caution in customers, he says. Gibbs also reckons less borrowing could sap the housing market. CommSec this week linked a slump in data on home sales -- an 8.6 per cent fall in August from the previous month -- on "the latest rate hike".

Fat Prophets senior equities analyst Greg Canavan says a possible slowdown in the mortgage industry could flow through, more slowly, to consumption because "you're not getting the housing wealth effect from rising property prices". But problems with mortgages and consumption might already lurk in credit cards. Figures from the Reserve Bank this week showed the average credit card balance was $3002 in July -- down from $3014 in June. But Australians still owed $41 billion on credit cards.

Lifeline's Fletcher has seen people boost credit card levels to cope with mortgage stress "to pay living expenses like groceries". The JP Morgan/Fujitsu report said that in 1997, the outstanding amount on a credit card equalled roughly one month's disposable income. By 2007, it was three months' worth. "Emerging mortgage stress is being hidden within the growing reliance on credit cards to increasingly fund day-to-day living," it said.

Intersuisse's Russell also points out that until recently, cheap debt had pumped prices of takeover targets. "But when that's changing, which it is, then prices relax back and the fringe competitors drop out," he says. Despite the gloom, Macquarie is predicting 4.25 per cent growth for Australia in fiscal 2008 and says predictions have not been tempered on any sub-prime concerns. "It doesn't seem to be slowing (growth),"

Macquarie's Gibbs says. The threat to Australia's economy lies in overheating, he says. That would be if wages jumped, economic competitiveness slipped and the RBA needed to avert adding easier credit into the system. But what about increasingly dire sub-prime scenarios? Gibbs says for the sub-prime to really smack Australian growth would require another wave of significant upheaval in US capital markets. That's because the Australian-US economic links are through the financial system and credit markets. "If there was major ongoing disruption there, then that would spill over," he says. But Gibbs feels this has probably been averted due to the Fed rate cut this week and promise of more if needed. Another dire scenario would be a complete "disengagement from risk-taking", he says. Overseas investors in that case could dump the Australian dollar, which is regarded as a risky asset. "We would then see the cost of capital into Australia to support the current account deficit increase enormously and that would really crunch the economy," he says. Gibbs argues Australia's real economic activity is more tied to greater Asia. While some might argue that a US collapse could sap China's imports to America, Gibbs says China has a large penetration into the US which adds to stability.

Fat Prophet's Canavan, however, says there could be pain whether a threat is real or perceived. "Because everyone's jumping on to the resources story based on the long-term China thing, I think any news out of China that might spook the market might have an effect on your bigger commodity stocks or your base metals," he says. Tightening credit could mean tightening lending standards, and Lifeline's Fletcher says some borrowers thought they could transfer from a non-bank lender to a bank's lower rates after a few years. "I would suggest the banks are going to look pretty hard at the clients who are going to want to move over," she says. In that case, counsellors like Fletcher might find themselves busier.

Homeless get younger

Mary Bolling

September 21, 2007 12:00am

MELBOURNE'S homeless are getting younger, with more teenagers and families struggling to find a safe place to stay.

A new report by the Lord Mayor's Charitable Fund shows the number of people seeking homeless services jumped 26 per cent in the past five years.

Most are under 35, with many young women and children turning to emergency accommodation to escape domestic violence.

At the same time, charities that provide homelessness support have the highest turnaway rate of any emergency provider.

The report, based on consultation with 11 support agencies, calls for initiatives to get people out of the homeless cycle, including a "homeless hotline" and supported accommodation.

Today, the LMCF will gather many of those providers for a round table on the crisis.

The report and round table follow the group's Heart of Melbourne Appeal launch, which featured local celebrities in a soup kitchen lineup.

LMCF chief Andrew Chappell said that campaign, and the recent rise of the Choir of Hard Knocks, were changing attitudes to homeless people.

"The report lists the statistics, and I don't think it's hard to convince people that it's a tough situation," he said.

"People are really starting to lock into the stories, and realising that homeless people could just as easily be a relative or a friend."

"But the good news from this report is, the agencies know what needs to be done to fix it.

"There is really no need for anyone to be homeless in Melbourne, when we do live in such a wealthy society

"Even if it's complex and hard and expensive, we can really afford to turn this situation around."

Urban Seed is another agency determined to change attitudes. Chief executive Gordon Preece takes school and corporate groups on "Urban Issues" tours, identifying rough-sleeping haunts and syringe bins in city alleyways.

"They see the top end of the city, the opulence of the Paris end of Collins St, compared to the incredible need down the alleys -- and it's literally only a building that separates them," Mr Preece said.

Mr Preece is also keen to highlight the success stories.

Urban Seed's work includes managing Cafe Credo, a free lunch centre that attracts up to 90 people every day.

Old and young, and even a few babies in prams, gather around tables for the midday meal -- and Mr Preece said the family atmosphere gives disconnected homeless people a chance to reconnect.

Mr Preece said family breakdown, drugs, and especially an epidemic of binge drinking, were creating a new generation of homeless youth.

"There is a real binge drinking culture among a lot of teenagers, and parents often aren't equipped to deal with the sorts of drastic behaviour that it triggers," he said.

"So the kid might leave home and stay with friends for a while, but then the friends can't cope with it . . . and often the last place to go is the street."

More drug use is also resulting in more psychosis.

Last week, another survey of homeless people by Melbourne City Council found 56 per cent were between 15 and 34. And 8 per cent said they had children with them -- a total of 20 children with no permanent home.

Net link: www.heartofmelbourne.org.au

Doors close on new home sales

September 21, 2007 12:00am

NEW home sales tumbled in August after an interest rate rise exacerbated poor affordability amid a lack of supply, an industry body says.

Housing Industry Association figures show new home and unit sales among Australia's largest builders and developers fell 8.6 per cent in August to 7712 -- the lowest level since January when sales stood at 7963.

Detached home sales fell 8.9 per cent compared with the previous month, to sit at the lowest level since December last year.

Sales of apartments were down 6.8 per cent and continue to display a flat trend.

HIA chief economist Harley Dale said the main catalyst for the fall in new home sales during the month was the Reserve Bank of Australia's 25 basis point interest rate rise to 6.5 per cent at the beginning of August.

He said sales were always likely to fall, with July building approvals down 1.6 per cent, but the rate increase had added to the downside pressure.

"You had these specific factors of a rate rise and uncertainty out of the US on top of a difficult affordability environment," Mr Dale said.

Problems in the US sub-prime mortgage market spread in August to create an element of fear in global credit markets, resulting in a rise in interbank lending rates.

Mr Dale said the outlook for new home sales looked flat due to continued uncertainty about interest rates and global financial stability.

"New home sales are trending down again and a failure to arrest this decline could see sales levels hit fresh lows for the cycle by the end of 2007," Mr Dale said.

"There is a clear risk of another rise in interest rates in 2008."

The HIA survey showed the volume of new home sales was down in all states, with Victoria, NSW and Western Australia the worst hit.

Sales fell 19.1 per cent in Victoria, 8.5 per cent in WA, 7.6 per cent in NSW, 1.8 per cent in South Australia and 0.4 per cent in Queensland.

CommSec equities economist Martin Arnold said the August rate hike had delivered a heavy blow to the housing market.

"New home sales slumped, with prospective homebuyers put off by the further increase in the cost of owning a home," he said.

"The housing hangover is likely to remain for many months yet, as affordability issues plague the market."

The HIA new home sales survey is compiled from a sample of the largest 100 residential builders in Australia.

- AAP

Homes squeeze hurting

Ben Butler

September 22, 2007 12:00am

NEW home sales have slumped because of the housing affordability crisis, new figures show.

The Housing Industry Association said sales of new homes across Australia dropped 8.6 per cent in August.

And the mortgage squeeze shows no sign of slowing down in Victoria.

Supreme Court actions by lenders seeking to repossess land jumped by almost 50 per cent to 2700 in 2005-06.

Numbers rose last financial year, with 2734 actions.

Mortgage industry players blame each other for the pain.

Australian Bankers Association chief executive David Bell said non-bank lenders were at fault.

Mr bell said up to 80 per cent of court applications did not relate to banks, depending on the state.

But the boss of leading non-bank lender Wizard, Mark Bouris, attacked mortgage brokers.

"Unfortunately, a large number of mortgage defaults and repossessions can be attributed to a small group of irresponsible brokers and lenders who operate in the sub-prime market," Mr Bouris said.

Mortgage brokers take a commission for acting as intermediaries between lenders and borrowers.

The head of the brokers' peak body hit back.

Mortgage and Finance Association of Australia chief executive Phil Naylor said the blame game was disappointing.

"The reality is there's no information in the statistics that allows any of the finger-pointing to have any credence," Mr Naylor said.

Consumer Action Law Centre director of policy and campaigns Gerard Brody said there had been a drop in lending standards.

"It's been too easy for some lenders and brokers to go out and lend to consumers who can't pay back loans," Mr Brody said.

Some lenders give loans for the purpose of taking borrowers' houses when they cannot make the repayments.

Reducing Whose Burden?

Reducing Whose Burden?

Seasoned Lib Dem Conference-goers agree that the tax debate at Brighton in 2006 was one of the best since the Party was formed. The motion was passed by a clear majority, rejecting a 50% top rate of income tax and embracing a “Green Tax Switch” from productivity to pollution, with a call for “further policies on land taxation to be developed, including consideration of the Lyons Review when it is published”. Note that it did not merely ask for existing policy to be further developed.

FPC moved fast and before Christmas re-convened the Tax Commission (TC) that had brought us Fairer, Simpler, Greener (FSG), with a new Chair, to specifically address a number of outstanding issues. The December 2006 FPC agenda paper acknowledged that “by far the most controversial aspect [of the TC’s work] will be the land tax question”. Some TC members saw this as an opportunity to replace our commitment to Local Income Tax (LIT) with a form of land taxation, not necessarily just – or even at all - at local level.

ALTER has long made clear that it doesn’t object to LIT – or ‘localised income tax’, as we prefer to call it – so long as a domestic property tax is retained at national level. As FSG noted, replacing Council Tax with LIT “will leave the UK in a unique position internationally of having no direct taxation of property at all”. Under Mike Williams’ chairmanship in 2006, the TC accepted this would be a very bad idea, confirming in the same paper that “there is good reason in principle why taxation of property should be retained”.

Development had already begun on an alternative proposal from Vince Cable for a national ‘progressive [domestic] property tax’ to ensure the Green Tax Switch wouldn’t be seen as a sham. As it stands (thanks to LIT), our tax policy actually increases the burden on wealth creating wage earners by around 3% - despite Conference asserting that it “supports the principle of using taxes on resource usage to help cut taxes on wealth creation” by endorsing FSG!

The Brighton debate and outcome showed that Conference understands that “‘ability to pay’ can relate to income or wealth or both”, and that it wants tax policies which tap into wealth. And the most important untapped and rapidly growing source of wealth in Britain today is the land under our houses.

Regrettably, it has become ingrained in the minds of the Party’s economically illiterate that “Axe The Tax” means ‘no more domestic property tax’. Even senior figures in the Party have been convinced by their own unsubstantiated propaganda that abolishing Council Tax (CT) whilst introducing a national Land Value Tax (LVT) would be an electoral disaster. This claim is made without any polling evidence. All the Party has ever done is compare LIT with CT. No poll has asked voters if they might prefer a ‘fairer property tax’ to LIT. The limited real evidence we do have, from residents’ surveys conducted in Newbury over the past nine months, clearly indicate that an overall majority of voters would prefer a fairer property tax to all other options, with twice as many supporting this as LIT. “Interesting”, said Chris Rennard on hearing this.

Reducing the Burden is the title of the draft policy paper now emerging from a seemingly semi-detached TC under its new chair Dick Newby. It is highly doubtful whether it meets Conference’s wish to develop new land tax policies, and it will be interesting to see what the Federal Policy Committee (FPC) does about that. The draft paper does at least offer a solution to the duplicity of a 2p Green Tax Switch and a 4.5p LIT rate, which currently raises the overall burden on jobs. Let’s hope both FPC and Conference approve of that anyway!

But it is the absence of any coherent policy on taxing the unearned wealth accruing to the owners of landed property that continues to confound any Liberal Democrat claims to care about the young and economically excluded. Despite acknowledging in FSG that “tax reform should take account of inter-generational [wealth] issues”, there was nothing in FSG - and there remains nothing in Reducing the Burden - that actually does anything to address this.

The arbitrary and widely trailed million pound property tax is there, but it is a sorry shadow of what might have been achieved – without compromising LIT! It smacks of gesture politics and has already been dubbed an “envy tax”. The problem remains that, when CT is axed for LIT, the vast majority of homes will be untaxed. Average prices will rise by over £20,000 and this Party will have further exacerbated the growing generational crisis in affordable housing.

There are 2 other key policy papers also in production that will be debated by Conference this autumn; on Poverty & Inequality and on Climate Change. Although both will no doubt contain worthy attempts at reversing the rich-poor divide and rising global warming, the opportunity for the concurrent Tax paper to lead the way with a coherent fiscal thread now seems certain to be lost. Tax reform is fundamental to tackling wealth inequity and the efficient use of finite resources. Taxing land values is a critical part of the solution. While all 3 papers may nod in the right direction, none seem able or willing to commit.

Who cares? The young do for a start. By a majority of 10 to 1, the 2007 LDYS Spring Conference passed a motion calling for LVT and not LIT to replace CT. The next generation has a vested interest in shifting tax to a sustainable base – economically and environmentally. There are also many Green Lib Dems who will be unhappy to see no further developments on LVT – arguably the “greenest tax of all”. Every other eco-tax, with the exception of LVT, will erode its own yield. They must do, or they aren’t changing unsustainable behaviour!

Just before the TC was re-convened, no less an authority than UN-HABITAT asserted that “LVT is the appropriate instrument for the urgent fight against global inequality and poverty….. Without land tax there is a vast amount of land speculation which is pushing the price of land sky high, making it unaffordable for the poor in cities.” This was part of a contract to develop an on-line Global Land Tool to help public officials understand and implement LVT. It should be ready by August, the product of collaborative work by 30 experts in over a dozen countries, led by an American Green Party activist.

Yet we have a tax policy that will remain unsustainable and unfair to millions, despite two years of discussion and FSG’s highlighting the shortcomings, as well as the solution. A century ago, the great reforming Liberal Budget of 1909 was inspired by Henry George’s seminal work Progress and Poverty – in its very title encapsulating the essential truth: that wealth arising from economic progress which accrues, untaxed, to the ‘owners’ of land or natural resources will inexorably lead to inequality, inefficiency and growing injustice.

Average house prices have been rising by an amount equivalent to twice the average annual take-home wage. No wonder gambling attracts the poor and families in rented housing despair: social exclusion is largely the product of a failure to tax land values. Two hundred years after Parliament ended slavery, will Liberal Democrats wilfully flinch from ending the enslavement by poverty that failing to recover ‘economic rent’ inflicts on asset poor workers?

TC was directed by Conference and FPC to deal with the “practical issues which would have to be resolved to make a property tax workable”. Yet when it came to the scheduled TC meeting on domestic land and property tax, the Chair immediately called for and won a vote to stop ALTER’s detailed paper on the subject even being discussed! Apart from the aforementioned High Value Property Tax, which may or may not be billed in the paper as a step towards LVT, the TC has really only developed our existing policy to replace business rates with Site Value Rating, the local form of LVT. It remains the case that no “further policies on land tax” are in the new tax paper at all.

The first practical issue is the registration and valuation of all land sites. If we embark on LVT/SVR for commercial land only, we multiply the problems for valuers and tax administrators. Far simpler to assess all commercial and domestic land from the outset, leading to a single unified property tax system with no artificial boundaries between residential and non-residential land.

Since Labour came to power, the market value of the nation’s housing stock has tripled to over £3.5 trillion. There has been only a 5% increase in housing stock, so almost the entire rise in value has been due to land – not bricks and mortar. By levying a mere 0.5% annually of the increase in value under Labour (about £1000 on a £300k house) and assuming £100k tax-free ‘Homestead Allowance’, we could raise over £10 billion in revenue, allowing that sum to be cut from income tax and other economically damaging imposts. It would ensure a ‘soft landing’ when the house price bubble eventually bursts and we could aim to maintain house prices thereafter in line with inflation.

We can sell LVT as just, sustainable and economically sound: it needs to be introduced carefully but it is far more important to introduce it now. It would be contemptibly foolish if we allowed our only property tax, however regressive, to be abolished without a progressive replacement. We will have betrayed posterity as well as our Liberal past.

Unless we join up our thinking with LVT, the ‘reduced burden’ of taxes to which the TC’s draft policy paper refers will be enjoyed not by the poor, the young or tomorrow’s entrepreneurs, but by the asset rich, the comfortable and their unproductive tax advisers. The wealth divide will widen further and the climate – socially, economically and ecologically – will get a whole lot worse.

Tony Vickers is a lecturer in ‘green taxes’ and researcher on land policy at Kingston University, a councillor in Newbury and Chair of the Lib Dem campaign group Action for Land Taxation and Economic Reform (ALTER) www.libdemsalter.org.uk He has been a member of the Tax Commission since June 2005.

BAGHDAD -- An al-Qaida-affiliated insurgent group is giving Christians in Baghdad a stark choice.

Militant threat: convert or else



June 09, 2007 12:00am



Christian families flee a Muslim imposed Tax.

The 'jizya' pay it, convert or get out.

Tower hunt for disease source

Tower hunt for disease source. Footscray and Seddon Cooling Systems 1 of 16 out of order in area. Outbreaks of Legionella bacteria are linked to towers.

Home buyers riding razor's edge

Home buyers riding razor's edge



Mary Bolling



June 09, 2007 12:00amIRST home buyers are facing the highest prices, biggest loans, and longest mortgage repayments ever.



But as desperate families borrow close to 100 per cent of their home's price, experts predict looming interest rate rises could push plenty of family budgets over the edge.



Australian Bureau of Statistics data yesterday showed more people were borrowing to get into the market.



Earliest ABS figures available show Melbourne's average first-home loan size in July 1991 was $67,500.



Ten years ago, in March 1997, it had jumped to $101,300 and this March it was up to $231,600.



Swinburne University housing researcher Terry Burke said it's now normal for first-home buyers to sign 30-year mortgages, and to borrow 95 per cent of the price of their home.



"Many first home buyers are right on the margins and once they've secured their house, most of them have very little savings," Mr Burke said.



"It would only take a very small increase in interest rates to push them over the edge."



This month, Housing Industry Association figures showed the great Australian dream has never been more expensive, with the median first-home price at $370,000.



The average income of households buying their first home is up to $93,400.



Australians for Affordable Housing spokesman David Imber said those figures are clearly shutting out average Australians.



"House prices are growing at more than double the rate of income growth," Mr Imber said.



"We keep hearing about low unemployment, but the average Australian wage is $55,000 a year -- being in an average or above-average job doesn't allow home ownership."



Mr Imber said high prices were creating a social divide between home owners and renters.



"It really is quite shocking we could have a generation of renters" he said.



Mr Imber wants government policies to help first home-buyers compete against investors.



Recent first-home buyer Paul Carboon, 36, agrees young Australians need help entering the market.



With his wife Leanne, and two young children, Mr Carboon hunted for months before securing their Notting Hill home.



"Trying to buy is a full time job and it's very depressing -- first to sign up for a 30-year loan, then to keep missing out at auctions," he said.



"And the people who are buying their third and fourth investment property are the ones that we were competing against."

Toorak mansion sold to mystery buyer for a record $18 million.

After a knock on the door and a walk thru, an unknown buyer puts an offer. The buyers advocate compares the sale to an 1880's gold rush. The 100-square two-storey English style-mansion was sold about five years earlier for $5.4 million. A little later the parcel of land next door (a tennis court) was bought for another $1.2 million. About $1 million was spent on renovations. As is usual for titleholders of highly prized sites, criminal fines for insider trading, & allegations of tax evasion using a Charitable Foundation plagued the vendor. While the price is believed to be a record, it might be trumped by a bid for a similar site being marketed as Stonnington mansion. 29 May 2007 Craig Binnie and Nicole Lindsay Herald Sun

April Foreclosure Filings More Than Double Over 2006

(Update1)

By Bob Ivry May 7 (Bloomberg) -- U.S. homeowners entered the foreclosure process in April at more than double the rate of a year ago as tightening credit made it more difficult to refinance and a swelling supply of unsold homes made it tough to sell. The number of homeowners in all three phases of foreclosure rose last month over the same period a year ago, according to Sacramento-based Foreclosures.com, which gathers data from county courthouses nationwide. Those receiving their first notice of foreclosure from a bank climbed 127 percent, those with homes going up for sale by auction jumped 164 percent and those whose homes were repossessed by banks went up 40 percent. Eight of 10 subprime loans, given to borrowers with bad or limited credit histories, adjust over time to higher interest rates and many homeowners can no longer afford their mortgages. With existing home sales at a four-year low, it's more difficult to sell because there are so many homes on the market. ``The housing boom was a house of cards,'' said Alexis McGee, president of Foreclosures.com. ``A lot of people who are living beyond their means and borrowing from Peter to pay Paul find that it's starting to catch up with them. We're seeing the effects of aggressive lending and minimal standards for underwriting.'' The number of foreclosure filings decreased in April in all three categories compared with March, Foreclosures.com said. Notices of default dropped 16 percent, auctions decreased 12 percent and bank repossessions fell 14 percent. The March 2007 numbers compared with a year earlier were similar to the increases of April 2007 over April 2006. First filings increased 126 percent in March 2007 compared with March 2006, notices of auction climbed 121 percent and the number of bank repossessions grew 51 percent, Foreclosures.com said. Avoiding Foreclosure The numbers show that many homes that begin the foreclosure process don't end up owned by banks, McGee said. ``A lot of these homeowners are getting new financing or they're selling it before the auction,'' McGee said. ``The owner is able to figure out a way to get his house in order before his house is taken away.'' In the first four months of this year, homes in all three phases of the foreclosure process increased from the same period a year ago, Foreclosures.com said. Notices of default and auctions more than doubled, while bank takeovers, or REOs for ``real estate owned,'' rose 39 percent. Purchases of existing homes dropped in March to an annual rate of 6.12 million, from 6.68 million in February, the biggest decline since January 1989, said the Washington-based National Association of Realtors. Sales fell 11.3 percent compared with a year earlier. According to Zurich-based Credit Suisse, 82 percent of subprime mortgages have an adjustable rate provision, meaning that payments start with low or ``teaser'' rates and adjust to a higher rate after a set number of years. To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net . Last Updated: May 7, 2007 17:36 EDT

What the gatekeeper saw

Rate change will worsen rent squeeze 28/3/2007 At present, council rates in NSW are based on the value of land alone. If the rating base is changed to the value of land plus buildings, as suggested by Noel Taylor (ST Letters, 4 Feb 2007), the consequences will include the following: * Land owners who build new accommodation or extend existing accommodation will be penalized with higher rate bills. So there will be less building and extending. The shortage of rental accommodation will worsen, making rents less affordable, and jobs will be lost in the building industry. * Families who modify their homes at great expense for the benefit of disabled members will be hit with higher rate bills. * Valuations of buildings will become critical for tax purposes and will therefore need to be more accurate, hence more intrusive, involving more internal inspections. * Landlords will allow properties to deteriorate because run-down buildings will be taxed less than well-maintained buildings. Land-value rating avoids these problems because the land, unlike any buildings erected on it, is not the product of any human effort that can be deterred by taxation. — Rejected by the Sunday Telegraph (Sydney). Posted by G.R. Putland.

No Spring Thaw for Housing

Spring is usually the hot time for home sales. But this year, March results were terrible—and April and May don't look much better By Maya Roney Maybe you guessed it, but now it's official: The housing market has not hit bottom. Poor home sales in cold-and-quiet February may be excusable, but in March, April, and May, they are a sure sign of distress. The latest numbers indicate that the spring of 2007 will go down as one of the worst real estate seasons in years. ...a forward-looking indicator based on contracts signed in March, dropped 10.5% from March, 2006, and 4.9% from February, 2007, to 104.3, the lowest reading since March, 2003. ...existing home sales fell 8.4% year over year, marking the sharpest plunge in 18 years. ...Pat McPherron, housing economist for Moody's Economy.com says "If April doesn't go well, then that's it. This is the market." ...the National Association of Home Builders/Wells Fargo Index measuring builder confidence fell to 33 from 36 in March (a reading below 50 means most respondents view conditions as poor). ...house prices accelerated faster than incomes during the housing boom. "What [subprime lenders] have done is stopped the bleeding." says McPherron

Godliness is close to speculation.

As a Big Landowner Plans to Sell, Mouths Begin to Water

By JAKE MOONEY

Published: May 6, 2007



Brookyn Heights

In the lobbies of some of the buildings near the Brooklyn waterfront owned by the Watchtower Bible and Tract Society, visitors can pick up plastic-wrapped packets of postcards depicting the organization’s various properties. On one, an aerial view of Brooklyn Heights, it seems as if nearly every third building is a Watchtower dormitory.



Since 1909, the neighborhood has been home to Brooklyn Bethel, as the organization, whose members are known as Jehovah’s Witnesses, calls its world headquarters. Other postcards in the packet, though, tell a story of change: They show neatly dressed volunteers at work in a sprawling new complex north of the city in Wallkill, N.Y., where the Witnesses moved their Bible- and magazine-printing operations in 2004.



Now, the residential buildings are beginning to go, too: The Witnesses plan to sell six of their Brooklyn Heights residences, including the venerable 12-story Standish Arms Hotel building, as part of what they are calling an organizational consolidation. With the printing presses gone and the former warehouse and shipping facility at 360 Furman Street sold, Witnesses spokesmen said, the organization needs less space for members to live.



Besides the Standish Arms, at 169 Columbia Heights, between Clark and Pierrepont Streets, the buildings for sale include four-story and seven-story apartment buildings on the same street, and three 19th-century houses nearby.



The offerings, which were reported in The Brooklyn Eagle, have Brooklyn Heights residents buzzing about the potential for the new properties hitting the real estate market. Residents are also speculating about the future of the former Bossert and Leverich Towers Hotels, two other meticulously restored buildings the organization owns in the neighborhood.



“When people hear that they’re selling the Standish Hotel, they start drooling about the Bossert,” Robert Perris, district manager of Brooklyn Community Board 2, said of the opulent tower at Montague and Hicks Streets, where the Brooklyn Dodgers celebrated their victory in the 1955 World Series. “The speculation runs rampant.”



According to Richard Devine, a Watchtower spokesman, the organization is not working with an outside real estate agent and has no set asking prices, but it will evaluate offers as they come in, as it did with the sale of 360 Furman and three other buildings on Livingston, Hicks and Clark Streets that the organization recently sold.



As for the other 24 buildings that Watchtower owns in the Heights and nearby Dumbo, the organization, as it often does, is keeping its plans close to the vest.



“Currently we don’t have any plans to sell any more,” Mr. Devine said. “At least not at this time.”



ed.,So much for Lev 25:23

Review of Steve Keen, Debunking Economics:

The Naked Emperor of the Social Sciences, London: Zed Books, 2001 Geoff Harcourt (Cambridge University, UK) Steve Keen's Debunking Economics is a provocative book; deliberately so is my conjecture. The anti-Vietnam war movement in Adelaide dichotomised into either militants or moderates. I belonged to the second group, because I thought it the proper way for academics to play a public role in vital political and social issues. I also thought it would be counter-productive to do otherwise (no prize for guessing the respective weights attached to the two reasons). Steve, I'm sure, would have been a militant. Certainly that is his approach here. I worry that this may backfire, for I have sympathy with his aims and many of his arguments and judgements. Time will tell who is right (perhaps I could say that the militants wanted the Australian revolution to occur first, then the troops could be brought home and conscription abolished. The moderates thought it better to get an ALP government elected because these two objectives were core items in Labor's election manifesto). Keen's object is to go behind what is currently taught to economics undergraduates in order to reveal the conceptual bases of their instruction and the ideological purposes involved. He comes to his task with a thorough knowledge of the classics of the subject, of Adam Smith as well as of Karl Marx, and with considerable analytical skills of the modern sort. He is a graduate of the political economy movement at the University of Sydney, and his Ph.D. dissertation was an amalgam of the theories of Dick Goodwin and Hy Minsky, two modern maverick greats, both alas now dead. Goodwin was a pupil and then a colleague of Wassily Leontief and Joseph Schumpeter at Harvard, and a pupil of Roy Harrod and Henry Phelps Brown at Oxford. He was much influenced by Maynard Keynes's writings and by Richard Kahn, Joan Robinson and Piero Sraffa of his Cambridge, England colleagues in the post-war period. Though he ceased to be a member of the communist party by the 1940s he remained an informed fan of Marx's writings, especially of Marx's deep knowledge of how capitalism works. (Joan Robinson used to say of Schumpeter that he was Marx with the adjectives changes.) This background, together with his love of Wicksell's economics and teaching physics at Harvard during World War II, led to Goodwin's pioneering contribution of models of cyclical growth. They incorporated his insight that trend and cycle are indissolubly mixed, not separable and determined by different sets of factors, as usually happens in orthodox economics. Minsky also knew his Marx. He worked with Oskar Lange as a young man. His great contribution was to show how real and monetary factors interrelated to produce cycles as capitalist economies evolved through time. While he drew on the writings of Keynes and Michal Kalecki, his financial instability hypothesis associated with the analysis of the effects on firms and on the economy, of the non-realisation of the expected cash flows arising from investment projects, is highly original. It has proved of greater and greater value in our understanding in recent years of the financial instabilities and crises in the world economy. Keen's contribution is to put these two strands together to provide a structure for illuminating the malfunctionings of modern interrelated capitalist economies. He does this in a way which not only draws on the insights of our past masters but also employs the most modern of analytical techniques. With such abackground it is easy to understand his horror at the contents of modern textbooks.Increasingly they model the capitalist world as though it were conforming to the dictates of Frank Ramsey's benevolent dictator, choosing optimum paths of accumulation over time for all its citizens. Keynes's long run in which "we are all dead" (well, he's dead and we are in the long run, as an IMF wit recently put it) has returned to dominate our supposed understanding of what is happening.Short-term instabilities are viewed as mere aberrations, fluctuations around this long-period optimum trajectory. Against this macroeconomic background, modern microeconomics has a bias towards examining the behaviour of competitive markets (as set out most fully and rigorously in the Arrow-Debreu model of general equilibrium), not as reference points but as approximations to what is actually going on. Of course, departures from them are taught, increasingly by the clever application of game theory. Moreover, the deficiencies of real markets of all sorts are examined in the light of the implications, for example, of the findings of the asymmetric information theorists (three of whom - George Akerlof, Michael Spence, and Joe Stiglitz - have just (10/10/01) been awarded this year's Nobel Prize. From Amartya Sen on, the Nobel Prize electors seem to be back on track). While professional economists increasingly get to know of these and other developments, often through the pages of the excellent Journal of Economic Perspectives, the most used undergraduate textbooks are usually light years away from such enlightenment. Moreover, alternative approaches in our subject, economic history and the history of economic thought are either being marginalized in, or driven out altogether from most undergraduate courses. Keen's book is directed against these trends. He examines what is taught in macroeconomic and microeconomic courses and what their deficiencies and shortcomings are. And he suggest alternatives, some of which come out of the many influences on him and his own contributions. As I said, I understand his impatience and anger and I applaud his aims. I just worry that the tone of the book and, sometimes, his assertions may allow critics to sidetrack the arguments along byways which may seem plausible but ultimately miss the point - to the detriment of the training of future generations in what Keynes memorably called "our miserable subject". Nevertheless, if I were given a free hand to design a course, I would urge my pupils to read both Keen's book and Hugh Stretton's marvellous alternative text (Economics: A New Introduction, published by Pluto in 1999) as well as the best of the mainstream texts now available. (I would also urge them to read some of the great originals too!) Only then would I feel they had been introduced to the appropriate material with which to make up their own minds what approach(es) to take in their studies. As it is, without the insights of a Keen and a Stretton (and of the past greats), I fear we are likely to produce well trained but uncritical cogs, the better to fit the needs of our modern industrialised societies. It is not the proper role of university teachers either to be hired prize fighters or produce them. SUGGESTED CITATION: Geoff Harcourt(2002)“Review of Steve Keen, Debunking Economics: The Naked Emperor of the Social Sciences", post-autistic economics review : issue no. 11, January, article 5. http://www.btinternet.com/~pae_news/review/issue11.htm __________________ This review originally appeared in the Financial Review

Review of Steve Keen, Debunking Economics:

The Naked Emperor of the Social Sciences London: Zed Books, 2001 Steve Keen's Debunking Economics is a provocative book; deliberately so is my conjecture. The anti-Vietnam war movement in Adelaide dichotomised into either militants or moderates. I belonged to the second group, because I thought it the proper way for academics to play a public role in vital political and social issues. I also thought it would be counter-productive to do otherwise (no prize for guessing the respective weights attached to the two reasons). Steve, I'm sure, would have been a militant. Certainly that is his approach here. I worry that this may backfire, for I have sympathy with his aims and many of his arguments and judgements. Time will tell who is right (perhaps I could say that the militants wanted the Australian revolution to occur first, then the troops could be brought home and conscription abolished. The moderates thought it better to get an ALP government elected because these two objectives were core items in Labor's election manifesto). Keen's object is to go behind what is currently taught to economics undergraduates in order to reveal the conceptual bases of their instruction and the ideological purposes involved. He comes to his task with a thorough knowledge of the classics of the subject, of Adam Smith as well as of Karl Marx, and with considerable analytical skills of the modern sort.He is a graduate of the political economy movement at the University of Sydney, and his Ph.D. dissertation was an amalgam of the theories of Dick Goodwin and Hy Minsky, two modern maverick greats, both alas now dead. Goodwin was a pupil and then a colleague of Wassily Leontief and Joseph Schumpeter at Harvard, and a pupil of Roy Harrod and Henry Phelps Brown at Oxford. He was much influenced by Maynard Keynes's writings and by Richard Kahn, Joan Robinson and Piero Sraffa of his Cambridge, England colleagues in the post-war period. Though he ceased to be a member of the communist party by the 1940s he remained an informed fan of Marx's writings, especially of Marx's deep knowledge of how capitalism works. (Joan Robinson used to say of Schumpeter that he was Marx with the adjectives changes.) This background, together with his love of Wicksell's economics and teaching physics at Harvard during World War II, led to Goodwin's pioneering contribution of models of cyclical growth. They incorporated his insight that trend and cycle are indissolubly mixed, not separable and determined by different sets of factors, as usually happens in orthodox economics. Minsky also knew his Marx. He worked with Oskar Lange as a young man. His great contribution was to show how real and monetary factors interrelated to produce cycles as capitalist economies evolved through time. While he drew on the writings of Keynes and Michal Kalecki, his financial instability hypothesis associated with the analysis of the effects on firms and on the economy, of the non-realisation of the expected cash flows arising from investment projects, is highly original. It has proved of greater and greater value in our understanding in recent years of the financial instabilities and crises in the world economy. Keen's contribution is to put these two strands together to provide a structure for illuminating the malfunctionings of modern interrelated capitalist economies. He does this in a way which not only draws on the insights of our past masters but also employs the most modern of analytical techniques. With such a background it is easy to understand his horror at the contents of modern textbooks. Increasingly they model the capitalist world as though it were conforming to the dictates of Frank Ramsey's benevolent dictator, choosing optimum paths of accumulation over time for all its citizens. Keynes's long run in which "we are all dead" (well, he's dead and we are in the long run, as an IMF wit recently put it) has returned to dominate our supposed understanding of what is happening. Short-term instabilities are viewed as mere aberrations, fluctuations around this long-period optimum trajectory. Against this macroeconomic background, modern microeconomics has a bias towards examining the behaviour of competitive markets (as set out most fully and rigorously in the Arrow-Debreu model of general equilibrium), not as reference points but as approximations to what is actually going on. Of course, departures from them are taught, increasingly by the clever application of game theory. Moreover, the deficiencies of real markets of all sorts are examined in the light of the implications, for example, of the findings of the asymmetric information theorists (three of whom - George Akerlof, Michael Spence, and Joe Stiglitz - have just (10/10/01) been awarded this year's Nobel Prize. From Amartya Sen on, the Nobel Prize electors seem to be back on track). While professional economists increasingly get to know of these and other developments, often through the pages of the excellent Journal of Economic Perspectives, the most used undergraduate textbooks are usually light years away from such enlightenment. Moreover, alternative approaches in our subject, economic history and the history of economic thought are either being marginalized in, or driven out altogether from most undergraduate courses. Keen's book is directed against these trends. He examines what is taught in macroeconomic and microeconomic courses and what their deficiencies and shortcomings are. And he suggest alternatives, some of which come out of the many influences on him and his own contributions. As I said, I understand his impatience and anger and I applaud his aims. I just worry that the tone of the book and, sometimes, his assertions may allow critics to sidetrack the arguments along byways which may seem plausible but ultimately miss the point - to the detriment of the training of future generations in what Keynes memorably called "our miserable subject". Nevertheless, if I were given a free hand to design a course, I would urge my pupils to read both Keen's book and Hugh Stretton's marvellous alternative text (Economics: A New Introduction, published by Pluto in 1999) as well as the best of the mainstream texts now available. (I would also urge them to read some of the great originals too!) Only then would I feel they had been introduced to the appropriate material with which to make up their own minds what approach(es) to take in their studies. As it is, without the insights of a Keen and a Stretton (and of the past greats), I fear we are likely to produce well trained but uncritical cogs, the better to fit the needs of our modern industrialised societies. It is not the proper role of university teachers either to be hired prize fighters or produce them. Geoff Harcourt(2002) “Review of Steve Keen, Debunking Economics: The Naked Emperor of the Social Sciences", post-autistic economics review : issue no. 11, January, article 5. __________________ This review originally appeared in the Financial Review

Tenants forced to give up pets.

Wednesday, 25 April 2007, 15:09 GMT 16:09 UK People who rent property in Jersey have been forced to give up their pets because of restrictive contracts, said Jersey's Animal Shelter (JSPCA). Residents who rent houses or flats have to obey a clause not to keep pets. JSPCA's chief executive Stephen Coleman said the amount of animals left in their care had risen by 15-20%. He said there was a significant rise in cats. But letting agent Julian Cubbage said he did not think renting contracts were becoming more stringent. He said there had always been an historic sensitivity to animals and that pets were not allowed in homes because of the damage they may cause. "There's also a nuisance factor to other owners - it's not very satisfactory if every time you walk past a flat door you have a dog barking at you from the other side," he said. Mr Cubbage advised residents to question the contracts as compromises could be made.

Real Estate Tax Levied On 300,000 Houses Up 90%

donga.com APRIL 30, 2007 03:43 The publicly assessed values of apartment and row houses largely increased this year by an average of 22.8 percent from last year. Detached houses increased by 6.22 percent in value.

In particular, there has been a sudden rise in many areas within the Seoul Metropolitan Area, including Yangcheon-gu (46.1 percent) in Seoul, and Gwacheon City (49.2 percent) in Gyeonggi Province. As a result, the tax burden caused by holding real estate, including composite real estate taxes and property taxes, increased.

The Ministry of Construction and Transportation (MOCT) announced yesterday that this year’s publicly assessed value of 9.03 million apartment houses would be released on April 30. The publicly assessed value of 4.05 million detached houses will also be released by each municipal and regional office on April 30.

This publicly assessed value has been confirmed through an opinion hearing period last month. Any issues can be raised to the MOCT, municipal and regional offices, and the Korea Appraisal Board by May 30. The number of houses valued over 600 million won almost doubles- As the publicly assessed value rose remarkably, the number of houses valued over 600 million won, which is a basis for composite real estate taxes, increased to 300,711, up by almost 90 percent from last year (159,115). Among the houses valued over 600 million won, 99.8 percent of apartment houses and 97.1 percent of detached houses are located in the Seoul Metropolitan Area, including Seoul City. According to an estimate conducted by the National Tax Service (NTS), the number of households subject to composite real estate taxes amounts to 381,000 this year, up 149,000 from last year (232,000). This is just from taking into consideration houses owned by individuals and, if corporation-owned houses and land were also considered, composite real estate taxes would be imposed on 505,000 households. The reason why the number of households subject to composite real estate taxes is larger than that of houses valued over 600 million won is because publicly assessed values of all the houses owned by a household are added all together to determine on whether composite a real estate tax should be levied. For example, in cases when a husband and wife own 400 million won and 300 million won apartment houses, a composite real estate tax is not imposed on each apartment house. However, the household should pay composite real estate tax based on the total of each apartment’s value. Those who own only one house will pay 2.31 million won on average in composite real estate taxes- The composite real estate tax burden for households is expected to increase rapidly. According to the NTS, this year’s average composite real estate tax burden for households that paid the composite real estate tax last year amounts to 4,743,000 won, more than double last year’s (2,108,000 won). This is because publicly assessed value has increased remarkably and the taxable amount basis increased to 80 percent from 70 percent last year. Households subject to composite real estate taxes for the first time this year will pay 799,000 won on average. Also, among those who own only one house, 139,000 households became subject to that composite real estate tax this year. These households will pay 2,317,000 won composite real estate taxes on average. Property tax increased by 11.1 percent on average compared to last year, but the tax amount imposed on houses valued over 600 million won jumped by 39.3 percent on average. Accordingly, holding taxes, which are the sum of composite real estate taxes and property taxes, are expected to be close to the tax burden ceiling (three times the tax paid previous year) in many areas. In terms of some areas which local governments exempted from property taxes, real estate holding taxes will actually triple since the exempted amount is not considered when determining the tax burden ceiling. According to Kim Jong-pil, a tax expert, a 34-pyeong unit in Eunma Apartments in Daechi-dong, Gangnam-gu, Seoul was subject to holding taxes of 2.16 million won last year; that went up to 5.80 million won this year. The holding tax amount for a 35-pyeong unit in new town complex 3 located in Mok-dong, Yangcheon-gu will almost triple from 1.35 million won to 3.71 million won. Sudden decline in sale prices followed by civil appeal for “publicly assessed vale adjustments”- There are some areas where publicly assessed value is higher than market value. Some publicly assessed values were dated on January 1, 2007, a time when the market value was higher than now. The actual transaction price of a 34-pyeong unit Eunma apartment reported on April 16 was one billion won, which is lower than this year’s publicly assessed value (1.008 billion won). If house prices continue to fall, the publicly assessed value, which was determined based on 80 percent of market value, will highly likely become similar to or higher than present house prices. Due to a large decline in sale prices, there has been a wave of civil petitions to lower publicly assessed value. The number of petitions sent to the MOCT in the 20 days after March 14 amounted to 56,355, up more than six times from last year (9,000). The MOCT explained, “The publicly assessed value cannot be readjusted with house prices changes since the assessment basis date, according to the rules.”

Fear of Foreclosure

By VALERIE COTSALAS

Published: April 22, 2007

WHEN Matilde Amico’s employer cut back her overtime in September, her working hours as a dispatcher for an alarm company fell from a high of 70 hours a week to about 40.

November she had missed two mortgage payments on the three-bedroomranch in Mastic that she had bought as a single mother in 1989, and hadkept by working either two jobs or long overtime hours. She received anotice from her lender threatening foreclosure.

“At that point, I didn’t know what I was going to do,” Ms. Amico said recently. She lives in the house with her 24-year-old son, whose own small business recently failed. “I could see the sheriff coming and putting all of my things on the street.”

Ms. Amico told her story at a news conference held on April 12 by Suffolk County officials to announce that there is help available for homeowners facing foreclosure.

The county at first said the number of foreclosures on Long Island in 2007 was expected to total 18,854, citing data received from the office of Senator Charles E. Schumer.

But the senator’s office later said that the county had misinterpreted the figures and that the 18,000 represented mortgages whose interest rates are likely to rise substantially this year.

It is a big step from rising mortgages rates to foreclosure, however. In all of 2006, 192 homes were lost through foreclosure on Long Island, according to RealtyTrac Inc., a firm that tracks foreclosures nationwide. (Other homes, of course, may have been sold to head off legal action.)

Foreclosure actions are often a result of illness or loss of income, as in Ms. Amico’s case. But many also result from risky loans given to home buyers during the recent real estate boom, officials say.

Higher payments have come due on large numbers of subprime mortgages, putting more borrowers in difficulty. Such mortgages — which often start with low “teaser” rates and then spike up to higher levels after a few years — are usually made to borrowers who have poor credit backgrounds or whose income may not be high enough to comfortably afford larger monthly payments.

As Steve Levy, the Suffolk County executive, said at the meeting, “Now we’re starting to see that these folks are starting to fall behind on mortgage payments.”

One recourse, a service set up by the county, refers those facing foreclosure to counselors certified by the United States Department of Housing and Urban Development. The counselors can help homeowners take one of several possible paths, depending on the severity of their financial plight: renegotiate monthly mortgage payments; provide bridge loans that don’t have to be paid back until the house is sold or refinanced; refinance the mortgage to a lower interest rate; or sell the house and find other living arrangements. Nassau announced a similar program the same day. In Suffolk, the telephone number is (631) 853-4800; in Nassau, (516) 571-4663. The counseling and assistance are free.

In the three days after the announcement, Suffolk received nearly 300 calls from homeowners. Nassau reported 260 calls.

The county can also provide limited financial assistance, up to $1,000 per homeowner, from a federally financed homeless prevention program. “This isn’t throwing good money after bad,” Mr. Levy said. “Foreclosed homes become eyesores in the community; they devalue other homes nearby.”

A day before the Suffolk press conference, the Joint Economic Committee of Congress proposed in a report released in Washington that the government provide funds ($3,300 per household) to help prevent foreclosures nationwide.

In the report, Nassau and Suffolk Counties ranked 37th among the 50 metropolitan areas with the highest foreclosure rates in 2006. (Detroit-Livonia-Dearborn, Mich., was first.) Across New York, 13 percent of subprime loans were 60 or more days delinquent as of the end of February, up seven percentage points since February 2005, with the highest increases in Long Island, Dutchess County and New York City, according to the report.

While Ms. Amico had a fixed-rate 30-year mortgage, her situation illustrated how quickly even a solid homeowner can fall into dire straits. In her case, help came by way of a friend who referred her to the Long Island Housing Partnership, a nonprofit organization that provides free counseling and garners public funds to help build affordable housing.

Kisha Wright, a counselor at the partnership, called the lender who held Ms. Amico’s mortgage and tried to restructure the loan. When the bank turned Ms. Amico down, the partnership lent her $13,500 in New York State grant money. Together with $4,000 that Ms. Amico had saved, the amount covered seven missed mortgage payments. Meanwhile, Ms. Amico was able to restore her overtime hours.

Ms. Wright said that 59 homeowners facing foreclosure had come to the partnership for help in the last three months. In previous years, there would typically have been “only a handful” of such cases in the same period.

By the time Ms. Wright sees them, homeowners have typically missed 3 to 12 months of payments.

The situation is likely to worsen on Long Island and elsewhere in the country, local and United States government officials say.

“Subprime loan foreclosures are expected to increase in 2007 and 2008 as 1.8 million hybrid ARMs — many of which were sold to borrowers who cannot afford them — reset in a weakening housing market environment,” the Congressional report read. (Hybrid adjustable rate mortgages have rates that climb, but only after an initial rate that can be locked in for, say, 3, 5, 7 or 10 years.)

Borrowers with interest-only mortgages may eventually be saddled with an additional payment against the principal amount of the loan. That could as much as double monthly payments, according to Pearl Kamer, chief economist of the Long Island Association.

With a glut of homes on the market, she added, prices are declining, particularly for homes listed for more than $500,000. And lenders have tightened requirements for borrowers, fewer of whom can thus qualify for mortgages.

She said she believed all neighborhoods on Long Island would be affected, not only the less affluent ones. When real estate was booming, less affluent buyers “got into these more expensive homes with subprime mortgages,” Ms. Kamer said, often to move to a better school district.

As home prices drop, she said, many homeowners are stuck owing more money than they can recover by selling the house, which could lead to foreclosure if they are unable to keep up with the monthly payments.

Ms. Amico of Mastic said she was initially embarrassed to face Ms. Wright, the counselor who helped her. “I thought, what was this woman going to think of me?” she said.

But she later told her story publicly in the hope that others would swallow their pride and seek help. “She really helped me save my house,” Ms. Amico said of Ms. Wright. “She was with me from Step 1 all the way to the end.”