Preventing The Next Housing Boom

[deus ex machina]

If there are no substantive changes to the system it is inevitable there will at some stage be a resurgence in house prices.

It strikes me that the only way to cap these booms would be to change taxation. Scrapping tax relief on BTL rentals and limiting CGT relief to the sale of one property only in one's lifetime seems fair to me.Would members vote for it?

[Time to raise the rents.]

Attacks on property rights should be resisted as shown in this interesting article:

http://www.smh.com.au/news/opinion/safe-as...6387622255.html

Safe as houses? Don't count on it

I'VE been surprised in the past year by how many stories I've come across that have involved property rights. It's a subject I've always regarded - to the extent I did regard it - as dusty, indeed boring. Yet from the devaluing of thousands of Sydney homes in the name of heritage preservation, to arguments over Aboriginal land rights, to major problems with foreign aid and tsunami relief in Indonesia, flawed property rights have emerged as a common thread.

At university I learnt these rights were one of the bases of Western civilisation. And I knew that widespread home ownership - perhaps the ultimate property right - was a cause of the spread of wealth in Australia. But I'd always felt the subject was a bit too materialistic to get excited about.

It took a conversation with the Aboriginal leader Warren Mundine to make clear to me that a mortgage is actually a thing of beauty, because it has massive consequences for the behaviour of those who take it up. Paying off a mortgage encourages healthy habits, employment, family stability: many of the things that make us happy. A mortgage is the best peaceable device for taming male testosterone discovered since blokes stopped hunting woolly mammoths. The poets might complain that it hampers freedom, but in a world where moral deregulation and prosperity have created an infinity of choice, the problem for most people is not too little freedom but how to manage its abundance. For many, a mortgage provides structure and purpose.

As Mundine knows all too well, a society without mortgages doesn't look like the Left Bank of Paris in 1926. It looks like the troubled Gordon public housing estate in Dubbo in 2006.

Most of us take property rights in our lives so much for granted that we don't realise how essential they are to liberty and prosperity. This, I suspect, is why we tolerate the increasing number of attacks on property rights that are occurring as life becomes more complicated and the population increases.

A relatively minor but growing cause for these attacks is the alleged preservation of heritage buildings in Sydney. The Royal Australian Institute of Architects announced last year it wanted to put former 1960s display villages in St Ives, Forestville and Carlingford on an official heritage list, so that owners will never be able to significantly renovate, let alone replace, their homes.

Such a listing would dramatically reduce the price of most of these houses, and as there is virtually no compensation for such listings, what the institute is proposing is state-sanctioned theft. Already 10,000 private homes in NSW have been part-nationalised in this manner.

According to a letter sent by the institute to the NSW Heritage Office in June: "The retention [of a total of 14 former display villages] is crucial to demonstrating the evolution and development of the project house and Sydney School of architecture … project housing is currently the subject of three doctorate inquiries [and] it is a dominant theme in postwar cultural studies." So there you have it. Property rights are to be reduced so a handful of anxious architects can sleep at night, and cultural studies students retain their subject matter.

In the same letter, the institute said it was "alarmed" to learn Ku-ring-gai Council had decided not to list two project homes in St Ives. The owner of one of them (who wishes to remain anonymous) told me he purchased it with the intention of demolishing the place because, in his humble view, it was badly planned and sited on the block. When the heritage zealots prevented this, he and his wife moved out because of "its small size and excessive humidity and dust due to its poor construction". He was unable to sell it due to the proposed heritage listing, and efforts to rent it out at well below the market rate have been unsuccessful due to its cramped rooms and state of disrepair.

You can see why heritage zealots might be alarmed at a barbarian for whom the honour of living in a splendid example of the Sydney School should be so overshadowed by sordid financial considerations. The owner, an immigrant, says he has spent $60,000 so far in fighting the heritage fanatics. "I expected this sort of thing in Iran," he says, "but I thought in Australia governments are supposed to be responsible for their actions."

The rural equivalent of heritage is native vegetation legislation. Again it sounds innocuous, even noble in its intentions, but its effect on the many individuals involved has been devastating. It is now illegal for a farmer to remove even a branch from a (native) tree. As long-term land use flexibility is essential to many farms, this has had huge financial consequences.

One example: a study by the University of New England estimates that in Moree Plains Shire, land values have been reduced by 20 per cent on average. Incomes on many farms have plummeted.

As with heritage listings, there is no compensation to those whose assets have been attacked. This has been criticised by the Productivity Commission, in a report into native vegetation laws some years ago, and in its draft report Conservation of Australia's Historic Heritage Places, released last month. The commission's chairman, Gary Banks, says: "It's important in regulation to look at the costs and who should bear them. Both native vegetation and heritage are wider community values, but these laws intrude on the property rights of individuals." State governments have decided they can appease environmental and heritage lobby groups with solutions Banks tactfully describes as "off budget" (that is, daylight robbery).

It's strange that democratically elected governments should be prepared to attack property rights in this manner. But as the American writer Tom Bethell points out in his excellent The Noblest Triumph (the only general book about property rights I'm aware of), strong property rights protected by law are one of the main bastions of liberty, because they shield the weak against the strong. As governments are strong and are always trying to extend their own power at the expense of individuals', they are constantly encroaching on private property rights.

This is sometimes justified. Property rights are not fixed but fluid, and there are times when one individual's property rights conflict with another's, or even with broader values. For instance, farmers within sight of Taralga want to build wind turbines on their land. They, and arguably the broader society, will benefit from this, but the properties of people in Taralga (a heritage town) will be devalued. Resolving such a conflict is genuinely difficult.

One way of easing the process would be to compensate people when their property rights are reduced by government. This is not only a matter of justice. Wolfgang Kasper, an expert on the law and economics of property rights and emeritus professor at the University of NSW, points out that if governments had to pay compensation to people affected by laws such as those involving heritage and native vegetation, they might think twice about their severity. "The compensation of owners," he says, "when some of their rights, such as the right to alter what you legitimately own, are taken, ensures that governments are subject to a certain discipline when interfering in our private affairs."

Kasper notes that the importance of property rights is most obvious when we see their absence: "Just look at Third World countries, where private property is insecure for most, and all the time threatened by corrupt officials. This shows how secure property is crucial to prosperity, liberty and justice."

In this context I was fascinated to hear an official of CARE Australia say on radio, last year, that property rights were hampering tsunami relief efforts. Apparently it was often impossible to know who, if anyone, owned buildings that had been destroyed, or vacant land on which to erect buildings.

The Peruvian development economist Hernando de Soto believes property rights, which allow people to transfer, and borrow against, their assets, are the missing ingredient in the Third World. Without them, there can be no significant economic development. This reverses the Marxist theory (believed today by many non-Marxists) that economic relations are the infrastructure on which the law is based. In fact, as Tom Bethell notes, it's pretty much the other way round. This explains why debt forgiveness and massive aid have little effect on poor countries beyond encouraging their governments to persist in their dysfunctional, often corrupt, ways. Aid empowers politicians; property rights empower people.

As Warren Mundine has shown in this past year, Aboriginal land rights have been a good test case in property rights. Basically, white Australia has given back a lot of property, but very few rights. The land is, either legally or effectively, held communally and cannot be sold. The results have been just that lack of economic development, and the resultant social breakdown, that de Soto describes in the Third World.

Property rights have been inherent in Western society for so long we have forgotten how important they are. This is causing a lot of harm for a lot of people. It's time we re-acquainted ourselves with the poetry of property.

[war]

Property owners should pay taxes on the profits they had made on the purchase of houses; BTL should not be given any tax relief- because someone else is ending up paying their taxes. Also the second homes should be taxed exactly like the first home.

But these are not the only factors causing property boom. Cheap lending is important- there should be a threshold to the lending limits. Also, self-certification mortgages (lie-to-buy) should be banned. I blame the policies of Gordon Brown leading to the present bubble.

But, booms and busts are the way of life. Whatever is done legally, sharks will find ways to circumvent this.

[Tester]

The thought of abolishing interest tax relief sends shivers down the spine of many a highly geared BTL investor.

Time for another letter to my MP (the first was the one about SIPPS).

[Scipio_Africanus]

I think the market can sort things out, though I think CGT should be levied on property sales - perhaps if they're held for less than five years. Can't stand it when everyone moans about high prices, how a generation is being shut out of property - again, the market will sort the matter out, it always does.

[murpaul]

Attacks on property rights should be resisted as shown in this interesting article:

http://www.smh.com.au/news/opinion/safe-as...6387622255.html

Safe as houses? Don't count on it

I'VE been surprised in the past year by how many stories I've come across that have involved property rights. It's a subject I've always regarded - to the extent I did regard it - as dusty, indeed boring. Yet from the devaluing of thousands of Sydney homes in the name of heritage preservation, to arguments over Aboriginal land rights, to major problems with foreign aid and tsunami relief in Indonesia, flawed property rights have emerged as a common thread.

At university I learnt these rights were one of the bases of Western civilisation. And I knew that widespread home ownership - perhaps the ultimate property right - was a cause of the spread of wealth in Australia. But I'd always felt the subject was a bit too materialistic to get excited about.

It took a conversation with the Aboriginal leader Warren Mundine to make clear to me that a mortgage is actually a thing of beauty, because it has massive consequences for the behaviour of those who take it up. Paying off a mortgage encourages healthy habits, employment, family stability: many of the things that make us happy. A mortgage is the best peaceable device for taming male testosterone discovered since blokes stopped hunting woolly mammoths. The poets might complain that it hampers freedom, but in a world where moral deregulation and prosperity have created an infinity of choice, the problem for most people is not too little freedom but how to manage its abundance. For many, a mortgage provides structure and purpose.

As Mundine knows all too well, a society without mortgages doesn't look like the Left Bank of Paris in 1926. It looks like the troubled Gordon public housing estate in Dubbo in 2006.

Most of us take property rights in our lives so much for granted that we don't realise how essential they are to liberty and prosperity. This, I suspect, is why we tolerate the increasing number of attacks on property rights that are occurring as life becomes more complicated and the population increases.

A relatively minor but growing cause for these attacks is the alleged preservation of heritage buildings in Sydney. The Royal Australian Institute of Architects announced last year it wanted to put former 1960s display villages in St Ives, Forestville and Carlingford on an official heritage list, so that owners will never be able to significantly renovate, let alone replace, their homes.

Such a listing would dramatically reduce the price of most of these houses, and as there is virtually no compensation for such listings, what the institute is proposing is state-sanctioned theft. Already 10,000 private homes in NSW have been part-nationalised in this manner.

According to a letter sent by the institute to the NSW Heritage Office in June: "The retention [of a total of 14 former display villages] is crucial to demonstrating the evolution and development of the project house and Sydney School of architecture … project housing is currently the subject of three doctorate inquiries [and] it is a dominant theme in postwar cultural studies." So there you have it. Property rights are to be reduced so a handful of anxious architects can sleep at night, and cultural studies students retain their subject matter.

In the same letter, the institute said it was "alarmed" to learn Ku-ring-gai Council had decided not to list two project homes in St Ives. The owner of one of them (who wishes to remain anonymous) told me he purchased it with the intention of demolishing the place because, in his humble view, it was badly planned and sited on the block. When the heritage zealots prevented this, he and his wife moved out because of "its small size and excessive humidity and dust due to its poor construction". He was unable to sell it due to the proposed heritage listing, and efforts to rent it out at well below the market rate have been unsuccessful due to its cramped rooms and state of disrepair.

You can see why heritage zealots might be alarmed at a barbarian for whom the honour of living in a splendid example of the Sydney School should be so overshadowed by sordid financial considerations. The owner, an immigrant, says he has spent $60,000 so far in fighting the heritage fanatics. "I expected this sort of thing in Iran," he says, "but I thought in Australia governments are supposed to be responsible for their actions."

The rural equivalent of heritage is native vegetation legislation. Again it sounds innocuous, even noble in its intentions, but its effect on the many individuals involved has been devastating. It is now illegal for a farmer to remove even a branch from a (native) tree. As long-term land use flexibility is essential to many farms, this has had huge financial consequences.

One example: a study by the University of New England estimates that in Moree Plains Shire, land values have been reduced by 20 per cent on average. Incomes on many farms have plummeted.

As with heritage listings, there is no compensation to those whose assets have been attacked. This has been criticised by the Productivity Commission, in a report into native vegetation laws some years ago, and in its draft report Conservation of Australia's Historic Heritage Places, released last month. The commission's chairman, Gary Banks, says: "It's important in regulation to look at the costs and who should bear them. Both native vegetation and heritage are wider community values, but these laws intrude on the property rights of individuals." State governments have decided they can appease environmental and heritage lobby groups with solutions Banks tactfully describes as "off budget" (that is, daylight robbery).

It's strange that democratically elected governments should be prepared to attack property rights in this manner. But as the American writer Tom Bethell points out in his excellent The Noblest Triumph (the only general book about property rights I'm aware of), strong property rights protected by law are one of the main bastions of liberty, because they shield the weak against the strong. As governments are strong and are always trying to extend their own power at the expense of individuals', they are constantly encroaching on private property rights.

This is sometimes justified. Property rights are not fixed but fluid, and there are times when one individual's property rights conflict with another's, or even with broader values. For instance, farmers within sight of Taralga want to build wind turbines on their land. They, and arguably the broader society, will benefit from this, but the properties of people in Taralga (a heritage town) will be devalued. Resolving such a conflict is genuinely difficult.

One way of easing the process would be to compensate people when their property rights are reduced by government. This is not only a matter of justice. Wolfgang Kasper, an expert on the law and economics of property rights and emeritus professor at the University of NSW, points out that if governments had to pay compensation to people affected by laws such as those involving heritage and native vegetation, they might think twice about their severity. "The compensation of owners," he says, "when some of their rights, such as the right to alter what you legitimately own, are taken, ensures that governments are subject to a certain discipline when interfering in our private affairs."

Kasper notes that the importance of property rights is most obvious when we see their absence: "Just look at Third World countries, where private property is insecure for most, and all the time threatened by corrupt officials. This shows how secure property is crucial to prosperity, liberty and justice."

In this context I was fascinated to hear an official of CARE Australia say on radio, last year, that property rights were hampering tsunami relief efforts. Apparently it was often impossible to know who, if anyone, owned buildings that had been destroyed, or vacant land on which to erect buildings.

The Peruvian development economist Hernando de Soto believes property rights, which allow people to transfer, and borrow against, their assets, are the missing ingredient in the Third World. Without them, there can be no significant economic development. This reverses the Marxist theory (believed today by many non-Marxists) that economic relations are the infrastructure on which the law is based. In fact, as Tom Bethell notes, it's pretty much the other way round. This explains why debt forgiveness and massive aid have little effect on poor countries beyond encouraging their governments to persist in their dysfunctional, often corrupt, ways. Aid empowers politicians; property rights empower people.

As Warren Mundine has shown in this past year, Aboriginal land rights have been a good test case in property rights. Basically, white Australia has given back a lot of property, but very few rights. The land is, either legally or effectively, held communally and cannot be sold. The results have been just that lack of economic development, and the resultant social breakdown, that de Soto describes in the Third World.

Property rights have been inherent in Western society for so long we have forgotten how important they are. This is causing a lot of harm for a lot of people. It's time we re-acquainted ourselves with the poetry of property.

I'm not surprised you would vote for no change to the laws which allow todays unfortunate situation to arise, but as an absentee landlord, you dont get a vote. I have a question for you though, do you think that the present situation, ie. FTBers priced out of buying a place to live and rental legislation which doesnt allow secure tenure for tenants, is good for the UK? If so, why?

[mustrum_ridcully]

Well personally I think taxing any above inflation increase in house price on principal resisdences. Afterall if people are prepared to boast how much they've earnt through the increase in the price of their house they should be prepared to have it treated as income.

Not that it'll ever happen though :angry:

[Viterbi]

A very heavy fall in house prices coupled with repossessions left right and centre and mountains of consumer debt that will never be paid off in a million years is almost certain to throw the economy into complete chaos beyond belief. The only consolation is that unlike the early 90s recession, we will have low interest rates. Such a financial catastrophe could will result in a complete re-examination of the taxation system in a similar way that the 1930s depression led to a re-examination of economics by Keynes.

[Bear Goggles]

It took a conversation with the Aboriginal leader Warren Mundine to make clear to me that a mortgage is actually a thing of beauty, because it has massive consequences for the behaviour of those who take it up. Paying off a mortgage encourages healthy habits, employment, family stability: many of the things that make us happy. A mortgage is the best peaceable device for taming male testosterone discovered since blokes stopped hunting woolly mammoths. The poets might complain that it hampers freedom, but in a world where moral deregulation and prosperity have created an infinity of choice, the problem for most people is not too little freedom but how to manage its abundance. For many, a mortgage provides structure and purpose.

My God I have never read such a load of old cobblers!

The idea that a mortgage leads to family values is sort of utter crap you'd expect to hear from the Major (excuse me while I shag Edwina) government in the 90s.

The divorce rates in this country and indeed the western world have soared at the same time as home ownership has soared. Using this fact one could even argue that mortgages are detrimental to family values because people spend too much time working to pay them off and not enough qualitiy time with their loved ones.

However if we are to take the idea of property rights to their logical extreme, then we should repossess all land stolen by the aristocracy and the Church over the last 1000 years and give it back to the people from whom it was stolen. We should relax planning laws and let everyone build wherever they want.

That sounds pretty socialist to me! I never had you down as a red flag waiver TTRTR!

In fact if we were all given the property rights that this article suggests - who would you be able to rent to?

Face it, the status quo is just fine for you, but perhaps it isn't for a growing number in this country. At some point they may just start voting!

Edited January 7, 2006 by Bear Goggles

[Guest Bart of Darkness]

I have a question for you though, do you think that the present situation, ie. FTBers priced out of buying a place to live and rental legislation which doesnt allow secure tenure for tenants, is good for the UK? If so, why?

As an absentee landlord and an Aussie, TTRTR doesn't care about the UK, only its money.

[newaccount99]

If there are no substantive changes to the system it is inevitable there will at some stage be a resurgence in house prices.

It strikes me that the only way to cap these booms would be to change taxation. Scrapping tax relief on BTL rentals and limiting CGT relief to the sale of one property only in one's lifetime seems fair to me.Would members vote for it?

Surely such measures would cause chaos

Withdrawal of offseting outgoings against earnings: The stock of rental property would crash through the floor as LL's leave in droves, rents would have to rise 40% to make up the cost.....utimately the renter would have to pay.

CGT on PRP: Would completely stifle workforce mobility as property transaction costs go through the roof.

Neither of the above would be good for a mobile workforce as either a sale or a lease would be prohibitive.

Why are people so anti-LL's....mine is getting a 4.5% return from me............He's a legend I tell you. A Legend.

[IP Newcomer]

Scrapping tax relief on BTL rentals

What tax relief? I'm sorry but the only relief I know of is relief for expenses, which in any business is legitimate.

BTL hardly featured in the last madness, and I think a lot of us are making BTL to be scapegoats. They're mostly gormless victims who will suffer far more than the BTL crowd.

and limiting CGT relief to the sale of one property only in one's lifetime seems fair to me.

That seems like a massive incentive for fraud. Decent tax planning would get around most of this. Perhaps a taper relief regime that goes to 100% would work better here.

Would members vote for it?

I wouldn't vote for anything. Let the market do its work.

Edited January 7, 2006 by IP Newcomer

[AgeingBabyBoomer]

deus ex machina - methinks you have been reading 'Boom Bust 2010'.

This is the solution espoused by its author.

I tend to agree with his theories - they are pretty well constructed for the most part.

The argumant runs that the value of land (not property) is a function

of the infrastrucutre that can be accessed from it

(that's whay an acre of the Great Australian Desert is worth so much less than

an acre of the City of London)

As such, improved infrastructure, funded by the taxpayer imparts a value premium

on the land that benefits from it presence.

EXAMPLE:

I used to live in Lewisham, and when the DLR extenion was announced,

house prices in the area immedialtey rose.

Effectively, the investment by the taxpayer was immediately converted to windfall

gains for private landowners.

So, the value gain should be subject to taxation, to recoup the cost

of the infrastructure investment.

His (Harrisons) examples are mainly UK based, and it is unfortunate that no examples of this

policy in action are cited.

However, I believe that such a poilcy has been in operation in France for some years,

i.e. if a gain over a certain threshold on a piece of property is realised, then it is subject to

taxation at a high rate.

This policy has spared Paris at least from speculative price ramping -prices still rise, but

not beyond the ability of the residents to pay them.

Recently, the Chinese broguht in similar regulations to cool down rampant speculation

in the Shanghai property market - it has had a remarkable effect on the HPI there.

(Thanks to Consa for digging out the relevant info at ****).

TTRTR - that has to be one of the longest best constructed replies you have ever made.

However, I think you are missing the point - nobody is suggesting that property be

appropriated form its owners, just that they be invited to contribute toward the

cost of the infrastructure that has improved the vakue of their land - seems fair to me.

Location,location,location is the key to it all

ABB

Edited January 7, 2006 by AgeingBabyBoomer

[ajh]

If you want to stop a boom, without preventing private ownership and private landlords, do what Texas and some other US states do.

Have extremely high rates (I think most of Texas is between 2.5% and 3% per annum, based on market valuation).

OK, the land situation is obviously different to England, but throughout most of Texas you can get a large detached house in a perfectly acceptable suburb of even their major cities for under 100,000 pounds.

[TimD]

All that needs to be done is fix mortgages to 3.5 X income maximum, end the lie to buy self cert scam and be far tougher with BTL. I think legislation will be brought in if we have a huge increase in bankruptcies and mortgage defualts.

Cheers,

Tim.