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

Bryan KavanaghLand Values Research Group

Have we beenhere before?

Source: State government departments

1986 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 2005

0

20

40

60

80

billion dollars

New South Wales

VictoriaQueensland

Western Australia

South Australia

Total Real Estate Sale Prices: Five Major Australian States

Source: State & Territories

1986 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 2005

0

1

2

3

4

billion dollars

Total Real Estate Sale Prices: Tasmania, NT and the ACT

Tas

ACT

NT

72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '05

0

50

100

150

200

250

bn

1989$87.7 bn

1996$75.52 bn

2004$245.04 bn

1973$10.65 bn

1981$26.90 bn

Increased 3 times since 1996

Total Australian real estate saleprices (at current prices)

72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '05

Total Australian real estate saleprices (in 2005$ bn)

1973$77.501

1989$140.6

2004$251.1

1972 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '04

350

450

550

650

750

1974406643 1978

382808

1984579145

2003766934

long increase from 1996 interrupted only in 2004

1994579678

1988694106

1996475898

1990486812

19865084731983

483399

1976501997

Total number of Australian real estate sales

1973651588

1981556352

thousands

1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

total real estate sales prices divided by GDP

The Economy’s Barometer

1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

1973comm/indpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

1974-'75recession.Whitlam government dismissed

1973comm/indpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%


1973comm/indpeak

1981residentialpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%


1982-'83recession.Frasergovernmentdefeated

1973comm/indpeak

1981residentialpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%



1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%



'91-92 recession.Hewson-ledopposition loses'unloseable'1993 election

1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%


Queensland boom,and end of distress sales from late 1980s boom in other States



1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

*



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%




Keating federal& Goss Q’landgovernmentsdefeated in 1996. Queensland recession only


1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%






1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

2004residentialpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%






1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

2004residentialpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

19% 'bubble' line






1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

2004residentialpeak

Let’s define a bubble ...

1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

19% 'bubble' line






1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

2004residentialpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

19% 'bubble' line






1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

2004residentialpeak



1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

19% 'bubble' line






1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

2004residentialpeak



86 88 90 92 94 96 98 '00 '02 '04

0.6

0.8

1

1.2

1.4

1.6

1.8

2

ASX GDP

1.00

1.05

1.10

1.15

1.20

1.25

GDP growth

Stock markets don’t drive economies ....

ASX growth

1972 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02

0.7

0.9

1.1

1.3

1.5

1.7

'04

real estate sales growth

GDP growth

1.00

1.05

1.10

1.15

1.20

1.25

... real estate markets do

GDP growth

1972 1982 1992 2002

0

5

10

15

20

25

30

0

5

10

15

20

25

% %

The economy’s barometer

1972 1982 1992 2002

0

5

10

15

20

25

30

0

5

10

15

20

25

% %

The economy’s barometer

GDP growth

1911 1924 1932 1944 1953 1972 1976 1989 2004

0

0.5

1

1.5

2

2.5

Land value/GDP: Australia

From Terry Dwyer’s The Taxable Capacity of Australian Land and ResourcesAustralian Tax Forum, Vol 18 No. 1, 2003

Australia’s population increased 1.36 times (from 15.0 million to 20.4 million) over the period 1984 to 2004

Real GDP increased 1.86 timesReal land values increased 3.2 times

(a) ... the stability of the Australian currency;

(b) ...the maintenance of full employment in Australia; and

(c) ...the economic prosperity and welfare of Australians

It breaches its charter each time it permits a bubble, such as the recent housing bubble, to develop

The charter of the Reserve Bank of Australia is to ensure ...

At a recent RBA meeting ...

So our barometeris indicating that“Mr HousingBubble” isabout to mockthe RBA onceagain

If cartoonists can joke about it ....

... Can’t the RBA or APRA fix it?



... Can’t the RBA or APRA fix it? APPARENTLY NOT!

Modern economists have been reduced to playing a placatory role ....

Neo-classical economics a scandal?


"Land-based revenue systems are inappropriate because we are no longer agricultural economies”

There is a general ignorance of the dynamics between the annual value of land and the economy - and the amount of economic rent is usually grossly understated, eg. ...

“Henry George’s ...theory still has it adherents, likeable and mainly older people who overlook the fact that land rent forms such a small percentage of national income: that 2% is nothing compared to the present tax percentages, which are around 30.” - Jan Pen (Groningen Uni) in Income Distribution


The heartening story of growth of publicly-created resource rents ....

1911 1924 1934 1944 1954 1964 1974 1984 1994 2004

0%

20%

40%

60%

80%

100%

Resource rents

85%

9%

32%

31%

Based upon Dr Terry Dwyer,The Taxable Capacity of Australian Land and Resourcesin Australian Tax Forum, Vol 18 No. 1, 2003

... degenerated into the privatisation of rents and the levying of taxes to such an extent ...

1911 1924 1934 1944 1954 1964 1974 1984 1994 2004

0%

20%

40%

60%

80%

100%

taxes

Resource rents

85%

6%

9%

31%

31%


... that the legacy is a sad tale of declining after-tax incomes

1911 1924 1934 1944 1954 1964 1974 1984 1994 2004

0%

20%

40%

60%

80%

100%

NET Incomes OFLabour & Capital

taxes

Resource rents

85%

6%

9%

38%


31%

31%

Less than $30 billion (12%) of Australia's publicly-created $245 billion in resource rents was collected to the public purse in 2004

99.9% of those in BRW’s “Richest 200” list are rentiers As rentiers and homeowners were allowed to privatise $215 billion in

publicly-created resource rents, it was necessary to tax incomes and goods and services to that extent

Consequently, household debt has risen from $289bn in 1996 to $818bn in 2004 ($41,000 for every man woman and child)

The bottom line is that as a proportion of GDP since 1972: net incomes have declined by 40% taxes have grown by 28% annual land values (resource rents) have grown by 150%!

How we distribute the GDP ‘pie’ now

“Pure rent is in the nature of a ‘surplus’ which can be taxed without affecting production incentives”

- Samuelson Hancock and Wallace, Economics, 2nd Australian ed., p. 623

Land-based revenues cannot bepassed on in prices?

The case of the Poor Widow is always trotted out when increased land value charges are proposed

Even when she’s a pensioner, the “Poor Widow” pays for food, clothing and shelter, much of the price of which is the accumulation of cascading taxes

She would be greatly advantaged by substantially cheaper prices under a land value charge, provided other taxes are reduced accordingly

Any landholders with real payment problems, can defer the charge against their estate

Land-based revenues cannot bepassed on in prices

Tax31.0%

Rent31.0%

Net incomes (L&C)38.0%

“As is”

Rent31.0%

Net incomes (L&C)69.0%

If we captured land values

1974 1984 1994 2004

0%

20%

40%

60%

80%

100%


taxes

Resource rents

38%of $811 bn or $308 bn

31%$250 bn

The Australian GDP pie since 1972....

63%

25%

12% 31%$250 bn

1974 1984 1994 2004

0%

20%

40%

60%

80%

100%

.... could have looked like this had we taken more resource rents to eliminate real estate bubbles

12%

15%

73%

12.5%$250 bn

12.5%$250 bn

75%of $2000 bn or $1500 bn

Resource rents

taxes


Australia’s actual and ‘repaired’ GDP

1972 1982 1992 2002

0

500

1000

1500

2000

2500$2005 million

actual

Effect of doubling charges on land in the early 1970s and then graduating land valuecapture up to 50% in 2004

$2050

$830

$302

$302

1952 1962 1972 1982 1992 2002

0

5

10

15

20

25

growth off low base

1975

%

GDP growth (current prices): Australia

1952 1962 1972 1982 1992 2002

0

5

10

15

20

25

growth off low base

%


“Property taxes areout of control !”1975

1952 1962 1972 1982 1992 2002

0

5

10

15

20

25

growth off low base

1975

%


1952 1962 1972 1982 1992 2002

0

5

10

15

20

25

growth off low base

1975

%


1952 1962 1972 1982 1992 2002

0

2

4

6

8

10

12

14

16

growth off low base 1978

%

GDP growth (current prices): USA

1952 1962 1972 1982 1992 2002

0

2

4

6

8

10

12

14

16

%


“Property taxes areout of control !”

1978growth off low base

1952 1962 1972 1982 1992 2002

0

2

4

6

8

10

12

14

16

growth off low base 1978

%


1952 1962 1972 1982 1992 2002

0

2

4

6

8

10

12

14

16

GDP growth (current prices): USA%

1978growth off low base

1952 1962 1972 1982 1992 2000

0

5

10

15

20

25

30

growth off low base

1975

%

GDP growth (current prices): UK

1952 1962 1972 1982 1992 2000

0

5

10

15

20

25

30

growth off low base

%


“Property taxes areout of control !”1975

1952 1962 1972 1982 1992 2000

0

5

10

15

20

25

30

growth off low base

1975

%


1952 1962 1972 1982 1992 2000

0

5

10

15

20

25

30

growth off low base

1975

%


1972 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05

0

5

10

15

20

25

30

%

19% 'bubble' line






1973comm/indpeak

1981residentialpeak

1988/89comm/indpeak

2004residentialpeak

State of the Market:have we been here before?

Have we shattered some shibboleths?

Repetitive cycles of boom and bust are NOT natural Land values DO constitute an adequate revenue base High taxation and land prices are NOT inevitable A revenue switch to resource rents WILL create

sustainable economic growth The poor widow will NOT lose out if we capture land

values There IS a natural growth fund we can tap for the

provision of quality public education, health and infrastructure

Untaxing labour and its products and capturing more land value FREES labour and CONSERVES the environment

Have we shattered some shibboleths?


State of theMarketHave we beenhere before?





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

In the 1845 parliamentary Corn Law debates, Richard Cobden (1804-1865) noted how the peoplehad been “cheated, robbed and bamboozled” :

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

In the 1845 parliamentary Corn Law debates, Richard Cobden (1804-1865) noted how the peoplehad been “cheated, robbed and bamboozled” :

1290 1390 1490 1590 1690 1790 1890

0

20

40

60

80

100Revenue & Cost of Living = 100

TAXES

%

LAND REVENUES

Derived from Richard Cobden’sparliamentary Corn Laws debate (1845)

Land Values Research Group 2005

1215 Magna Carta

UK revenue base over six centuries

“The 15th century and the first quarter of the 16th were the golden age of the English labourer, if we are to interpret the wages which he earned by the cost of the necessaries of life. At no time were wages, relatively speaking, so high, and at no time was food so cheap ....

It is possible that as the distribution of land became more general, and the tenancy for a term of years became habitual, the phenomenon which has often been noticed of peasant proprietorship, a high rate of wages paid to the free labourer, may have been exhibited in the period”

James Edwin Thorold Rogers, “Six Centuries of Work and Wages”, 11th edition, 1912, p.326

Thorold Rogers (1823-1890): wages decline when people are denied cheap access to land

1290 1390 1490 1590 1690 1790 1890

0

50

100

150

200

250


%

cost of living line

LOW DISPOSABLE INCOMES

'MerrieEngland'

HIGH DISPOSABLE

INCOMES

Chart by Rev WDP Bliss, based on Thorold Rogers

280%

Disposable income of English Labourer (family of five)

1290 1390 1490 1590 1690 1790 1890

0

100

200

300


%

cost of living line

LOWER DISPOSABLE INCOMES

'MerrieEngland'

HIGH DISPOSABLE

INCOMES

Chart by Rev WDP Bliss, based on Thorold Rogers’“Six Centuries of Work andWages”

380%

Disposable income of English Carpenter (family of five)

1290 1390 1490 1590 1690 1790 1890

0

100

200

300


%

380%

Disposable income of English Labourerand Carpenter (families of five)


'MerrieEngland'

cost of living line

HIGH DISPOSABLE

INCOMES


1290 1390 1490 1590 1690 1790 1890

0

50

100

150

200

250


%

280%

Labourer’s disposable incomeagainst revenue base


'MerrieEngland'

cost of living line

HIGH DISPOSABLE

INCOMES


land rents taxes

1290 1390 1490 1590 1690 1790 1890

0

50

100

150

200

250


%

cost of living line

LOW DISPOSABLE INCOMES

'MerrieEngland'

HIGH DISPOSABLE

INCOMES

Chart by Rev WDP Bliss, based on Thorold Rogers

280%

Disposable income of English Labourer (family of five)

land rents taxes

Chart based on Richard Cobden 1845

1290 1390 1490 1590 1690 1790 1890

0

100

200

300


%

380%


'MerrieEngland'

cost of living line

HIGH DISPOSABLE

INCOMES


land rents taxes

Carpenter’s disposable incomeagainst revenue base

Real estate peak 1925

1929 stock market collapse

Homer Hoyt: the bursting of land pricebubbles precede financial collapse -including Wall Street’s in 1929

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


Do we?


Do we?

Can we remember the land boomthat preceded the OPEC crisis?


Do we?

Can we remember the land boomthat preceded the OPEC crisis?

Usually not. As with the 1925land boom, it’s almost as though it has been written out of history


Do we?

Who remembers the land boomthat preceded the OPEC crisis?

Usually not. As with the 1925land boom, it’s almost as thoughit has been written out of history

The first thing Oliver Cromwell did after he conquered Ireland (1649-1652) was to have it valued

William Petty won the contract using cheap labour Physician, inventor, economist .... duellist Completed his ‘Down Survey’ in an amazing 13 months Understood theory of rent before Ricardo: in 1661 he said Ireland

was “worth but 7 years’ purchase” (of its rents), or a yield of 14.3%!

Sir William Petty (1623-1687)

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

-Some Considerations of the Lowering of Interest

1632-1704

John Locke apostle of freedom

- “ Put to the vote: as many are of the opinion that a public tax upon the land ought to be raised to defray the public charge say ‘yea’. “

- “ Yea! “

- “ Carried in the affirmative - none dissenting. ”

[Philadelphia's first tax law 30 January 1693]

In the beginning ...

Source: US Bureau of Labor Statistics

19471950 1960 1970 1980 1990 2000

150

200

250

300

350Constant 1982 $ per week

$196.47

$254.87 (1993)

Second half of Kondratieff WaveFirst half of Kondratieff Wave

-13.8%

$271.96

-19.2%

$315.44 (1972)

workers on non-farm payrolls

Average Weekly Wages: USA

Source: Australian Bureau of Statistics

19471950 1960 1970 1980 1990 2000

150

200

250

300

350Constant 1983 $ per week

Second half of Kondratieff WaveFirst half of Kondratieff Wave

Average Weekly Wages: Australia

$312.601983

$285 .001991

$318.402004

First Wave Second Wave Third Wave

1849 1896

1814 1873 1920

1789

Smoothed - Diagrammatic only

Nikolai Kondratieff 1892-1938

Kondratieff Long Wave Cycles


Kondratieff Long Wave Cycles - the seasons


Kondratieff Long Wave Cycles- the seasons


Kondratieff Long Wave Cycles - the seasons


Kondratieff Long Wave Cycles

....from tax imposts upon people and businesses who are doing productive work ...

....to revenues based upon the value of privately held lands

An impending Kondratieff ‘winter’ could be allayed by switching therevenue emphasis:

Australia: A Case Study

The Economic Consequencesof Bubbles

THE RICHESOF OZ

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

0

5

10

15

20

25

30

35%

unemployment

Burst bubbles and rising unemployment

?

total real estate saleprices divided by GDP

?

Commonwealth Grants Commission

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

1

1.5

2

2.5

3

SA

NSW

Vic

Q'ld

WA

Five major States

Australian Land Price Indices

Characterise both sides of the battle to privatise rent Grey: soldier, explorer of WA, public administrator Wakefield: brat, sociopath, devised ‘Wakefield Plan’ Wakefield: England, Canada, New Zealand Grey: Ireland, South Australia, New Zealand, Cape

Town Grey won the battle but Wakefield has won the war -

because we have come to accept high land prices and taxation as the natural order of things

1812-1898 1796-1862

Sir George Edward GibbonGrey v. Wakefield

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

Documents

queensland recession

whitlam government

economys barometer slide

fraser government

queensland boom

end of distress sales

current prices

s boom