A third aspect in this ‘stocktaking’ of the relevance of
Georgist analysis and policy to contemporary political economic conditions
concerns the persistent problems of housing affordability. The difficulty
of purchasing, or renting, affordable housing has reached social crisis
proportions in many large cities around the world. In Sydney, for example,
a median-priced house could be bought for just under four years of average
Australian earnings in 1986, but an equivalent house in 2003 cost over
twelve years’ worth of earnings (Stilwell, 2003). This constitutes
an enormous barrier to home-ownership for a younger generation, a problem
that both Federal and State Governments have sought to redress by the
provision of first home-buyers’ subsidies.3 It is not typically
the house itself that has been the cause of the inflation, but the price
of the land on which it stands. So, looking at the situation from a Georgist
perspective immediately directs our attention to how the demand and supply
of land affects housing affordability.
The demand for land involves both use values and exchange values. People
seek land because the housing built on it provides shelter and security,
but they also purchase it as a store of wealth and a means of capital
appreciation. A particularly important driver of real estate prices has
been the speculative demand, as investors seek capital gains in the property
market. In Australia, this has been such common and longstanding practice
that it has been referred to as ‘the national hobby’ (Sandercock,
1979). By ‘creaming off’ a part of this potential capital
gain, a higher uniform rate of land tax would act as a disincentive to
this property speculation, and could therefore be expected to exert a
downward influence on property prices. Georgists have always been emphatic
that land taxes are different from other taxes in this respect – they
depress prices because they reduce demand. So the usual fears that a
tax will be ‘passed on’ to customers (such as housing tenants,
in this case) do not apply.4 By making land less attractive as an item
to be purchased in the hope of making capital gains, land tax can therefore
be an important check on the inflationary process.
However, while a higher uniform land tax could be an important component
in a policy addressing housing affordability, it seems unlikely to provide
a complete solution. The severity of the housing problem in Australia,
for example, also derives partly from the dwindling supply of public
housing. Public housing is now less than 5% of the total housing stock
and falling (National Housing Alliance, 2004: 5). Governments have withdrawn
funds from public housing and tightened entry requirements (for example,
lowering the threshold for the means test). This has caused public housing
waiting lists to lengthen and put greater pressure on the private rental
sector. More and more people have been forced into circumstances of significant ‘housing
stress,’ paying a third or more of their net income for housing
(Hawtrey, 2002), and further adding to inflationary pressures on housing
prices.
There is a potentially important link between these concerns – land
tax and public housing – because a higher, more uniform
land tax could generate revenue to finance a significantly larger
public
housing
sector. That would, in effect, kill two birds with one stone,
providing the twin basis for an assault on the problem of housing
affordability. ... read the whole article