SUPER: “If you had all the money in the world and I owned all the land, what would I charge you for your first night’s rent?”
NARRATOR: We were all brought up to believe the harder we work, the more we make. But this is simply not true.
SUPER: Bought $810,000 Sold $30 million. Bought $8m.. Sold $13m. Bought $920,000 (1979) Sold $300m (2010)
NARRATOR: Every year, the world loses highly educated people, to an industry, gambling on price fluctuations. Doctors, lawyers and engineers can make more money buying and selling real estate, than doing what they were trained to do. Speculation plays on the perception of scarcity, where there is just not enough supply to meet the demand, forcing prices up. Eventually the bubble bursts The economy takes a dive. Families are kicked out of their homes. Insiders are bailed out. And so the cycle of speculation begins again. Today’s economic model allows this behaviour to sneak in the back door, while brushing its many adverse effects, under the rug.
SUPER: Opening Credit Sequence – Prosper Australia Presents, a Foreground Media production, Real Estate 4 Ransom, Why does land cost the earth? Script – Karl Fitzgerald, David Collyer, Gavin Emmanuel. Narrator – Rachel Maher. Executive Producer – Karl Fitzgerald. Directors – Gavin Emmanuel, Karl Fitzgerald.
2:31 – Land, is the most precious physical resource we have. As populations increase and communities develop, land prices rise, as if by magic. Location, location, location. Land speculators know that demand for special places, delivers easy profits, in the long run. But most economists deny there is such a thing as a free lunch.
SUPER: Speculator’s Wet Dream (sign on empty block’s fence)
TERRY DWYER: Most of us would like to have something for nothing, but the truth is, we can’t have that. So what we should do is to make sure that our labour and our efforts are untaxed and that the free ride is enjoyed by us all collectively through the community instead of making sure that valuable natural resources end up in the hands of a select few who can grow fat on the labour of others.
NARRATOR: Over the past sixty years, the rich and powerful, have changed tax laws to benefit themselves, by switching taxes away from land and onto wages, food and services. Professor Michael Hudson, is a Classically trained economist.
MICHAEL HUDSON (University of Missouri) : The largest asset in every economy is land, followed by buildings, followed by public infrastructure. So what people imagine are industrial economies have remained basically land economies.
SUPER: Quote – “Land monopoly is not the only monopoly, but it is by far the greatest of monopolies — it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”(1909) Winston Churchill 1874-1965
NARRATOR: A property might rent for seventeen thousand dollars, a year. But, the same property can increase in value, that is generate capital gains, of thirty thousand dollars per year. The same house could make its owner one hundred and twenty thousand dollars in a single year if sold at the peak of the Australian property bubble. The wealthiest investors may have hundreds of properties on their books. If investors hold ten or twenty percent of these properties vacant, it actually works to their advantage. Less property is available to buy or rent. Scarcity is enforced. Rents are raised. High rents also mean business owners have less to allocate for wages, research and business expansion. This in turn, stifles the creative, entrepreneurial spirit of capitalism. We must recognise, that it is the system, not the land speculator, at the heart of the problem.
SUPER: Quote – “(Landlords) grow richer, as it were in their sleep, without working, risking, or economizing. JOHN STUART MILL Philosopher Economist (1806-1873)
NARRATOR: A person who works two jobs, gets taxed for their second job. But someone who owns two properties is subsidised with negative gearing.
DAVID COLLYER (Prosper Australia): Negative Gearing is the practice of allowing tax payers to offset the cost of holding a property against their other income. It means that tax payers overall are subsidising this small group. This is investment strategy versus a shelter strategy.
ANDREW AND RENAEE (prospective homebuyers): The desirability of owning a home, from an asset perspective, I mean, we are competing against people who already have lots of houses, who already have that kind of capital, and that wealth behind them and we just can’t compete against them in auctions, we can’t compete against them in the kinds of areas that we have lived for most of our lives, and that we want to continue living in or bring up our daughter in.
NARRATOR: We all have a right to a roof over our heads. Yet 2008 saw a powerful campaign by the Australian property lobby to convince the public of a housing shortage. They claimed a 0.9% vacancy rate in Melbourne’s CBD. Surprisingly, a seven per cent vacancy rate existed. The appearance of scarcity makes buyers and renters desperate. This publicity campaign not only forced rents upwards, but forced population and suburbs outwards. This is known as ‘Urban sprawl’ and is supposed to make houses more affordable. However sprawl has many adverse effects. Stockland, Australia’s largest property developer, stated in its 2006 annual report that its ‘Highlands’ development would sell just 400 properties per year over the next 18 years. In the 50’s and 60’s all 7200 of these land sites would have been sold off in days. In those times land was for development, not held for ransom to maximise profit.
7:59 – DAVID COLLYER (Prosper Australia): For example, in Croydon New South Wales, a vendor’s had his property on the market for 1000 days, he has raised his price 10%. He can do this because there are so few costs to him holding the property and holding it out for the very person who overpays. There are no barriers to him doing this. This is a clear, clear case of real estate for ransom.
NARRATOR: Distorted supply can also be seen in the market for apartments. During a boom, speculators can make higher capital gains from building luxury apartments as opposed to building affordable housing.
LIANA LUCCA-POPE (renter): I have been to house inspections where it’s a disgusting house, where there you can see the outside from inside, where there is holes everywhere, where it smells, and I can see young families or single mothers with small children looking at these houses and going, yes, I can live here.
DAVID COLLYER (Prosper Australia): Builders prefer to put up luxury apartments and houses because the profit margins are better, even though the market is screaming for basic housing rather than luxury housing.
NARRATOR: Currently, over four thousand luxury penthouses lie vacant in six New York City neighbourhoods.
SUPER: Advertisement (in the USA) “Have you ever dreamed of owning your own property? Trade in that wall for this modest one bedroom studio,(a motor home) perfect for fixed incomes, and look at the convenience!”
SUPER: Quote – “Whenever there are in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate their natural right.” Thomas Jefferson, US President 1743-1826
9:52 – NARRATOR: In the United States, fifteen million Americans are unemployed, homelessness has increased by fifty percent in many cities, and forty-three million people receive food stamps. In May 2010, there were still nine thousand vacant homes in Las Vegas, yet thousands were left living in tent cities. Local banks crashed because home owners couldn’t afford to pay their mortgages. Land prices and their mortgage repayments simply became too high for the reality of their wages.
MICHAEL HUDSON: Today, one quarter of US real estate is in negative equity. About 50% of Latvian real estate is in negative equity. That means that the mortgage is higher than the market price.
NARRATOR: Many say that the Global Financial Crisis was caused by Wall St. It’s fun kicking banks, but there was a deeper issue at play. Derivatives were developed to transfer the risks in the property bubble away from Wall St and onto the people.
ALAN GREENSPAN (Chairmen Federal Reserve 1987-2006): Those of us who have looked to the self interest of lending institutions to protect shareholders equity, myself especially, are in a state of shocked disbelief.
NARRATOR: These essentially worthless pieces of paper were an insurance policy for the finance industry’s lending. Banks willingly threw money at anybody who could sign their name. Unsuspecting investors around the world were sold the derivatives to get Wall St off the hook. The property bubble would not have occurred if there was an automatic stabiliser. Bad tax laws were the catalyst for the Global Financial Crisis.
11:52 – MICHAEL HUDSON: A free market to Adam Smith and the Physiocrats and John Stuart Mill, was a market free of rentier income and today’s neo-liberals say a free market is free for predators. It’s free for monopolists, free for land speculators, free for bankers to extract as much income from wages and industry as possible. Today a free market means an extractive economy in which wealth flows from the bottom of the pyramid to the top of the economic pyramid. And today as a result of the breaking of the bubble economy, the wealthiest 1% of Americans own an estimated 2/3 of all of the returns to wealth. This is more unequal than at any point ever since statistics had begun to be calculated.
NARRATOR: There is a massive hole in our tax system. Huge tax free profits can be made by land speculators, at minimal risk. Meanwhile, governments use ordinary workers taxes to build the infrastructure, that makes the speculator’s land, more valuable. We’ve been distracted from the economic principles that effect our daily lives.
ALANNA HARTZOK: Taxation policy is very very important because taxation is the ability to create or destroy. And right now, the tax system we have, should pretty much be thrown out and scrapped. Because it is destroying more than it’s creating.
NARRATOR: In nineteen seventy eight, Californian voters approved Proposition thirteen. This legislation shifted taxes off property and on to consumption, income and small business earnings. Although they had good intentions, this tax switch caused serious problems. Lets fast-forward to twenty ten. California is in dire straits. Budgetary meltdowns forced politicians to consider selling off seventy percent of California’s state parks. They just don’t have enough money to fund all of the problems the bad tax system caused. Land prices are bound to rise. Instead of paying a little in property taxes, Californian voters were convinced that it was fairer to give thousands to wealthy property interests.
SUPER: “Everybody Works but the vacant lot” I paid $3600 for this lot and will hold till I get $6000. The profit is unearned increment made possible by the presence of this community and enterprise of its people. I take the profit without earning it. For the remedy read – ‘Henry George’
NARRATOR: If we were to believe what we read, Land Tax makes housing more expensive. Land taxes are supposed to be passed on from land owner to tenant. A tax on food pushes food prices up. A tax on land has a unique effect. Poorly used land becomes costly to the owner. Owners must use it or lose it. If set at a significant rate, Land Tax drives property back onto the market, pushing land prices down. This additional supply provides much needed competition in the rental market. If a land owner tries to pass on the Land Tax, the tenant will move to a cheaper option. A significant amount of revenue could be collected through land tax. This would allow for the removal of many other taxes, including income tax, sales tax, and payroll tax.
16:11 – TERRY DWYER: So treasury has at last woken up in the Henry review, look land is different to capital, land is different to labour, land is a pure rent and we can tax that without any adverse effects.
SUPER: Quote – “Land Value Tax is efficient because the tax reduces the price of land but does not affect how it is used, or how much is used” – Dr Ken Henry, Treasury Secretary Australian Government 2001-2011.
NARRATOR: Classical economist, Fred Harrison, discovered a regular eighteen year cycle dominated by booms and busts in the UK land market over the last 200 years. Harrison’s pattern consists of a seven year rise, then a twelve month fall, a further seven year rise, followed by a severe downturn. His research shows that land speculation causes recessions. When land prices exceed a rational level for wage earners to repay, the bubble bursts. Then the share market drops and the real economy starts to crumble. In 1997, Harrison predicted that land prices in most advanced countries would peak around 2007 and then collapse, leading to global recession. The big question on many people’s minds is why wages struggle to keep up with rising land prices. It seems impossible for the average wage-earner to afford a house, unless they buy at just the right part of the cycle.
LIANA LUCCA-POPE (renter): The property values just seem to be escalating so fast that we just couldn’t catch up and our incomes didn’t rise proportionately. It does seem amazing that two people on reasonable incomes, we don’t make a lot of money, but we aren’t poor, we are probably average, that two people like us can’t afford to buy a house.
ANDREW (prospective homebuyer): The big issue I see is speculation, it’s the speculation of investment in the housing market that is driving the price up.
RENAEE (prospective homebuyer): When it really came to the crunch there was just no way that I could borrow $300,000, I just, it was too much, it was over our heads.
NARRATOR: Bryan Kavanagh is a world leading researcher of land values.
BRYAN KAVANAGH: Although Australia’s land rent was three hundred and twenty five billion dollars in two thousand and seven, we chose to fine labour and capital two hundred and eighty five billion for daring to work. This allowed eighty eight percent of our land rent to be capitalised into the current bubble, setting us up for an enormous financial collapse.
Source: Unlocking the Riches of Oz (PDF)
19:11 – NARRATOR: As societies progress and populations rise, land values increase. This increase is called economic rent. Unless these price increases are collected by the government through land tax, land speculation will always have an unfair advantage, over all other forms of business.
TERRY DWYER (Visiting fellow, ANU): This income from land is essentially effortless income, and it is important that that income go to the treasury, to the government, so that it doesn’t have to tax our efforts.
NARRATOR: At present, Australia collects barely five percent of its economic rent through tax revenue. Economic rent is created by the community. It is the ideal source of revenue to further stimulate progress and development. Skill, not privilege, should determine our lot in life. The fight against slavery was based on justice. Today, instead of whips and chains we have high rents and low wages.
LIANA LUCCA-POPE (renter): Ok, fine, so be it, I can’t buy a house, but I don’t want to live in a hole and pay terrible rent for it. So rapidly rising rent is something that worries me a lot.
20:45 – NARRATOR: Land speculation is a major cause of high rents and low wages. The wealth pie is only so big. It must be distributed between rent, wages and interest. Many workers carry the burden of a large mortgage for most of their lives. Land speculators can dodge paying tax while worker’s taxes fund the infrastructure that makes the speculators land more valuable.
FRANCIS MATHIAS (small business owner): As soon as you have a highway or a bypass coming along, you see the real estate just virtually doubling or tripling very quickly, very quickly.
NARRATOR: London’s Jubilee train line was constructed at a cost of three point five billion pounds. The result – a thirteen billion pound increase in the value of privately owned land. Homeowners within three hundred metres of each station, enjoyed a windfall gain in the value of their property. Each house went up by an average of two-hundred thousand pounds. The benefits gained from the nation’s taxes went to a fortunate few. If 6% of this increased value was collected from each landowner over 20 years, the Jubilee train line would have been completely paid for by those who benefitted. Over time there has been a corruption in economics.
DAVID COLLYER (Prosper Australia): The taxation system has been filled with exceptions and advantages and loopholes that have all been embraced, put there by the property lobby. These advantages are not available to wage and salary earners, but are available in droves to the wealthy, to people who specialise in this area, it is an outrage.
MICHAEL HUDSON: Classical economics stopped being taught especially after 1980. They dropped economic history from the academic curriculum. World War I saw England and the United States win and essentially impose the anglo-American tax system and financial system on the world, they replaced the history of thought with mathematics which were essentially trivialised using junk statistics to create junk economics to create the bubble economy.
NARRATOR: From an early age, we are indoctrinated to pay income, sales and payroll tax, but nobody dares teach the advantages of, land tax. We are all familiar with the term property bubble. The reality is that land appreciates while buildings depreciate. The correct term should be ‘land bubble’. Why has our language and our tax system become so distorted? Quite simply, because land cannot be moved to a tax haven! This is why the true value of the earth has been hidden. The adverse effects of distorted taxation can be seen on a global scale. China and India have staggering economic growth rates. Their consumption of mineral resources has ramped up, delivering massive profits to mining companies. Those nations supplying the resources often come off second best. Nigeria is the world’s 6th largest oil exporter. Yet its people are now poorer than in 1980. Environmental destruction reduces the ability of local communities to even care for themselves. This is neo-colonisation. Consequently, nations struggle to pay for health and education. For over 50 years, the International Monetary Fund has been established to rescue such nations. But the IMF has strict conditions. Compound interest rates and demands for privatisation of public utilities quickly follow. Low taxation of mining profits is a transfer of wealth from the common good to those that simply dig minerals up. This leads directly to the failure of nations.
25:47 – BRYAN KAVANAGH: World economies are where they are now because we’ve allowed companies and individuals to privatise our publicly-generated land and resource rentals.
SUPER: QUOTE – “The meek shall inherit the earth, but not it’s mineral rights.” John Paul Getty, Oil Baron, 1892-1976
FRANK DE JONG (Leader Ontario Greens): We need to pose the question, how can we possibly share the earth equitably? For that we need a market mechanism, an economic mechanism of earthsharing, so that the people who use and abuse nature compensate the rest of us… At the same time this will make sure that our planet is preserved for future generations and for other species.
ALANNA HARTZOK (Earth Rights Institute): Its called true cost economics, where the cost of producing wealth, the cost to our rivers, our air, our weather, is all captured back in the price of what’s produced.
NARRATOR: Once a resource is exploited, it is gone. Forever.
26:48 MICHAEL HUDSON: The logical thing for Australia to do would be to tax this mineral wealth which actually should be looked at as the wealth of the entire nation.
TERRY DWYER: The less that Rio Tinto or BHP pay for Australian resources the more ordinary Australians will have to pay in tax. Because if other people aren’t paying the rent, somebody else will be asked to pick up the bill.
SUPER: Poster – Your taxes fund the infrastructure that makes my land more valuable.
NARRATOR: The same economic principles that give land owners a distinct advantage, also apply to the infrastructure we all need to live day to day. Most of our once public utilities, are now privatized into powerful monopolies. Water and electricity supplies, private toll roads, television and phone networks are all forms of government granted monopoly. These are all unique assets of permanent and rising value and should directly benefit the public. Should corporations own these unique assets, these natural monopolies? Governments tend to auction off these resources at low one-off prices in exchange for campaign funds. Those lobbying to create private monopolies are able to undermine community interests at every turn. The power of monopoly has even stretched as far as the fundamental building blocks of life – the science of the human body. Gene BRCA1 has been locked up by Myriad Technologies, forcing women to pay 3000 dollars for a breast cancer screening that should cost 400 dollars. Even our DNA can be held for ransom.
28:53 – MICHAEL HUDSON: Successful economies are mixed economies. Every society since Sumar and Babylonia, in antiquity, have been a mixed economy. And the alternative to Russian communism is not the free market economy, and debt peonage, it’s a mixed economy where the tax system basically does not fall on labour and industry, but minimises prices by being levied on what John Stuart Mill called the ‘unearned increment’, the rise in land value.
NARRATOR: Sun Yat-Sen was the godfather of modern China. He was a strong advocate for the use of land value tax to help deliver equality. In the nineteen seventies, Hong Kong powered its way forward by raising nearly thirty per cent of tax revenue through land rents.
TERRY DWYER: The reason Hong Kong can afford a 15 or 16% tax rate on labour and capitol, which made it super competitive as a place for business, and brought in lots of people was because a third of its revenue was coming from land revenues, from leases and rates.
NARRATOR: Less taxes were needed overall, and this delivered greater spending power directly to its citizens. We could go further than Hong Kong and remove more of the taxes that are choking us.
MICHAEL HUDSON: You tax the free lunch. You tax land rent, subsoil mineral rent, monopoly rent and all returns to privilege including the banking privilege of creating credit and loading the economy down with credit card fees and financial fees and late fees.
NARRATOR: Billions are made in industries where scarcity is the prime driver of profit. These huge profits should be shared with the community, helping to maximise our opportunities and unleash our full potential.
BRYAN KAVANAGH: Had Australia captured one half its land rent since Nineteen seventy two, our GDP would now be $2 trillion not $1 trillion. Every single Australian, man woman and child would be thirty five thousand dollars per head better off.
FRANK DE JONG: There is no possible way to “divi” up the earth equitably without a system of tax shifting.
NARRATOR: The first to go should be payroll tax. Why penalise business for employing people? Next, would be income tax.
FRANK DE JONG: When you have a job you shouldn’t be paying taxes. You shouldn’t be paying taxes to have a successful business.
FRANCIS MATHIAS (small business owner): A managing director, instead of spending time on business, he spends lots of time on collecting taxes, he is actually a collector on behalf of the government.
NARRATOR: In Hong Kong, minimum wage earners pay only two per cent income tax. The country’s top tax rate is only seventeen per cent. This is made possible by a significant property tax.
32:13 – BRYAN KAVANAGH: This switch from taxes to rent would allow us to abolish one hundred and twenty five taxes. These are the taxes that choke off production tending to build up property bubbles that burst with regularity about every eighteen years or so.
NARRATOR: Sales tax on goods and services could also be removed. A 10% sales tax on a one dollar ice cream is 10c. We all pay the same ten cents whether we earn $20,000 or $20 million. Under a land tax system, when you’ve paid your rent, you’ve paid your tax. It’s that simple. The repeated booms and busts in land prices show us how sorely we need a systems stabiliser. To be effective, land tax needs to be set between six and ten percent, paid yearly. Private ownership still applies. However vacant or badly used locations become a cost burden to their owners. Real estate would soon be sold, rented or used for a productive purpose. And finally, land valuations must occur every year. Sharing the rising value of land with the Community who helped create that value, is the most effective way for governments to ensure fairness.
SUPER: Quote – “Our goal should be a tax of 100% or close to 100% on the rents associated with those natural resources” – Joseph Stiglitz, Nobel Prize winning economist.
NARRATOR: With a simpler tax system, entrepreneurs and creatives have a better chance to start their own business and succeed.
LIANA LUCCA-POPE (renter): My husband works five days a week, and then as a small business owner he has to do all the paper work, the data entry, all of that stuff, and that probably takes up at least one of his two days off.
NARRATOR: Genuine property developers would also flourish, where they have easier access to land and no income tax, payroll, company or sales tax. Land rents would move to reflect the earning capacity of the property – not what the speculator can extort from the market. The resulting lower housing costs means less stress on families and more stable home environments. This is the recipe for a golden age, an era of innovation, of prosperity – lifting millions of people from the mire of poverty and dependence.
SUPER: QUOTE – The equal right of all men to the use of land is as clear as their equal right to breathe the air – it is a right proclaimed by the fact of their existence. – Henry George, Economist 1839-1897.
NARRATOR: As this generation emerges from the rubble of collapsed dreams and crippling debt, the big question is ‘how do we stop this from happening again’? All sorts of excuses will be offered to try and derail this urgently needed economic reform. Surely, we won’t wait for the next eighteen year boom and bust cycle? Or the one after that? Taxing land, not labour or business, is a clear path to prosperity and freedom. The harnessing of economic rent for the common good, is as essential to economics as gravity is to physics. Our system has been rigged so that real estate can be held for ransom. We can change our thinking. We can change the way we are taxed. We can free the land.
SUPER: End Credits – www.realestate4ransom.com/faq