Housing affordability – the ratio of income needed for rent or a mortgage – has never been worse, in Australia and many other wealthy countries. This is a natural result of inequality and stored wealth not being taxed sufficiently. The rich are wisely putting their money into income-generating assets and we know that housing is safe “investment”.

The problem can be fixed by the government, by building houses (or rezoning land) to meet demand, and possibly reducing immigration, because an extra 500,000 people in one year can only make things worse.

Possibly, the government(s) fear oversupply, just how their magic unemployment number is 5% because, heaven-forbid, we don’t want employers to be unable to find workers. Not one, not ever, because business is more important than people.

The Brookings Institution makes some valid points about supply, some of which do not apply to Australia – we do not have a Detroit where every second house is vacant…

• Housing is long-term. Unwanted houses don’t simply go away, they last for many, many decades
• Housing is highly localised. People like to live near work, so job opportunities, or the lack of, are a big factor. Once a factory shuts down, there is a flow-on effect for local business.
• Governments are in control, of permits and zoning and taxes and incentives. So pure capitalism is not able to fix it, or make it worse.

Measuring actual demand is hard. There are people who want to live somewhere better (like grown kids moving out of home, or ending homelessness), but many of them cannot afford to. The only real way to know when there is too much housing is when affordability comes down to where it was in days of less economic inequality, and there are too many vacant properties.

By the time we notice oversupply, several years worth of extra new housing builds are probably still to arrive. You cannot get your money back on a half-finished building…

One Australian expert describes the type of economic doom that the rich and conservative politicians will cite as reasons for never having too much supply:

While under supply puts upwards pressure on prices, oversupply, although rarer is disastrous. The capital losses can be huge, firms bankrupt, jobs are lost, careers disrupted, tax receipts plummet, the general economy falters. 

I would suggest that none of those will occur when the oversupply is moderate. What he is talking about is that oversupply will mean property prices drop, and those who made massive gains in the property market will need to cope with lower returns. Those who stupidly became over-leveraged will learn a lesson.

None of the experts I found online factored in the following that will arise from more affordable housing coming from increased supply:

• Young people will leave home earlier, because they can afford to sooner
• People in shared housing, the majority who would rather have their own place, will be able to
• Any public or private initiatives to end homelessness will be able to help more people
• Tree-changing or sea-changing will become more affordable, helping increase availability in cities, and reinvigorating the countryside
• A flat market will entice more elderly people to downsize instead of clinging onto their mansions to get capital-gains-tax free profits
• We will see an end to cheaply-made, miniature apartments in CBD skyscrapers, that councils are happy to have because of increased rates and population.

Hopefully some of the very rich people who have used extremely generous tax breaks for homes to get richer, will now consider actual investments instead.

The post The Fear of Housing Oversupply appeared first on Unism.

Debt has been a very useful tool for growing the economy and society, and has been a fundamental aspect of capitalism. The downside of debt it is that it increases inequality, and that needs to stop. It is also crippling to many people in pandemics and recessions.

I have written a lot about future versions of capitalism that can free us of debt, but they don’t help existing debt. How can we get rid of it?

In historical times there was the concept of debt jubilees. In the Bible (Deuteronomy) it says that every 7 years debts should be forgiven. And in modern times we know that many impoverished countries have had their debt forgiven. Bankruptcies are bad for the entire economy and should be avoided.

Joe Biden has to some degree been forgiving student debt, and it has been suggested that he do the same with medical debts. In both cases the debts are excessively burdensome for many people, and if the debts are forgiven, few would accuse those people of gaining something unfairly / ripping off the system.

Biden can forgive such debts because he can just print the money to do so. Via modern monetary theory, any country that issues its own currency and do that, as long as they don’t put so much extra cash into the economy that inflation occurs. We saw that with the COVID pandemic…

So for many types of debt, government intervention works beautifully. Effectively the burden of forgiveness is spread across all taxpayers (people and corporations) fairly evenly. And when we are talking about capitalism failing 30 years from now, the forgiveness can be done slowly.

Debt is a type of investment, but not the only one. When debt is forgiven via the government, the debt holders receive cash to replace that debt. What they do with that cash is up to them, but typically it needs to be invested.

Removing debt increases the capital value of where the debt is removed from. If your mortgage is forgiven, then the net worth of your property is a lot more. Here’s a simplistic scenario showing how debt can be replaced with ownership.

Ron owns a house worth $100K, has a mortgage of $20K – his equity is $80K. The government forgives all mortgages – people will fully own their homes and banks get paid off with government money. Suddenly Ron’s home equity rises from $80K to $100K, and the bank now has $20K in cash instead of the $20K mortgage.

Ron would like some cash, so he sells 20% of his home to the bank for $20K. They are essentially back to square one except that Ron now has $20K in his pocket, from the government. And the bank has partial ownership of a home, and no interest payments.

Debt is lucrative, essentially unfair, and a driver of inequality. Those who used to own debts will no longer reap the same rewards. That has to be the way, post-capitalism. But they can still be rewarded, just not as as well as before.

For residential property, it is a good result. The bank still profits from the rise in property prices. If the house is rented out, the bank gets their share of that as well. But as long as the property is owner-occupied, bank profits are lower. That is good, as it will send us on a path towards more home ownership and less rentals – good for reducing inequality.

Come 2050 and beyond, when globally the population will start shrinking, there will be less demand for homes. The current system (get a mortgage) will no longer be viable, because the equity in houses is (on average) going to reduce year by year. No bank will lend if that is going to happen – they would never get their money back.

If we have ended mortgage debt by then, it won’t be a problem. People won’t lose their homes and become bankrupt. Banks won’t suffer losses. But we need to start the transition today, while the inevitable consequences for banks are less obvious. Their 20% share in homes will be OK (not as good as now) for homes that are still occupied post-2050. For those that are abandoned, that is a loss for banks.

This is how we could achieve this slowly. As with many ideas like this that I have had, we need to use stealth. We cannot just announce that mortgages are going to end.

Many advanced economies have a perennial housing crisis, and every new government promises to fix it. Typically that is incentivising new home building, or building social housing. I suggest that government very slowly starts buying mortgages from people who are suffering financially, in exchange for equity. It is the same scenario as above, but government owns 20% of Ron’s home, not the bank.

Ron still has 80% equity in his home, but the burden of debt is gone. If he loses his job, the threat of foreclosure is gone. And we will be financially better off because he no longer has to pay mortgage interest. We would of course provide a mechanism by which Ron could buy that 20% from the government any time in the future, if he had the cash.

The criteria could be a based on a ratio of income and mortgage amount. If your mortgage is more than 10x your annual income, for example, you can ask the government to buy you out. This can’t be gamed, because you don’t gain. You’ve simply stopped the mortgage process at a certain point of time, which means your equity gets stuck where it is.

The criteria would be based on say the worst 1% of income/equity ratios. So perhaps only 0.1% of homes are involved in any year. And then, every so often, the criteria loosens a little. And decades from now, a big portion of mortgages have been removed from the system.

Stealth.

It can be sold as a way of making sure that people with tragic circumstances – job loss or an expensive health crisis – do not lose their homes. It should be an easy thing to sell to the public.

Next up: the sharemarket.

NOTE, not for the purposes above, but the Victorian government in Australia has a shared equity scheme, where they pay for 25% of your home at the time of purchase, and they own 25%. With time you are meant to buy them out.

The post Ending Personal Debt appeared first on Unism.

See this headline from a few days ago:

Price of a pint of of beer in London surging towards £14 as inflation rises, according to analysis

For comparison, Australia also has pints and they cost around $12-$14 in inner-city bars. That’s £7 – £8. Or in USD that the Londoners are paying $16.50.

One of the reasons why the UK is the runner-up in western inequality is land. The rich have been around longer, and over time they have grabbed more and more land, and the UK doesn’t have that much of it. Any Brit can tell you how much property prices have risen in London.

Inequality means that the rich all try to own land (to store their wealth) and that pushes prices up. Expensive property means expensive rent. Which a significant cost factor for a pub in the London CBD. Which makes the experience of drinking in a bar harder to achieve for the average person.

The post Beer and Inequality appeared first on Unism.

One big cause of inequality is from property ownership versus renting. Especially where people or businesses own multiple properties. They gain from increased property prices that they do not earn, and get richer still (relative to poor people). While I could prove it with statistics, it is self-evident – wherever rich people invest is where they get the most returns, and the greater relative advantage.

While a lack of affordable housing is common throughout the world, it is especially bad lately (in the AirBnb era) in touristed areas. So we can start there. Any house owner who does not reside there, must pay for a permit for that luxury.

We start off by telling house-owners in the area that such a permit, that has an annual cost, will be coming soon. And the intention is to eventually make it costly enough that some of them will sell. Presumably a resident home owner will buy it, seeing as they don’t have to pay for an ongoing permit.

Every year the local council/authority will increase the permit cost until home ownership starts increasing.

The permit proceeds go to the local council/authority, and can only be used for creating social or public housing. The permit fee will be based on assessed value, the same as property rates and taxes.

The methodology will be similar to self-reported income tax, in that the government will have ways of checking on people.

Obviously any property owned by a company will require the company to disclose the details of who owns the company if they wish to try and avoid paying the permit. Checks could also be combined with the state and federal tax systems – wherever the beneficial owner of a property claims tax deductions, and ownership records can be checked for the same name owning more that one place. International travel records could check to see if they are ordinarily resident. And so on – many ways of making sure people are compliant.

This is not the only solution – just a different and perhaps a new one.

People who are leveraged will suffer the most/quickest because such a permit could mean they start losing money. But even rich people who own many properties freehold will be affected, and they might consider that selling their properties and investing in something else would be more appealing.

The post Non-resident Property Permits appeared first on Unism.

It will work itself out in the long-term, because tourism needs workers, and the workers need local shops and services. In the long-term, being a tourist in those places will cost more, so that workers can be paid more, so they can afford rent. Otherwise, tourism cannot survive without the workers.

In the short-term it is a problem, and some municipalities are setting limits on short-term accomodation and/or taxes on it.

AirBnb is being blamed, but it has merely been the enabler. The real issue is inequality.

More people have more money than in any time in the last century, and the relative income of low-paid workers is declining. The rich are spending more on travel, which also means they can afford to pay more for accomodation that previously. That means a property owner can now get more from short-term renting to rich travellers – even with less than 50$% occupancy – than from long-term locals.

Inequality is creating massive inefficiencies. Short-term accomodation can be empty most of the time and still profitable. Rich people have holiday homes that they barely use. And the relative cost of renting a home keeps rising for poor people, because of a supply shortage.

Inequality is to blame, not AirBnb.

The post Short-term rentals and Inequality appeared first on Unism.

Negative Gearing: If your rental property runs at a loss, that loss can be used as a tax deduction against other income. Effectively that means that the government & other taxpayers subsidise your loss-making.

While running at a loss sometimes will offset profits sometimes is valid for business taxation, that is when it is within the same business. With negative gearing, people purposefully operate at a loss to reduce tax on other incomes, like employment.

Capital Gains Tax Concessions: When you sell your own home, or the property you have “nominated” to be your home (no need to actually live in it…), your capital gains tax is halved. That explains in part why rich people sometimes own extraordinarily expensive homes – they get the regular rise in property values but only pay half the tax.

The government will tell you that these benefit mom and dad “investors”, who have the Australian dream of an investment property, and that it inspires more investment in the housing industry. What it actually does is help the rich pay lower tax rates than the poor.

The Age reports:

• 57 per cent of negative gearing deductions go to the top 20 per cent of income earners
• the top 10 per cent of earners claim more in capital gains tax deductions than the remaining 90 per cent combined

Negative gearing, is clearly being taken advantage of by the rich:

Under the Greens’ current policy of allowing just one investment property to be negatively geared, the Australian government could make a $63 billion saving over a decade

The post Negative Gearing: Tax Cut for the Rich appeared first on Unism.

• High tax on houses left empty
• Investment funds cannot own public housing
• Capped rent in locations that need it
• Tax breaks if you rent to younger people

And importantly, a new designation called “great landlord”, which is any person or entity that owns more than 10 properties. This is wonderful, and a way of helping to reverse inequality.

Such landlords can only increase rent once every decade. They also suffer price caps and miss out on many of the tax breaks offered to other property owners

The post Spain Makes Landlords Pay appeared first on Unism.