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There is no shortage of bedrooms in Auckland but…

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The Q and A programme on TVOne this week started with a debate on housing. Property investor Olly Newland and Hive News Publisher Bernard Hickey were asked by Susan Wood about how to control the housing bubble in Auckland, since the Reserve Banks had this week decided it was not budging and would leave the Loan To Value (LVR) restrictions in place.

Olly Newland seemed to want no restrictions at all so that rents will come down. Bernard Hickey pointed out that if you have first home buyers with 1% deposit you run the risk that the banks will fail and the Reserve Bank can’t take that risk. Olly replied that the banks can look after themselves, which fails to understand that we need a reliable banking system. He said that LVR restricts first home buyers and that is preventing them from getting on the housing ladder. He even used the term “moral aspect” and said he was the first to encourage home buying for first home buyers.

Bernard pointed out that if rents go up the government has a fiscal problem because it pays accommodation supplements. Bernard says if interest rates go up homeowners are in trouble. He reflected on the fact that RBNZ had been considering various ways of controlling lending to investors, including a different rule for those who have five or more properties.

They disagreed on whether interest rates will rise or go down, Olly opting for the latter and saying we are getting deflation starting round the world. He dismissed the RBNZ’s solution to control investment finance as “political claptrap” and said he wanted people to be able to rent property for a lifetime securely. He believes the market would steadily slow down and people were investing for the long term.

Oh well, interesting to have his views.

Then the panellists came on and included Matthew Horton and Laila Harre. Laila said the government doesn’t know whether
they want more people to live in their own houses
they want to control the rental market. They should get a policy on these.

Laila said there was an obsession with the supply issue and a lack of proper statistics. The housing shortage figures vary between 5000 and 30,000! Property investors owning 5-6 homes are often living in large houses themselves when all their children have gone. There isn’t a shortage of bedrooms in Auckland at all.

Matthew then pointed out the anomalies possible in the RBNZ’s other options e.g. does a property owner with five bedsits have a bigger portfolio than those with three huge student houses? Here we go again. If you don’t ask the right questions you don’t get the right answers and you end up with a complicated messy system full of anomalies.

So they managed to have a whole debate without once raising the issue of land prices and how to keep them down.

You know when I was writing my book Healthy Money Healthy Planet – Developing Sustainability through New Money Systems I was arguing that money be created without interest. Some said interest rates need to go up not down. But the strongest reaction I got from the drafts was from Robert Keall of Resource Rentals for Revenue. He basically said “zero interest loans over my dead body” because he knew land prices go up. He said we want higher interest rates not lower interest rates.

Ten years later I know what they all meant. Low interest rates mean a land bubble (people call them housing bubbles but it is really the land that rises in value not the building).

So while I am still of the opinion that money should be never be created as interest bearing debt, I am also acutely aware of the connection between land and money and know that in New Zealand new land tenure systems were introduced by British colonists at the same time as private banks and their money creation powers.

The whole point is that because land is naturally occurring, it belongs to everyone. Colonists brought with them a concept completely alien to Maori, and indeed to the thinking of indigenous people worldwide, – private land ownership. The setttlers, who had largely been tenant farmers in England and Scotland, wanted freehold land. Freehold means land ‘free of rent’. Thousands of years of enclosures of land in Britain had meant that freehold was the new ideal. They had forgotten that land belongs to everyone.

It is a sign of how little distance we have come in our understanding of land as a natural resource that a high profile debate like this QandA debate can go hard at it without mentioning land. One tweeter said ‘The elephant in the room is capital gains’, again without mentioning land.

Oh and they had a debate they had about ‘forcing people out of their homes’. When Laila pointed out that there was no shortage of bedrooms in Auckland, Matthew Hooten said you can’t force people out of their homes. Well a tax system can. That is what tax systems do – they alter behaviour. If a Remuera retired couple is living in a huge home and the only cost to hold their land is the rates, they stay there. If however they had to pay an extra 3% land tax they might reconsider buying a smaller property more suited to their needs.

The next day the Dominion Post carried a short piece making Laila look ridiculous for saying this but she was only pointing out a fact.

A recent Melbourne study has found that a great many property owners are not even renting, they are just sitting on their properties waiting for capital gain. In the commercial area it is a higher percentage and in each suburb it differs. 64,386 properties are likely vacancies during Melbourne’s record-long housing supply crisis – See more at: http://www.prosper.org.au/tag/speculative-vacancies/#sthash.cHtfoINb.dpuf

It is time such a study was done for Auckland.

Economics professor Steve Keen in a recent interview said it is only thing stopping unemployment rising to the levels of Europe is the the housing bubble. The housing bubble keeps money supply up. Goodness, that is a critical point and leads us to understand the interconnections between the money supply, unemployment and how the tax system affect where money is invested. Of course Steve Keen must then argue we need more money in the system as well as a tax system that taxes the monopoly use of the commons and not work. And we have to find a money system that is sufficient. Thank goodness for the citizen effort going on at the moment to start a Christchurch currency. Yes getting this new political economy is a huge challenge for the entire world. http://www.switzer.com.au/video/keen13112014/.

We have the biggest political challenge of the 21st century to solve inequality and climate change

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challenge_ident2007bWhen I was writing my book on money I noticed there were two camps that claimed they had the “complete answer” to growing debt, environmental deterioration and inequality.

One was the monetary reform movement and one was the natural resource taxes movement. In some cases the antipathy to the other movement was palpable.

Why was this? Well when monetary reformers advocate money being created without interest, some – but by no means all – of them realised the detrimental consequence. The price of property increases. Without so much interest to pay, the extra liquidity simply goes into land speculation. The price of sections rises, the price of houses rise and this brings inflation. (well since 1999 this hasn’t been measured because land came out of the Consumer Price Index. The CPI no longer reflects reality) But in the seventies I recall the professionals all out- smarting each other by buying sections, which obligingly rose in value before their very eyes.

I even met a Georgist who said he will fight inflation to his dying breath and would never, never consider interest free money. To him the monetary reform movement was the enemy. He tended to confuse interest when it is involved with money creation with interest when it is the price you pay for borrowing already created money. But he didn’t know it.

During the Global Financial Crisis of 2008 more Georgists became aware of the activities of banks, especially in America. They looked at the issue and some became enthusiastic monetary reformers as well as Georgists.

But how do you marry these two issues? Theorists can marry them but not politicians. To put it mildly it’s tricky. A group of us have worked on it for two years and have come up with a possible solution. It is a slideshow at http://www.slideshare.net/deirdrekent/the-land-dollar-a-national-land-backed-currency. I presented it at the recent Council of Georgist Organisations conference in California.That is as far as we have got. And of course, since we have to reform the welfare system too and replace it by a Basic Income that is yet another challenge and must be integrated into the solution(s).

It is not surprising that those who find monetary reform the most difficult – the group that is quickest to dismiss it – are the traditionally educated economists. They know that low interest rates cause land speculation and they seem unable to redirect money towards productive enterprises and away from land and other natural resources in limited supply. A few of them (quite a few, but politicians consistenly ignore them) advocate a small land tax.

Of course money will flow into land speculation when there is no price to be paid for holding land.

British Colonists did two things: they introduced western banks and the money system that came with it and they changed the land tenure system. Freehold land was what the settlers wanted. The definition of freehold is “land free of rent”. And that is what we have. As I watch the Commonwealth Games I think of what the British have done to bring inequality and injustice right round the world. The same could be said for Spain or Portugal I suppose.

So it is heartening to know there are now a handful of economists tackling the issue of combining the two issues. They come from the Georgist movement – Michael Hudson, Nic Tideman come to mind.

Reversing the tax system is huge, as 80% of New Zealand’s tax revenue comes from income tax, GST or company tax when it should be coming from land value tax, other resource taxes and from Pigouvian taxes.

I have no idea how it will all play out. But I can’t help getting the feeling that politicians are faced with the biggest political challenge of the 21st century – the task of creating money without interest as well as changing the tax system and fundamentally reforming the welfare system away from asset or income testing.

What is needed is a way to reverse the colonisation process.

With inequality and climate change being the big two issues of the early 21st century, the time for political creativity is now.

Why we need a parliamentary enquiry into the best methods of making banks stable

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Submission of Deirdre Kent in support of petition 2011_78 to Parliament

This submission is substantial. It outlines why banks are unstable, includes charts on banks assets compared with their exposure to derivatives and on housing bubbles. In a hyperconnected world New Zealand’s four Australian owned banks are not going to be immune to shocks. Now instead of taxpayer bailouts, it seems depositors will bailout the banks. The Reserve Bank has in place a system called Open Bank Resolution. We would rather the banks were stable in the first place.

Two major blindspots in David Cunliffe interview so the Labour policy won’t deliver jobs.

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It was with considerable interest that I spent half an hour watching the streamed online broadcast from thedailyblog recently. Bomber Bradbury and Selwyn Manning were interviewing the new Labour leader David Cunliffe.

For a while I was very excited. Here was a man who was head and shoulders above his predecessor. His replies showed his high intelligence, considerable knowledge and a lot of political wisdom. Yes he would come down hard on tax evasion, he would reform the trust law, focus on exports and jobs. He showed he had a very good grasp of climate change, talked about extreme weather events and said there must be a price on carbon. When asked about the meltdown of unregulated financial markets it was clear he knew about Consolidated Debt Obligations and explained how the world came to be awash with phony debt. He wanted re-regulation of financial markets and described the kiwi dollar being a “speculative plaything of international markets.” He said nobody ever gets pinged for trading the NZD but it drives up the dollar and is bad for exporters.

Asked about FTT he said “If you hear a giant sucking noise it will be overseas money leaving New Zealand”, that will be the global capital would leave in a rush. He said in a borderless and internet-enabled world economy a financial transaction tax has to be imposed by the whole global community rather than going it alone. Interesting.

On the TPPA he wants the text released so we can have a mature public debate. How refreshing that was. He was good on the GSCB and showed a lot of insight on our role in the Pacific.

Like a good Labour Party stalwart he advocated a living wage, raising the minimum wage and said that Labour was working on fine tuning Working for Families so that all children benefit.

But there were two questions which put a halt to any thought he might be the saviour of New Zealand. When asked “Would you find yourself in a position to reduce GST if you are putting up the top income tax rate?” the answer was “I hate to disappoint you but no” he said it would take five years to get the Capital Gains Tax to the stage where it raised revenue, and with all the programmes they wanted to introduce, the Crown balance sheets would be stretched thin. Well this is a huge slap in the face to working poor to keep GST, the most regressive tax of all.

So I looked up Capital Gains Tax and found most countries have it in some form. Wikipedia gives good information. Oh yes there are a few like us who don’t have it, Jamaica, Kenya and Singapore being three of them. But most countries have it in some form or other. It is sending the right signal to property investors. Australia’s and Canada’s seem similar and I guess the Labour Party is modelling theirs on Australia’s. That means they get the capital gain, divide it by two, and apply the marginal tax rate to it, which is 43%. So here we are, all these properties rise in value in Auckland 18% a year. If you sold a rental and made a capital gain of a mere $100,000 you would pay 43% of $50,000 or $21,500 in CGT. The other $78,500 you can keep for yourself. Nice. That is rightly public money, as it is society which creates the extra value on land. The whole of it should be publicly captured.

And if you sell your home and make $300,000 don’t worry you won’t have to pay a cent of that to society. So for just investment properties (and commercial and industrial properties?) you will pay 21.5% back to society and capture the rest yourself.

Capital Gains Tax in its present form doesn’t stop at gains on property. Several websites go into it at length and one is left with two impressions. The first is that there is apparently no apparent understanding of the difference in genre of land and its gifts and capital. Land and capital are collapsed together. One is a gift of Nature and one is the combination of labour and resources.

The second impression is that CGT is so complex that it will be extremely expensive to administer. Already the Inland Revenue Department has to spend $1 billion over the next ten years upgrading its IT systems and CGT will make it worse.

Neither Bomber Bradbury nor Selwyn Manning asked him exactly how he would ensure that jobs were created. And of course jobs can’t be created under this scenario. The CGT is weak and relatively ineffective and the progressive tax means that the tax burden is greater. A currency overburdened by tax and issued by private banks as interest bearing debt will surely not circulate fast enough into productive enterprise.

Only when there is a working moving currency will jobs be created. And the currency must be relieved of its burdensome and illogical taxes on work and enterprise. A lack of awareness of currency theory, linked with a lack of understanding of the difference between the gifts of Nature and the work of humans are two important blindspots. Until then wealth will continue to accumulate with private banks and landowners. It is disappointing that policy shaping up to be about redistribution, rather than creation of wealth. It is so much more important to understand the role of currency design than to artificially prop up wages. Currencies can be designed to be abundant and flow, rather than pool with the wealthy.

So are we to see a Labour Government that showed much promise yet failed to deliver on jobs? Of course. Expensive social welfare programmes, a complicated and burdensome tax regime with a very regressive GST and a money system which perpetuates the status quo will see to that. The tax avoidance industry will have a heyday. Sadly I forecast the only jobs that will be created are jobs as accountants, tax lawyers, WINZ and IT specialists in the Inland Revenue Department.

Slideshow on the Post Fossil Fuel Economy – Jobs, leisure and innovation

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The new slideshow is at http://www.slideshare.net/deirdrekent/steady-state-economy-jobs-for-a-postgrowth-economy. It addresses many of the questions our members have been asking and hopefully makes it easier to understand. There are presenter notes with most slides.

Asset Sales or River Sales?

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Asset sales are really river sales

25 November 2011

If asset sales go ahead then we will lose control over our big rivers, according to Laurence Boomert, Wellington Central candidate for the New Economics Party.

“Not only is it bordering on treason to sell our precious assets, but there are rivers like the Waikato and the Waitaki involved too.

“There is a link between asset sales of our major generation companies and the risk of associated loss of public control of our rivers with that transaction. These are our sacred rivers, our taonga and are the source of much life. They are not a commodity to be bought and sold.”
“These publicly-owned energy companies have a very big influence on our hydro river catchments. On the Waitaki River, for example, Mighty River Power has legal claim over waters, they own big tracts of land, can have interests in irrigation supply networks and can secure “requiring authority” to purchase land that they need for their schemes.”  Selling 49% of Meridian means selling 49% of the Waitaki River. We don’t want the water to be sold.

“We don’t think that the majority of New Zealanders have made these crucial connections and therefore risk making under-informed decisions on Saturday’s election.”

For further comment phone Laurence Boomert 027 258 8807