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Solving the Auckland Housing Crisis While stabilising land values in the provinces and gradually taking land out of the market place

Solving the auckland housing bubble

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Gradually taking land out of the market place is the only way to solve the two tier housing market in New Zealand. While Auckland house prices rise at 13% a year, in the provinces the real prices have dropped 20%. This solution introduces a treasury created tax credit to pay for land of those who opt in.

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Page 1: Solving the auckland housing bubble

Solving the Auckland Housing

CrisisWhile stabilising land values in the provinces and

gradually taking land out of the market place

Page 2: Solving the auckland housing bubble

Banks reign

Banks get the best security – land. They benefit from rising house prices and row the economy between easy money and tight money for maximum profit.

Government has to be content with revenue coming from less secure sources like labour.

We need to weaken the link between banks and land and strengthen the link between Government and land.

Page 3: Solving the auckland housing bubble

What should we tax?

“We should tax the things we hold or take, not what we do or make.”

Bob Keall in Resource Rentals for Revenue paper

Page 4: Solving the auckland housing bubble

Each site is given value by...

Site

Government

Local Businesses

Local Government Social

Organisations

Nature

Page 5: Solving the auckland housing bubble

What are resource rentals?

Property owners hold a monopoly on ‘their’ land. Since some land is more valuable than others, those landholders should compensate society for this privilege. The extra site value of land is created by the community over time and belongs to the community.

Page 6: Solving the auckland housing bubble

As landowners gain from rising land prices, wealth is concentrated with landowners and banks.

Page 7: Solving the auckland housing bubble

The tax system should encourage long term

investments

When you don’t tax land or resources, money goes into bidding up the price of assets not into real production. When you tax labour and sales and enterprise everyone’s purchasing power is diminished. We need to ‘clear the path’ for job creation by untaxing labour and taxing land.

Page 8: Solving the auckland housing bubble

New type of thinking?

“You can’t change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” Buckminster Fuller (engineer, designer and inventor) e.g. Wikipedia replaces Encyclopedia Britannica, email is replacing postal mail

Page 9: Solving the auckland housing bubble

Currency creation is a country’s sovereign

right

New Zealand should have tino rangitiratanga (or absolute sovereignty) over its right to design its own currency system and not let privately owned banks take charge of this. We should have an ecosystem of currencies, not a monoculture.

Page 10: Solving the auckland housing bubble

Banks Reign while they control land and

moneyIf interest rates drop a surge of money goes into housing – a housing bubble. There has to be something to stop it. A capital gains tax is not good enough. Even if all money is created by Government, it doesn’t create jobs because you haven’t swapped income tax for land rents. You need to unblock the riverbed so that money flows into production. Besides, wealth still pools with landowners.

Page 11: Solving the auckland housing bubble

Why not a Capital Gains Tax?

• As proposed by Labour and Greens it is a weak version. Actually the whole of the capital gain is a land gain – created by society. So the whole gain belongs to society.

• Labour and Greens only propose something similar to Australian CGT where a portion of the gain is treated as income. Complicated and expensive to administer and doesn’t work. If 100% then property stays off the market.

Page 12: Solving the auckland housing bubble

Introducing land tax alone is political

suicideYou can’t just add a land tax because it is an extra tax. People already pay for their mortgage and they pay rates or local taxes. Why should they pay a third? So it is not politically feasible. The point of a land tax is that you must untax labour and sales at the same time and this is tricky to do. Despite many tax reviews recommending land tax in New Zealand, no government has implemented those recommendations.

Page 13: Solving the auckland housing bubble

Why a rental not a land tax?

• A land tax implies people can own land. But Nature provided it free and it is here when we die. Land owns us.

• A land tax imposed at 1% will reduce land value by 16% so next year Government has to raise the percentage. That is why people don’t trust governments with land tax.

• It requires constant land valuation and disputes.

Page 14: Solving the auckland housing bubble

Step One

Allow Treasury to create Tax Credits. Make them dated. That means they are acceptable for the payment of tax until that date. They turn into a pumpkin at a certain date so naturally people want to spend them and keep them in the country. Like Flybuys loyalty points they drop off if you don’t use them. Also acceptable for student loan repayment.

Page 15: Solving the auckland housing bubble

Step Two

Treasury offers to buy the land of anyone who volunteers. Treasury uses Tax Credits to pay for the land. From then on a land fee or rental is payable for that land but the title remains with the property owner .

Page 16: Solving the auckland housing bubble

Step 3. Use contract law to set land fee

• Each property owner negotiates with government to set the land fee.

• They then sign a contract to pay a certain fee regularly to Government. They negotiate to make sure they have a financial incentive to opt in so end up paying less than the sum of their mortgage and rates. Their title is then burdened with a covenant to pay.

Page 17: Solving the auckland housing bubble

Property owner contracts with Government

Page 18: Solving the auckland housing bubble

Step Four

Link the tax credits to a completely new tax system. Trades in the tax credits will not incur income tax, sales tax or company tax.

..new currrency, new

rules..Tax Credits

No income tax, GST or company

tax, only resource taxes

Page 19: Solving the auckland housing bubble

Step Five

The revenue would be shared by central Government and the relevant local Government (in New Zealand we have only central and local Government). No further rates (local taxes) would be payable.

Central Government

LocalGovernmentshare revenue

Page 20: Solving the auckland housing bubble

Step Six - create an index

Land rents (or land fees) would not be linked to inflation but to the site rental value of the land. A Land Rental Index would be established for each area by taking a sample. Fees would only rise if new public infrastructure was built and would only fall if there was an earthquake or, say, a rail link was discontinued. They also change if the permitted use changes. They vary very little over time otherwise and are not subject to reviews, only to the index. So there will be no sudden rises!

Page 21: Solving the auckland housing bubble

Step Seven A Citizens Dividend

Treasury will refresh and redate the Tax Credits they receive, and from time to time will issue all men, women and children with a Citizens Dividend in Tax Credits. Thus the land fees are shared with the people. It will be digital only. It will be on a dual currency debit card like Kiwibank’s Loaded card.

Page 22: Solving the auckland housing bubble

Step Eight

The homeowner paid in Tax Credits uses them to repay their mortgage or to make a long term investment and pay land rents in advance. Because they are dated this encourages people to keep them in the country so there is import substitution manufacturing.

Page 23: Solving the auckland housing bubble

Step Ten - productivity

As people spend their Tax Credits on labour intensive industries, production will flow to the regions. This encourages regional development. And the price of houses on land paid for by Government will halve.

Page 24: Solving the auckland housing bubble

But what about Maori land?

• Communal stewardship and sharing of land values is not a new concept to indigenous people.

• This scheme is voluntary

• A long process of negotiation hapu by hapu and/or iwi by iwi will be required to clarify any proposal for a new law.

Page 25: Solving the auckland housing bubble

The plan in action

Here are some examples of what might happen.

Page 26: Solving the auckland housing bubble

Woman in Auckland

She is a 42 year old solo mother (one child), full time student who owns her suburban house. Land worth $200,000. Land fees would be about TC10,000 a year so she pays two years in advance leaving TC180,000. She decides to build a second storey so she can rent it out. No tax or sales tax on all trades in Tax Credits. No more rates.

Page 27: Solving the auckland housing bubble

Young couple buying first home

• The Government buys the land with Tax Credits and they buy the house, using an ordinary mortgage. So the young couple only has to pay for the house, not the land.

• They negotiate to pay a land fee to government which would be less than the sum of their land mortgage plus rates.

• The vendor uses mixed currencies to buy their next house.

Page 28: Solving the auckland housing bubble

Couple on small lifestyle block

In their early sixties. He commutes to the city. Land worth $340,000. They want to develop the block to produce an income. They pay land fees in advance, then pay for labour and for buying fruit and nut trees. They plant a cash crop (say pumpkin or garlic) which they sell within New Zealand. They pay a permaculturist for advice and for labour to plant a food forest. They insulate the house and build fences.

Page 29: Solving the auckland housing bubble

We have a mortgage

Our land value is worth $90,000 and we are in our early thirties, a nurse and a mechanic in Opotiki. We used to pay 5.5% fixed mortgage or $4950 on our land, plus $2015 in rates a year, total $6965. So we get the Government to pay for our land and our contract settles at $5900 a year, making a saving of $1009 a year.

Page 30: Solving the auckland housing bubble

Legislation minimal

• As we are using existing contract law, the only legislation necessary would be to set guidelines for negotiations. It has been suggested that for rural land take the sum of mortgage on land plus rates and subtract 25%, for outer urban land 15% and for inner city land 10%.

Page 31: Solving the auckland housing bubble

What we have done• We have invited property owners to opt in

to a scheme whereby Treasury pays for the land in a new specially designed currency called Tax Credits.

• We have used contract law so we don’t have to legislate. Negotiation discovers a land fee, corrected annually by a land fee index.

• Tax credits have a circulation incentive and bear no taxes on labour or trade.

Page 32: Solving the auckland housing bubble

Things you can doVisit and join the site of the New Economics Party http://neweconomics.net.nz. Become a financial member.

Go to our Facebook page http://www.facebook.com/NewEconomicsParty.

Discuss the issue with your friends and family and online.

An article on this is on a blog at http://neweconomics.net.nz/index.php/2013/06/how-to-build-a-life-supporting-economic-system/

Contact us [email protected].