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The Occupy Movement Targets Housing - But What's In It For Us?

21 December 2011 at 11:58 am
Staff Reporter
Professor Frank Stilwell in the Department of Political Economy at the University of Sydney writes on a fascinating new direction for the Occupy protest movement and what Australia might learn.

Staff Reporter | 21 December 2011 at 11:58 am


The Occupy Movement Targets Housing - But What's In It For Us?
21 December 2011 at 11:58 am

This article by Professor Frank Stilwell was first published by The Conversation. It is republished here under CreativeCommons- Attribution/No derivatives.

An interesting spin-off has recently emerged from Occupy Wall Street movement in the United States. Born from the activism of demonstrators protesting against corporate greed and economic inequality, the Occupy Our Homes campaign aims to open foreclosed homes to struggling US families.

According to its activists, thousands of homes have been left to sit vacant as banks foreclose on the mortgages of aspiring house-buyers with low to middle incomes. Meanwhile, more wealthy citizens own more and bigger houses than they could ever possibly need for their personal use.

That the Occupy Movement should turn its attention to housing makes sense. The global financial crisis had its origin in US housing markets with unsustainable “sub-prime” mortgages leading to cumulative instability in related financial markets.

Avoiding similar problems in the future requires more equitable and sustainable housing arrangements. And more generally, creating a good society requires commitment to better housing policies, along with improved employment opportunities and the redistribution of economic power and incomes.

Does this apply equally in Australia? Yes, it does. Major stresses and inequalities in our society originate from the housing arrangements, while the housing arrangements also cumulatively accentuate the stresses and inequalities. The basic problem is that housing is being used as a means of accumulating capital. Wealthy people invest in housing whenever the expected rate of house price inflation exceeds that of other assets. Sometimes people with relatively modest incomes get drawn into the process too, thinking that owning an investment property or two will be a reliable source of future income in an otherwise uncertain economic environment.

The speculative demand for housing drives up market prices. This accentuates the problem of housing affordability. Some people are left homeless as a result. Others struggle on in privately rented housing, where the incidence of “housing stress” (officially defined as where the rent exceeds 30% of household income) is the highest of all housing sectors.

Concurrently, among the nearly 70% of Australian households who are owner-occupiers are many whose mortgage payment commitments take them right up against their capacity to cope. No wonder so many Australians are nervous about the changes in the official interest rates that the Reserve Bank periodically announces, and the willingness of the Big Four banks to adjust their mortgage rates in tandem with the Reserve Bank of Australia’s cash rate.

“Decent and affordable housing for all” should be an achievable goal in an affluent society like Australia. What impedes it, fundamentally, are two major socio-economic problems – economic inequality and the arrangements for land use.

Economic inequality is an obvious reason for the imbalances in access to home ownership and housing capital appreciation. It creates a divide between housing winners and losers. A OECD report released last week shows that Australia is one of the countries where the polarity between rich and poor is becoming increasingly pronounced.

The richest 1% of Australians doubled their share of total national income over the period from 1980 to 2008 (when the global financial crisis began) – rising from 4.8% to 8.8%. Over the same period, the top marginal income tax rates fell sharply – from 60% in 1980 to 45% in 2010. So the rich got a lot richer, and much of the increase went into increased housing asset values.

The OECD report also shows that the earnings gap between the 10% best paid workers and the lowest paid workers also increased by a fifth over the 1980-2008 period. The last couple of decades in particular have seen a growing proportion of households depending on casual, part-time or short-term contract employment. The resulting economic insecurity makes a broad swathe of the Australian population less able to make the ongoing commitment to investing in home-ownership, unless they have strong support from wealthy parents or get a fortuitous housing inheritance.

The economic inequalities are reflected in uneven housing markets nationwide. Of course, there have long been inequalities between city and country prices and between housing in desirable and less desirable neighborhoods within the metropolitan areas. What we’re now seeing is a patchwork housing situation that mirrors the much-discussed “patchwork economy”.

Housing prices continue to surge in regions where the mining industry is buoyant, for example – but the reverse applies in localities where older manufacturing industries have been in decline. The economic inequalities – both between social groups and regions – are a major factor in the growing divide between housing winners and losers.

The other fundamental problem is a lack of coherent policy towards land in Australia. Land values are the major component in housing prices. What causes a house in, say, Sydney’s Vaucluse to have a market price maybe six times that of an equivalent house in the outer western suburbs? It has little to do with the price of the bricks, mortar and other manufactured components in the houses themselves, because these are similar from place to place. Rather, the differences arise from the market prices of the land on which the houses stand. It follows that any policy to make housing access more affordable and equitable must address this issue of land ownership and land values.

Current land policies are inadequate for this purpose. They facilitate speculation in land markets, allowing private landowners to reap the fruits of rising land values. The rising values result from societal processes, such as further urbanization that drives up the prevailing price of land.

Land in the desirable locations is also continually rising in price because it is a “positional good” which, being limited in supply, can never be accessed by all who aspire to do so. Meanwhile, on the urban fringes in particular, windfall gains to landowners recurrently result from decisions by local authorities to change permitted land-uses, for example, from farming to residential and commercial. No wonder land is so commonly seen as an avenue for capital accumulation. Indeed, it is little wonder that the term “the land racket” recurs commonly in discussions about land in Australia.

These pervasive problems arising from the lack of coherent land policies were recognised over a century ago by the American political economistHenry George. Drawing on his observation of contemporary socio-economic trends as well as classical political economic theory, George argued that a comprehensive system of land taxation would drive the speculative element out of land markets. The uniform land tax – or capture of site rents – could therefore reduce land and housing prices, creating more economic and social equality and reducing poverty. Perhaps it is timely to look again at these fundamentally important ideas.

Another Henry – Ken Henry, the former head of the Australian Treasury – who was responsible for the major review of our tax system, has also pointed to the beneficial economic effects that would result from a shift to more comprehensive land tax. Participants at this year’s national Tax Forum agreed that a more broadly-based land tax would ease the financial situation of local and state governments, and that other taxes could be lowered as a result. The outcome would then be more reward for personal effort and productive effort, rather than perpetuating a situation whereby landowners capture much of the nation’s economic surplus as unearned income. The beneficiaries from this policy shift would include people currently struggling to put a roof over their heads without incurring a lifetime of excessive debt.

The Occupy Movement worldwide has raised fundamental questions about why the current economic arrangements fail to serve society as a whole. It has shone the spotlight on the concentration of corporate power, the irresponsibility of big financial institutions and the growing economic inequalities. By turning attention to housing issues, it is also making a valuable contribution to public debate on fundamental concerns about how to achieve decent, affordable housing for all.







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One comment

  • Couldn’t agree more that “any policy to make housing access more affordable and equitable must address this issue of land ownership and land values.”

    However I am very sceptical about the Georgist’s tax idea – it would divide the community between those who own property and want capital gain and renters & that would make it politically unstable.

    It relies on an additional tax which would be easy to demonise, especially in this increasingly globalised economy where we are competing with nations which have much lower costs.

    While the Georgist tax idea envisages jobs growth from which new taxes could be raised, that relies on growth in an already unsustainable economy in which half the voters are climate sceptics and where many more would choose jobs over environmental precautions.

    While social stability means there will always be a need for welfare support, the pressure is always on to reduce such dependency, but the Georgist idea implies growth in subsidies from tax.

    I see much more potential for dealing with the land issue with social, economic and environmental sustainability through a bottom up evolution of land rights among those at the bottom than through such a top down tax revolution with welfare benefits that may or may not trickle down.


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