Unless you have been hiding under a rock for the last few years, you will be aware of the discussion on inequality. A recent book by the French economist Thomas Piketty called “Capitalism in the Twenty-First Century” has ignited this debate. His premise is that capital (assets), over time, produces more wealth than income (wages). Therefore wealth disparity will keep increasing into the future, becoming a problem which society will need to deal with – somehow, sometime.
The core issue is that now that the planet is full, assets like land, houses and buildings will appreciate faster than most people can earn with a wage. Therefore people without access to property will be disproportionally disadvantaged compared to those who have – lots of it. The problem becomes more visible when we experience rapid increases in property values. It is an obvious distortion when someone earns more from capital gain in a family home in one year than income from a reasonable job. Work becomes ignoble and a home becomes an asset. Investors churn and flick property instead of building businesses that employ other people.
Australia prides itself on being an egalitarian society and this community considers itself to be particularly caring and considerate. As this issue continues to fester without any ongoing plans or proposal to remedy it, at least more of us will need to keep discussing it. A new national publication, “New Philosopher” (interestingly based out of Bangalow and well worth supporting) has done just that and has devoted its whole current issue to the property debate, providing some strong evidence for change.
Property only increases in value in a society that is functioning, harmonious and just. Everyone who participates in that civil society should benefit, in varying degrees, to its growth and the expansion of the “common wealth”. Private property ownership is obviously a good thing and people should be incentivised to build wealth. But it becomes unfair when entry into the club is prohibitive and the buy-in level is out of reach to many. Capitalism breaks down when too much wealth is isolated in too few hands as it ceases to circulate throughout society and the middle classes where it creates more wealth and jobs.
As a practitioner in the real estate industry I do not have a problem in participating in this debate. I work with investors, local homeowners as well as people relocating into the area. I have seen the numbers of first homeowners and young families decreasing recently as they are finding it difficult to buy in this area. I get lots of calls from people asking for assistance with this dire rental market but I cannot help them. I observe first hand the level of housing stress and insecurity that the cost and lack of rental options is causing.
No one is calling for a revolution or the mass redistribution of wealth. A bit of tinkering on the sidelines will go a long way but present governments have yet to build a strategy or implement anything effective. Re-entering the public housing sector would be a good start. Some things that have been muted are: capital gains tax on super profits earned during sale of the primary residence, CGT on properties sold over $2M, death duties on inherited income over $5M. Just this week, a parliamentary enquiry suggested allowing first homebuyers to access their superannuation for a deposit as well as only taxing new homeowners on income after mortgage payments were deducted.
I will be watching this debate closely as it evolves and as it meanders through the system and hopefully some decision will be made sometime. I will keep reporting any activity back to you in these blogs. Happy to hear any of your feedback on this issue.