I had the pleasure to talk to an analyst in WA’s Treasury department yesterday.
That was part of my role as president of economic group Prosper Australia. The focus — as always for us — is on economic reform.
The virus may have triggered this downturn.
But it’s the fragility of Australia’s economic makeup that has governments panicking.
We have a houses and holes economy.
Australia’s economic complexity is dismal.
We’re down at number 93 on the list — just above Pakistan.
About 70% of the products we sell to foreign buyers, on a net basis, are minerals and energy.
The rest of our wealth is mostly tied up in a $6.9 trillion housing market.
That breathes by way of population growth (mainly from immigration) and high levels of private debt.
It also means we have a lot of winners, and many more losers.
Western Australia is familiar with recession.
It’s had the worst performing domestic economy in the nation in recent years — even with cash windfalls from GST top-ups and high iron ore prices.
And that’s hammered their housing market.
The problem is, they gave their resources away far too cheaply during the boom.
Had they adopted Norway’s State Direct Financial Interest, things could have been a lot different.
This is where the government takes an equity stake in all resource projects. They provide their share of the investment. And, in turn, reap a share of the dividends.
This model gave Norwegians a wealth fund comprising of over US$1 trillion in assets.
In May 2018 it was worth about $195,000 per Norwegian citizen…
Still — too late to dream.
Unfortunately, it’s only when the proverbial hits the fan — such as a global pandemic — that governments scramble for ways to reform a (clearly) broken system.
Big Housing Grant Coming…
So, my discussion with the WA analyst covered many items — including the relatively low hanging fruit of allowing stamp duty to be replaced by land tax.
After a transitionary period, it provides a stable source of government revenue, and is far more equitable than other forms of taxation.
Land tax has no dead weight loss.
It doesn’t discourage work or productivity — just the reverse. It makes holding vacant land expensive. It quite literally forces land into use.
The problem isn’t one of disagreement, however. It’s one of transition.
Selling the concept of land tax to homeowners at a time when they are screaming for a quick economic recovery isn’t going to be met with much success.
It’s not that Aussies want to get back to work. They just need to in order to pay their mortgages and other debts…
And the reason they took on those debts in the first place was for a house, but also the potential for lucrative ‘capital gains’.
In boom times, it can see home values increasing by more each year than their annual pay packet.
That’s why we have the property council pushing federal government for a $50,000 ‘new home boost’ and the scraping of stamp duty in favour of…land tax? Nope — GST!
And in WA specifically, the state government is fast tracking a $150 million housing investment package.
This is why we have a housing cycle after all. And right now, not even COVID is going to disrupt it.
WA is well placed.
Its market was showing the beginnings of a turn prior to COVID hitting.
Latest data from CoreLogic showed Perth as one of three capital city markets to outperform its six-month average pace of change, alongside Darwin and Adelaide.
The amount of stock on the market has been falling — which has underpinned prices.
And the state government has allocated $140 million to fast track construction projects — which will eventually feed into land values.
Unlike Melbourne and Sydney’s housing markets, Perth is not as reliant on immigration.
It’s been one of the first states in the country to get out of lockdown early. And it wouldn’t surprise me to see internal migration pick up over the next few years because of it.
This is what we’ve been predicting in Cycles, Trends & Forecasts for a while now.
So, if you’re thinking of buying in — perhaps seriously consider it before Australia’s bureaucrats announce their much-anticipated ‘home buyer boost’ to restart the housing boom.
PS: Discover why you may soon be able to pick up prime Aussie property for a snip…even in suburbs you thought you’d NEVER be able to afford. Click here to learn more.