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The joys of regulation

The Australian state of Western Australia has a population of 2.2 million people, and occupies an area of just over 2.6 million square kilometres. Just for reference, that is seven and a half times the size of Germany or alternatively ten times the size of Texas.

However, average house prices are amongst the highest in the world, as there is a shortage of land.

It rather boggles the mind.

Correction: Texas is actually slightly more than a quarter of the size of Western Australia. My apologies to Texans.

27 comments to The joys of regulation

  • Johnathan Pearce

    Obviously what is needed is a land value tax. That will sort it all out and create an economic utopia!!!!

  • EvilDave

    The problem with Australia isn’t lack of land (they have about as much as the US). The problem is lack of water. Too much of their land is dessert or desert (who can tell).

  • Kwok Ting Lee

    Michael,

    I’m not sure why that should boggle the mind. The vast majority of Western Australia is desert, which tends to be rather unlivable. People are generally going to be forced to live in a narrow band near to the coast, and as far as I remember–I haven’t lived in Australia for around 3 years now–Western Australia was already having water shortages back then.

    I suppose one could go Kalahari Bushmen or Bedouin and live in the desert, but most people I know tend not to enjoy such a lifestyle.

  • JK

    Marx concluded Capital (that is, he thought this was a very important) by pointing out that capitalism was having trouble establishing itself in colonies such as Australia because although machinery could be exported it could only function as capital if there were workers to go with it. But any workers would upsticks at the first opportunity and set themselves up as independent farmers.

    Concluding chapter of Capital vol 1 much abbreviated:
    (http://www.marxists.org/archive/marx/works/1867-c1/ch33.htm )

    Wakefield discovered that in the Colonies, property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if there be wanting the correlative — the wage-worker, the other man who is compelled to sell himself of his own free-will. He discovered that capital is not a thing, but a social relation between persons, established by the instrumentality of things. [4] Mr. Peel, he moans, took with him from England to Swan River, West Australia, means of subsistence and of production to the amount of £50,000. Mr. Peel had the foresight to bring with him, besides, 300 persons of the working-class, men, women, and children. Once arrived at his destination, “Mr. Peel was left without a servant to make his bed or fetch him water from the river.” [5] Unhappy Mr. Peel who provided for everything except the export of English modes of production to Swan River! …

    We have seen that the expropriation of the mass of the people from the soil forms the basis of the capitalist mode of production. The essence of a free colony, on the contrary, consists in this — that the bulk of the soil is still public property, and every settler on it therefore can turn part of it into his private property and individual means of production, without hindering the later settlers in the same operation.[10] This is the secret both of the prosperity of the colonies and of their inveterate vice — opposition to the establishment of capital. “Where land is very cheap and all men are free, where every one who so pleases can easily obtain a piece of land for himself, not only is labor very dear, as respects the laborer’s share of the produce, but the difficulty is to obtain combined labor at any price.” …

    How, then, to heal the anti-capitalistic cancer of the colonies? If men were willing, at a blow, to turn all the soil from public into private property, they would destroy certainly the root of the evil, but also — the colonies. The trick is how to kill two birds with one stone. Let the Government put upon the virgin soil an artificial price, independent of the law of supply and demand, a price that compels the immigrant to work a long time for wages before he can earn enough money to buy land, and turn himself into an independent peasant.[20] The fund resulting from the sale of land at a price relatively prohibitory for the wage-workers, this fund of money extorted from the wages of labor by violation of the sacred law of supply and demand, the Government is to employ, on the other hand, in proportion as it grows; to import have-nothings from Europe into the colonies, and thus keep the wage-labor market full for the capitalists. Under these circumstances, tout sera pour le mieux dans le meilleur des mondes possibles. This is the great secret of “systematic colonization.” By this plan, Wakefield cries in triumph, “the supply of labor must be constant and regular, because, first, as no laborer would be able to procure land until he had worked for money, all immigrant laborers, working for a time for wages and in combination, would produce capital for the employment of more laborers; secondly, because every laborer who left off working for wages and became a landowner would, by purchasing land, provide a fund for bringing fresh labor to the colony.” [21] The price of the soil imposed by the State must, of course, be a “sufficient price” — i.e., so high “as to prevent the laborers from becoming independent landowners until others had followed to take their place.” [22] This “sufficient price for the land” is nothing but a euphemistic circumlocution for the ransom which the laborer pays to the capitalist for leave to retire from the wage-labor market to the land. First, he must create for the capitalist “capital,” with which the latter may be able to exploit more laborers; then he must place, at his own expense, a locum tenens [placeholder] on the labor-market, whom the Government forwards across the sea for the benefit of his old master, the capitalist.

    It is very characteristic that the English Government for years practised this method of “primitive accumulation” prescribed by Mr. Wakefield expressly for the use of the colonies. …

    However, we are not concerned here with the conditions of the colonies. The only thing that interests us is the secret discovered in the new world by the Political Economy of the old world, and proclaimed on the housetops: that the capitalist mode of production and accumulation, and therefore capitalist private property, have for their fundamental condition the annihilation of self-earned private property; in other words, the expropriation of the laborer.

  • Capitalist

    Surely it is the combination of planning restrictions and monetary expansion driving house prices. House prices all over Australia are affordable only because of easy credit. Once that dries up … pop!

  • The Pedant-General

    Huh? If it’s water that’s the problem, then it should be water charges that should be enormous, not the price of land.

    Indeed, the fact that water prices are so high ought to depress house prices relative to other states with more abundant water sources.

  • The Pedant-General

    From 2006, so not that old for these purposes, we have
    AUSD 200 p.a. water charges for a 4 bed/2 bath house.

    That’s about GBP120 p.a. – peanuts. I’m paying almost exactly 3 times that in Edinburgh and we’re not noted for being short of water….

  • House prices all over Australia are affordable only because of easy credit. Once that dries up … pop!

    Oh, Australia has the housing bubble to end all housing bubbles. The market is simply rigged in every way you can imagine, though. This is everything from easy credit (funded by the Chinese bubble, basically) to the government writing cheques to people buying homes (sometimes for tens of thousands of dollars – also basically funded by the Chinese bubble) to the truly horrible planning restrictions I was referring to. The combination of planning restrictions on how you can build and very slow releases of new land for housing, combined with high population growth (2-3% per annum) means that there is quite genuinely a housing shortage in all major cities, though.

    It will all end horribly at some point, but in the meantime governments will do almost anything imaginable to postpone that time. Australians are more obsessed with the value of their houses than any other people on earth.

  • Andrew Duffin

    On a smaller scale, and closer to home, Scotland has both a shortage of housing AND enormous areas of empty space – for the same reason.

    And Jonathan: please don’t Mark an excuse, he’ll be along sooner or later anyway.

  • John Rowbottom

    Rising house prices in WA are not just because of land shortages or regulatory stupidity, but have much to do with (a) a massive influx of people to WA in response to our resources boom; and (b) the cyclical nature of such booms.

    Rental prices in the resource-rich areas in the north of the state are very, very (even frighteningly) high because that is where the highly paid jobs in the resources industries are. However few people want to live permanently in the Kimberley or the Pilbara, and so few wish to invest in their own property there. Added to this, the boom cycle leads to uncertainty about whether jobs will be there in, say, ten years’ time. (The experience of the town of Ravensthorpe in WA’s south west when BHP Billiton suddenly closed in, I think, 2009 bears this out. The community was almost wiped out when the only employer pulled the plug.) You are also a long, long way from anywhere else.

    Most of us live in Perth and surrounding cities. My home (Mandurah, about an hour south of Perth) has grown from a holiday town of some 5,000 people to a city of almost 75,000 in the last twenty years. New suburbs are constantly being built as more and more people emigrate to WA, with all the associated problems of such fast growth (high house prices only being one). (Last year, Mandurah was the third or fourth least affordable place for housing in the world, behind San Francisco and Los Angeles, I think. But this was nothing to do with land availability, but a consequence of very fast population growth.)

    I’m sure regulatory factors play a part, but they are not the only factors.

    (Regarding the size of WA, I remember being told once that it is a state the size of India with the population of Birmingham, England.)

    Oh, and the “lack of water” excuse is bollocks.

  • Johnathan Pearce

    John Rowbottom’s point makes a lot of sense to me – the sheer scale of the property development in Western Australia has been astonishing, judging by the data he cites.

    And I would assume that, in a broadly free market, if water was scarce, then it would be financially worthwhile for any private utility to invest in getting hold of more of it, even if that means desalination plants, etc.

    Another thing: high prices may be a bummer for those who are trying to afford a place. But imagine the case of an elderly couple who once bought a place out there when land was cheap; they are now sitting on a big capital gain, enough to retire on if they want to move somewhere cheaper.

  • George Weinberg

    Just for reference, that is seven and a half times the size of Germany or alternatively ten times the size of Texas.

    Unless you have some greater Germany in mind, Texas is much bigger than Germany.

  • john

    I haven’t measured any of the three places mentioned, but I used to live in Texas so the size comparison sounded a little off.

    According to Wikipedia (I’m too lazy to find more authoritative sources) :

    Texas: 696,241 km2
    Germany: 357,021 km2
    Western Australia: 2,645,615 km2

    Ratios (rounded):
    W.A. has 3.8 times the area of TX
    W.A. has 7.4 times the area of Germany
    TX has 1.9 times the area of Germany

    Unless I’m the one missing something, wouldn’t be the first time…

    fwiw.

  • George: Yes, indeed. My mistake. What I did was look at the Wikipedia articles for Texas, Germany, and Western Australia. The Texas article listed square miles first and the other two listed square kilometres first, in accordance with common usage in the various places. I looked at the first numbers and mentally assumed the arrangement of units would be the same in both instances. My apologies to Texans.

    (Hmm. The German Empire in 1910 was 540,858 sq km and Nazi Germany in 1941 was 696,265, sq km, almost exactly the same size as Texas. You learn new useless facts every day).

  • Kim du Toit

    Actually, deserts can be made habitable simply by improving the water supply. (See: Arizona.)

    A few Saudi-style desalination plants on the coast could support at least a doubling of the existing habitable land in W.A., and could perhaps make land more affordable.

    Strange that public funds would not be put to that kind of use, instead of the usual wastage — but then again, I’m not a W. Strylian, so I wouldn’t know: maybe the W.A. state govt is a marvel of probity.

  • Alice

    “TX has 1.9 times the area of Germany”

    Yes. There even is a bumper sticker, proudly displayed on numerous Texas vehicles, reminding people that Texas is bigger than France.
    http://www.texasterritories.com/detail.asp?PRODUCT_ID=SOUVBIGFRSTCKR

    And France, of course, is about 60% larger than Germany. Although they are all Europeans now, so there probably is not an equivalent bumper sticker in France.

  • Alice

    Let me hasten to add — Alaskans have frequently threatened that, unless Texans stop bragging about size, they will divide Alaska into two States — making Texas only the 3rd largest State in the US.

  • Nuke Gray

    Kim, what you are proposing sounds suspiciously like… wait for it… Nuukoolya Power, as a former POTUS once called it. We can’t have these radioactive atoms contaminating our desert landscapes! The governments would lose votes. (Our uranium is only to be sold to other nations for export dollars, so there!)

  • Chuckles

    Kim you are stirring furiously there. Very touchy subject in those parts.

    http://www.warwickhughes.com/blog/?p=127

  • Antipodean

    The water argument is a furphy. Perth recieves more rain annually than London and many parts of the south west of the state receive over a metre of a rain per annum. Dam water levels declining in Perth have everything to do with water catchment management (or lack thereof) reducing water run-off over time due to greenie bans on underbrush clearing and back-burning in catchment areas. Perth presently has two desalination plants operating and huge energy reserves, to power many more (coal, gas, uranium etc).

    The land and housing shortage is endemic in Perth, WA and Australia more broadly IMO for the following reasons:
    - Green restrictions/regulations on land clearing and land availability.
    - Political considerations, releasing a lot of land in one hit will prick the housing price bubble, not a popular proposition for heavily levereged home-owners.
    - Financial, state governments gain huge revenues from stamp duties on sales of properties that are over-priced, this includes inflated land tax rates on qualifying properties based on inflated GRV’s (Gross Rental Values)
    - Local and state government shifting infrastructure costs to land developers ergo land buyers. In many instances developers now need to pay for, roads, power/water/gas/telecoms/sewage infrastructure, street scaping some parks and some schools if required. Notionally a good idea under user pays principles, but such cost shifting has not resulted in declining local government taxes that used to pay for such infrastructure. This has added an extra $100k to an average block of land in many instances.
    -Lack of suitable land adjacent to metropolitan areas by government mismanagement, this is particularly the case in Sydney where the NSW Labor government in their infinite wisdom has basically surrounded the city with mandated state and national parks, making clearing and urban development in these areas practically impossible.

  • President G.W. Bush

    Kim, what you are proposing sounds suspiciously like… wait for it… Nuukoolya Power, as a former POTUS once called it.

    That’s nucular power you’re talking about, son.

  • John Rowbottom

    FYI news article on current WA house prices from today’s “West Australian”.

    http://www.watoday.com.au/wa-news/wa-mining-towns-dominate-property-boom-20100319-qjzb.html

  • John Rowbottom

    Apologies. The article on house prices is from the WA Today website, not from the “West”.

  • Notionally a good idea under user pays principles, but such cost shifting has not resulted in declining local government taxes that used to pay for such infrastructure.

    This is a common trend, not just with respect to land development and not just in Australia. (New Labour has loved it). The government declares that some service should be “user pays” due to being used by elites / immigrants / being non-essential / something. Thus a service that used to be provided for free or cheaply has extremely heavy fees attached to it, but often the government still provides it. The taxes that used to pay for it probably then rise, and go to pay for more useless bureaucrats / management consultants etc. In effect it’s just a tax increase.

  • ian

    A similar approach apples in Ireland, especially in and around Dublin, where such taxes add anything up to €20,000 to the price of a house (about 4 yrs ago anyway) and which had house prices possibly higher than even London.

  • Paul Marks

    It is often asked “why did so many more immigrants go to 19th century America then went to Australia, New Zealand, Canada and so on”.

    Because the United States had far less govenment control of land (at that time).

    Even when government owned land it was eager to sell it – often at cheap prices.

    And the people who bought the land employed others.

    In Australia (and so on) even wealthy people found secure land title hard to obtain – and lived under threat of government taking their land.

  • Another major reason for the housing shortage is simply restrictions on building codes.

    Outside of the CBD it’s illegal to build over 3 stories. Perth has one of the lowest population densities in the world.

    Despite it being the “capital city” and the financial centre for a lot of extremely cashed up resource workers, Perth has around the same population and density as San Antonio, Texas (1200 per sq. km). Which is really a sleepy town by world standards.