Real Estate Radical Lets Loose: Catherine Cashmore
Prosper Australia President Catherine Cashmore was interviewed by Michael Bleby in the weekend Australian Financial Review. The interview stepped behind the intrigue of Henry George and Land Value Tax.
Economic thinkers don’t often draw large crowds, but George did. “Thousands on thousands” of people filled the streets upon the death of the man whose text Progress and Poverty reportedly outsold the Bible in 19th-century America, the New York Times recounted.
“Rarely has such an enormous crowd turned out in Brooklyn on any occasion as that which assembled last night to see the funeral procession,” wrote the Times on 1 November 1897. “Even now, there was no noise, no comment. Here and there someone spoke to his neighbour, but usually in an undertone. Anything more impressive than this vast crowd of thousands, hushed and dejected, all looking with gloomy faces as the body of the dead leader passed, cannot be imagined.”
It’s even harder to imagine late on a Thursday morning on this street in Caulfield North, a low-key, domestic and ordinary-looking place.
But this is where I have arranged to meet Cashmore, the person who flies the flag in 21st-century Australia for George’s ideas. She is the president of Prosper, a small but energetic think tank, and author of the much-publicised Speculative Vacancies report, which last year identified that nearly one-fifth of the homes owned by investors – 82,724 – in Melbourne are empty.
Like George 120 years ago, Cashmore argues that a broad-based land tax is the way to end speculation and lower the cost of real estate.
The idea is basic, but profound. The value of a piece of land comes from what surrounds it – school catchment zones, train lines, cafes etc – and the benefit of that value should go back to the community. The way things stand, the value of that goes to the person who sells the title deed. A buyer has to not only stump up for the high price tag of the property, but then pay more, through their income and other taxes, to support and develop more infrastructure.
“We’re paying twice,” Cashmore says. “You pay for your land, and because that money goes into private pockets, it goes into the owners’ pockets – to be spent on holidays in Florida or whatever he wants to do with it; you’re then being taxed by the government to pay for the infrastructure.”
By contrast, a tax imposed on the unimproved value of the land – separate from any capital improvements an owner makes – would push land prices down. A vendor would get the value of capital improvements they made, but a tax on the value of the land itself would push the price down, as buyers would factor the tax they have to pay into the price they can afford.
It’s not another tax, but one that would replace current inefficient taxes on income, both personal and corporate.
It’s a radical idea – and political suicide for politicians courting the votes of Australia’s property-owning middle class. Economists love it – a broad land tax, more comprehensive than the piecemeal range of land taxes dotted across the country, was one recommendation of former Treasury secretary Ken Henry’s 2010 tax review – and it could be introduced slowly to mitigate the effects, but political leaders would be wary of advocating a levy that hits homeowners with a big bill.
And yet, such a property tax – – of which value capture is one form – would be far more efficient than the current unholy mess of income and corporate taxes, which penalise productive behaviour by taxing income, rather than wealth. Property taxes are impossible to evade – you can’t hide your block of land in Bermuda – and eradicating the widely-loathed stamp duty would create a more efficient property market and permit more efficient use of the resource that is land.
This is the environment in which Cashmore is preaching for an overhaul of the way we think about, and price, property.
Ideas are powerful things. For a world that celebrates rock-star geeks – think Steve Jobs, Bill Gates, Mark Zuckerberg – George is worth a shoutout. Progress and Poverty, first published in 1879, argues that no matter how much an economy advances, tax arrangements that put the value of land into private hands will inevitably skew the balance of wealth towards a few people.
Well, imposing a land tax means the price would fall, Cashmore says.
Would my resale price fall?
“So yes, insomuch as the person that gets slugged with land [tax] initially is the homeowner because it reduces their house price’s value. But we have to keep pushing forward this message that we are advocating a shift of taxes.”
There are ways, Cashmore assures me, it could be done to ease the transition to such a tax.
“All of these things can be compensated – and can be compensated with a period of time that the transition needs to take place,” she says.
At a time when Australia is grappling with tax reform ideas, land tax – of which value capture is a form – offers one option. It makes great sense, but can the idea win over a population breastfed on the notion of property investment?
As Cashmore puts it: “We’re really up against a lot of hurdles.”
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