Today’s Daily Reckoning exposes a process that’s putting serious money in certain pockets. But those pockets aren’t going to be yours. That’s unless you have the kind of political connections you need to rip off the public, distort the efficient allocation of resources and incubate a culture of corruption.
After that description, you’d think I’d being taking you straight to Canberra. But I’m not. We’re heading to Queensland. That’s where two academics called Cameron Murray and Paul Frijters based their new report called ‘Clean Money in a Dirty System: Relationship Networks and Land Rezoning in Queensland’.
– What do you care? The report reveals the following: ‘Having ties to politicians and bureaucrats involved in property-related decision-making is the main avenue for getting rich in Queensland.’
Here’s the general gist of it: a State body was established in Queensland called the Urban Land Development Authority. It then made decisions about which land would be rezoned for development and which would not. Earlier plans already in place for those areas to be rezoned were changed deliberately.
The outcome of that process, studied in retrospect and objectively, does not make much sense economically or geographically. Or as the report says…
‘The places that have been rezoned look very odd-shaped: we are now getting high-rise apartments and new city neighbourhoods where the costs of infrastructure are probably much higher than in the areas identified as more suitable for development in the earlier plans.’
But the rezoning did produce huge windfall gains for property developers and landowners who bought up land cheap at the right time. Then they influenced the ULDA decision making process.
Talking numbers, the two researchers calculate that the developers made $410 million in profits at the expense of the public or other landowners. One is left to wonder how or in what way the favour is returned.
Let me be clear by the way, that’s $410 million for doing nothing. They’re not even obligated to develop the land or start any project. They can on-sell the right to someone else once they’ve gouged the easy profit out of it.
The study was limited to a reasonably small area of Queensland. But you’d be naïve to assume it’s not happening all over the country. It should be a scandal on the front pages really.
But such is the grip of vested interests around real estate. I’m amazed I saw it reported in The Australian Financial Review in the first place.
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We can compare all this to a place where house prices are actually down in real terms over the last thirty years. No, it’s not Syria or Iraq or some other blighted country. It’s Germany.
As Forbes reported last year, one of the keys to German success — in housing policy, high wages and economic growth — is the fact it doesn’t treat its real estate market like the boom bust casino as the US, UK and Australia do. According to Forbes…
‘German house-builders just focus on building good-quality homes cheaply, secure in the knowledge that additional land will become available at reasonable cost when needed.’
Not only that, the German banking system is structured to funnel national credit into productive enterprise. That’s why asset booms haven’t brought Germany to its knees in the last fifty years in the same way as the US was in the Panic of 2008.
And if that doesn’t convince you, consider that all this keeps German beer — some of the best in the world — cheap! It’s half the cost of what it is here, according to pintprice.com.
But apparently studying the merits of this system is beyond the ken of Australia’s politicians. Why bother when you have Joe Hockey dispensing such wisdom and saying, ‘The starting point for a first home buyer is to get a good job that pays good money. Then you can go to the bank and you can borrow money.’
Don’t listen to what the politicians say, just watch what they do. That’s what the Queensland planning process is really all about…and why you get to hear so little about it.
But as we show you over at Cycles, Trends and Forecasts, if you follow Joe’s advice, you’re on a certain hiding to nothing. It will just make you a wage slave, working for the banks and greatly in debt.
It’s much better for your pocket to have government tell you where it is going to develop next, and hence where the best land value rises will be. Then act accordingly.
If you want to know how to do save yourself — or anyone you care about — start here.
For The Daily Reckoning Australia
PS: If you’d like to hear Cameron Murray speak in Melbourne on June 24, click here for details on how you can do that – and for free as well.