Beware the Treasury economists’ variety of Tourette’s syndrome, which is generally betrayed by involuntary, wild-eyed outbursts of scorn for property investment.
“It’s unproductive,” they yelp.
“It leads to asset price bubbles,” they bark.
The axiomatic ‘unproductivity’ of property investment is one of the weirder maxims littering Treasury textbooks.
Twitching Treasury economists prefer spending on ‘productive physical capital’, which is code for “we should make more stuff to sell to foreigners”.
Property investment, they say, diverts scarce capital from efforts to make more widgets that help Australia trade out of its current account deficit.
In addition, many economists recoil at the phantoms of property investment bubbles that hover menacingly over their Excel spreadsheets.
However, like most well-worn mantras, the axiom of ‘unproductivity’ comes with its own contradictions and serves merely as a consolation for shallow thinking.*
For instance:
- How is it that cities provide engines for the economy (82 percent of Australia’s GDP) and yet the built environment that houses Australia is unproductive?
- Why was more than 70 percent of the Treasury-designed GFC-busting stimulus package directed to the construction sector if buildings are such investment duds?
- Why is the government targeting energy efficiency in buildings if the sector is a contused economic pimple?
- Why is the affordability of housing stock so politically crucial?
- How is investment in roads that reduce transport times and congestion a two thumbs up economy boosting activity, while investment in houses near jobs in non-residential buildings somehow misses the mark?
- Why is it imperative that the proposed National Broadband Network connects directly to every one of those millions of theoretically unproductive homes?
- Why do emerging nations (including their advisors in outfits such as the World Bank) champion urban development as a short cut to economic growth and living standards?
- For that matter, why is urbanisation regarded as one of the most significant mega trends on the planet at the same time that the buildings which comprise urban shelter are considered economic zits?
The answers are obvious to the plain thinking.
Google Chris Joye “The Housing Productivity Myth” for an incisive and erudite critique of the issue.
Joye shows that buildings play an integral role in well-functioning communities and that housing investment correlates positively to economic productivity.
He also reminds us of the economic value of the construction spending multiplier – $2.90 of economy-wide output for every construction dollar expended.
Joye is also well worth reading for his quelling of incessant housing bubble babble.
For our part, we see a direct analogy between buildings and the technological acme of modern economies and societies – the microprocessor.
Buildings are the programmable, scaleable, power packs of the modern world. Buildings and precincts connect up and integrate community activities. They are society’s productivity platform and toolkit.
More than simply big, dumb power points for economic energy flows, buildings provide the integrated circuitry, the economic technology that enables greater social opportunity.
Given the potential to radically re-design urban spaces around emerging green technologies, new building and precinct prototypes might also help save the planet.
But there’s more: the income from commercial buildings generates retirement wealth for millions of Australians. These solid property investment returns minimise strain on the nation’s welfare safety net in an ageing society.
Home ownership also delivers security. For the ever-growing cohorts of older Australians it means not shuffling large slabs of their slim pensions into dead rent.
Home ownership also gives our kids a leg-up by offering a vehicle for safely transferring the value of your hard work to the next generation.
In short, buildings, precincts and cities are hugely productive.
Treasury economists have missed a truer target for their outbursts about unproductive economic investment.
They should examine the waste caused by poorly designed taxes and scratchy regulation, including dysfunctional planning systems.
Take developer charges and planning delays on new houses. Today’s first-time home buyers incur costs not borne by previous generations.
Stratospheric development charges and needless delays force developers to raise (borrow) extra money. Developers add these (artificial) costs (with a premium for risk) to the market price of new home packages.
Families, in turn, must then borrow more to meet the artificially inflated cost of homes, which they pay off over 20 or so years – that’s two decades of compound interest on a pointless policy-induced premium.
The same story applies to commercial property investment at even higher rates of interest on dead weight costs.
Now that’s unproductive.
It’s enough to induce involuntary twitching and fits of coprolalia+ in the most mild-mannered of us all.
*For instance:
“Better safe than sorry” “Nothing ventured, nothing gained” “Many hands make light work” “Too many cooks spoil the broth.”
+ Coprolalia is the spontaneous utterance of socially objectionable words and phrases common to sufferers of Tourette’s Syndrome.
Peter Verwer |
Monday, 3 May 2010 12:01 AM |
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