No property, no economy?

[Sunstone]

Dear guys,

No property, no economy?

When one looks at many of the most successful businesses in Australia it could be argued that without property they would cease to exist.

Harvey Norman, McDonalds, and even the more humble Retravision store all operate where their property portfolios and the ownership of their own store sites play a significant impact on their balance sheets and hence being able to operate.

Additionally there is the amount of money that is initially and cyclically created and the follow on effect on the service and manufacturing industries that they directly and indirectly fund.

My question is if we could remove property from the economy could it continue to exist?
Or would the entire world return to a purely subsidence hunter and gatherer existence?

I believe that the general public underestimate the importance that property has on the economy as a whole and the indirect funding of the many jobs that exist.

So no property, no economy?

Cheers,

Sunstone.

[Thorpey]

Absolutely, Sunstone, absolutely!

I read once where a McDonalds owner gave a classroom chat to some uni students and asked them what business he was in.....

All who replied said that he was in the hamburger or food business.

He replied with..."wrong.....I'm in the property business".

The cornerstone of all that happens in this world and it's economies, happens in/on/under/over a property of some sort.

Mind you, it's not the only 'given' in this world either, but a necessary asset just the same.

Thorpey.

[Spiderman]

Land is clearly essential to human activity; whether to grow things on it, mine it, graze animals on it, build things on it or live on it.

For years people have been selecting the best land to settle.

Improvements, which could be anything from fences, fertilisers, river diversions, buildings, mineral processing, farming techniques are probably amongst the earliest forms of leverage used by man in order to make their lives better and conquer nature.

I don't know about other civilisations, but in European ones land seemed to be tied up with nobility and landed gentry. Income would equal arable land x labour x productivity improvements, so the baron with the most land and the most workers derives the most income.

Then as cities grew, land acreage per se became less important than other factors such as location and productivity. A hectare in any CBD is worth much more than 10 000 hectares in the farming districts. And if you could place some income-producing asset on it, eg an office building or factory, then its value increases further.

In the late 19th century Henry George said that land was the basis of all productivity and that the fairest form of tax was a land tax. This would have been around the time of the railroad boom in the USA, where there was a clear relationship between land and wealth.

Little did he suspect it, but the last 25 years of the 19th century were probably mankind's most inventive, with the telephone, radio, phonograph, motor car and light bulb being invented then. A little before then 'The Origin of Species' was published, and early in the 20th century Einstein developed his theory of relativity.

In all these there was huge wealth generated. Land was obviously used for factories, etc, but was more an incidental input rather than a huge factor in production, unlike farming, for example.

So at the very time Henry George was saying that land was the root of all wealth, inventors and industrialiststs were demonstrating that this wasn't so. Land is core to many people's wealth, but not to everyone's.

Would society collapse if land was removed from private invesment (or speculation)? It would be a very different economy, but it would still cope.

The economy requires many ingredients to functions, not all of which are in fixed proportions. So if one input becomes expensive or unattractive, there is incentive to replace it with other alternatives.

I think of it as being like a farm. If water is scarce, farmers move to dryland cropping or plant different crops. If land is scarce, they may be able to farm more intensively. If soil is poor, there are trace elements that can be added. In some cases it might be more profitable to sell the farm to developers next door and for the famers to retire in town!

If things changed so that land was leasehold, was subject to a 90% capital gains tax and could not be borrowed against, there'd be huge changes in how we invest in real estate. Buy and hold for capital gain would be dead. But those who can gain high yields would still buy land. There would probably be rent increases, housing shortages and fewer people renovating. But as the value of land to the investor would drop dramatically if it was made almost impossible to profit from it, homebuyers could well benefit. And some investors would find some alternative ways to profit no matter what the rules.

The point is man is incredibly adaptable and I think could cope with almost anything that is thrown at him/her. Whether life would be as pleasant or profitable would be another matter entirely!

[XBenX]

Absolutely, Sunstone, absolutely!

I read once where a McDonalds owner gave a classroom chat to some uni students and asked them what business he was in.....

All who replied said that he was in the hamburger or food business.

He replied with..."wrong.....I'm in the property business".

The cornerstone of all that happens in this world and it's economies, happens in/on/under/over a property of some sort.

Mind you, it's not the only 'given' in this world either, but a necessary asset just the same.

Thorpey.

That was a speech to Harvard MBA's

[XBenX]

Interesting qn Sunstone.

I vaguely remember studying the history of economic though, Spidermans Henry George quote reminded me of this.

I remember an interesting question being asked, very similar to this one. It wasnt just removing property (I cant remember if property was even one of the variables we discussed) but the discussion centred around the removal of certain key components of the economy and how the economy would react if this occured.

The outcome was that the world economy today is dynamic enough to sustain an event of this magnitude but it wouldnt have been in the past.

Would cause some fun though =)

[geoffw]

From http://www.wiley.com/legacy/products/subject/business/forbes/kroc.html

By 1960, there were more than 200 McDonald's outlets across the country, a rapid expansion fueled by low franchising fees. Ray Kroc had created one of the most compelling brands of all time. But he was barely turning a profit. Ultimately, it was his decision to use real estate as a financial lever that made McDonald's a viable operation. In 1956, Kroc set up the Franchise Realty Corporation, buying up tracts of land and acting as a landlord to eager franchisees. With this step, McDonald's began to generate real income

[McKlusky]

Hi,

Getting back to Sunstones original post. The companys he mentions would be profitable and still exist even if they leased the land/building they were operating from like so many other successful businesses.

A lot of large, successful companys have done the sell their property and lease back thing with improvements to the bottom line, as the large amount of unavailable capital tied up in their property is a liability to the business model, a few major banks immediately spring to mind.

A business model that relies on property and not the business itself to be successful is doomed to failure from the get go.

[Sunstone]

a few major banks immediately spring to mind.

Dear McKlusky,

Yes the banks have sold off some of their branch offices..........

They were very successful in getting investors to purchase a "bank" only to find that a significant number closed their office after their lease agreement ended.

Banks have done well selling commercial property valued on the commercial lease and yet having massive refitting costs for other tenants.

They knew they were closing them when they sold.... A good way to maximise their profit in advance.

Except for shopping centre locations you would be surprised at the number of branches where their sites are physically owned by them.

Cheers,

Sunstone.

[juzz]

Except for shopping centre locations you would be surprised at the number of branches where their sites are physically owned by them.

This bring me to another point. How about countries and economies that Land is owned by the Governments or the Dictator in power??

They still have economies not underwritten by land and property values, and maybe not as diverse and as strong. But the economies still exist.

Justin

[Aceyducey]

Justin,

You've just contradicted yourself :)

The Land is owned by the Government or Dictator...why? Because it's a source of wealth & power...

Otherwise the Dictator/Government wouldn't bother owning the land, they'd focus on other assets.

The Government, by controlling the land, controls the production & distribution of resources. It can charge every citizen a fee simply to live on the land.

Land is the source of most natural wealth. Minerals, Fuel, Food, Housing.

Even in an information economy you need land for siting the offices & server farms (and the power plants and to get the energy to fuel the powerplants).

Land = Power

And it's been the same ever since humans began cultivation & building fixed dwellings

Look at Feudal societies

Cheers,

Aceyducey

[juzz]

This bring me to another point. How about countries and economies that Land is owned by the Governments or the Dictator in power??

They still have economies not underwritten by land and property values, and maybe not as diverse and as strong. But the economies still exist.

Justin
Good point Aceducey.

Technically these economies may still be underwritten as the land value is now controlled by the owner or dictator. eg. When the countries government or dictators change then massive changes in perceived value can occur.

Justin

[nic]

The Land is owned by the Government or Dictator...why? Because it's a source of wealth & power...
Aceyducey

Can't agree with you more, Aceyducey. I lived in a country with such economy. The government could pretty much do anything including stopping people from living where they wanted. Such economy can never be strong. Plus, a democracy could never exist in such country, because the majority of the population is disenfranchised.

Nic

[Thorpey]

The only way to devalue land I guess is to stop the population growth ie: demand.........or
supply more land..............Maybe Mars......Jupiter ??? Hee hee! :rolleyes:

Property in Australia, especially NSW now seems to be seen as a source of power for governments as they love to tax it pretty heavily.
NSW: Stamp duty in and out, land tax. Nationally: Capital Gains tax.
Some people reckon investors get it too easy. Kidding or what? :confused:
The taxing is not designed to deter investors at all, it's to gather revenue from a "sure thing"..........property!

No property.........No economy! :eek:


Thorpey

[Aceyducey]

Space colonies? :)