land costs

Here is a story that explains this concept. Thanks to our contributor, Matthew Mitchell, for alerting us to this brilliantly simple analysis of our current problem, originally published as a comment here. It is a skilled, yet easy to understand, critique of economic theory that underpins todays political policy and the similar adverse impact of globalisation on places as far away from each other as Bangladesh and Australia.

(Original Source by John Kozy, Global Research, February 13, 2012: http://www.globalresearch.ca/abstractions-versus-the-real-world-economic-models-and-the-apologetics-of-greed/29270 Subtitles inserted by candobetter.net editor.

"Offshoring production to underdeveloped nations gives needy people jobs, increases their incomes, reduces poverty, and expands their nations’ GNPs. It also enables people in developed nations to purchase products produced offshore at lower prices enabling them to consume a wider range of things. As a result, everyone everywhere is better off."

Convinced? Most economists are, but it hasn’t worked that way. Everyone everywhere is not better off—as the whole world now knows. Why?

A factory in Bangladesh

In the latter part of the 80s or early part of the 90s, a large retailer (don’t remember which one) thought it would be a good idea to bring an employee of a factory in Bangladesh to America to see how the clothing the factory was producing was being marketed to Americans. So a Bengali woman was selected to represent her factory and brought to America. This idea didn’t work out well. The woman not only saw how the products were being marketed but how much they cost and she was infuriated. She knew what she and her coworkers were being paid, about two percent of the price of the garments. She did not remain silent and was quickly sent back to Bangladesh. Here is the gist of her story:

She said she and her coworkers were not financially better off after being hired by the factory. Yes, the wages were better than those that could have been earned before, but they weren’t much benefit. Why? Because when the paychecks began to arrive, the local landlords and vendors increased prices on everything, so just as before, all of their incomes went to pay for basic necessities. The landlords and vendors got the money; the workers were not better off, and those in the community who were not employed by the apparel factory were decidedly worse off. It fact, it quickly became apparent that the workers were working for nothing. They did the work; the landlords and vendors got the pay. But, of course, the country’s GNP was better, which is all that matters to economists who still claim that Bangladesh’s economy is improving.

And although Americans were able to buy the apparel more cheaply than they could have before the manufacturing was offshored, the American apparel workers who lost their jobs are decidedly not better off.

Two conclusions follow from this scenario: employment alone is not a sufficient condition for prosperity; full employment can exist in an enslaved society along side abject poverty, and an increasing GNP does not mean that an economy is getting better. Remember these the next time the unemployment rate and GNP numbers are cited. Those numbers mean nothing.

"The economic model described above just does not work, not in Bangladesh or anywhere else"

More than thirty years has now passed and nothing has changed in Bangladesh. Most Bengalis still continue to live on subsistence farming in rural villages. Despite a dramatic increase in foreign investment, a high poverty rate prevails. Observers attribute it to the rising prices of essentials. The economic model described above just does not work, not in Bangladesh or anywhere else. Explaining why reveals what’s wrong with economics and why current economic practices, which have not essentially improved mankind’s lot over the last two and a half centuries, won’t ever improve it.

Economists build models by what they call “abstraction.” But it’s really subtraction. They look at a real world situation and subtract from it the characteristics they deem unessential. The result is a bare bones description consisting of what economists deem economically essential. Everything that is discarded (not taken into consideration in the model) is called an “externality.” So the models only work when the externalities that were in effect before the models are implemented do not change afterward."

Land sales slump but prices hit new heights

News that the median price has hit $190,000 a block comes as the development industry celebrates three Baillieu government policies aimed at increasing land supply on the urban fringe, reducing the burden of infrastructure levies and making it cheaper to hold land. As a result, sales of Melbourne house blocks have slumped by three-quarters in a year. (The Age report 18th January).

Planning Minister Matthew Guy told The Age the Coalition would also change the controversial infrastructure levy of $95,000 a hectare in Parliament, so that landowners have to pay only when they are ready to develop a new estate - not at the point of purchasing land for development.

Due to greed, favouritism towards developers and population growth, it sounds like land prices may have actually peaked.

The “chronic shortages of land” is being blamed, not boosted demand due to population growth.

Limits of growth

There are limits to growth, including prices. Once prices peak, they will find sales go downwards. It just becomes unaffordable for the average family to buy.

Speaking at a rally held in Melbourne last year to oppose the adoption of Planning Scheme Amendment VC67, Green Wedge Coalition joint co-ordinator Rosemary West said the changes would see 43,600 hectares taken out of the green wedges for urban sprawl.

The urban growth boundary expansion will clear for urban development 5000 hectares of environmentally significant Western Basalt Plains grasslands, the grassy woodlands of the Maribyrnong and Merri Creek catchments with their giant red gums and 4000 hectares of the south east food-bowl where highly productive market gardens using recycled water double as southern brown bandicoot habitat, she said.

Food bowls bulldozed for housing

Melbourne’s South East contains some of Australia’s most fertile agriculture land and produces fresh food for Melbourne’s rapidly growing population. As urban growth takes over existing farmland, new food production areas will need to be developed. 
The project planned would see the development an intensive irrigated food production zone on Melbourne’s south-eastern fringe, to be known as the ‘Bunyip Food Belt’. 

Media Release - July 2010

However, with the State Government able to achieve its population estimates for Casey within a more contained boundary, City of Casey Mayor Cr Lorraine Wreford couldn't understand why Planning Minister Justin Madden abandoned a critical part of the Bunyip Food Belt in favour of urban expansion.

The State Government’s decision to allow the Urban Growth Boundary (UGB) to encroach on the highly fertile, valuable and sustainable farming lands in Casey is a huge blow to the entire state. 
The agricultural lands of the Bunyip Food Belt have the potential to not only supply abundant and fresh produce to the people of Casey, but to the whole State, so this decision will impact all Victorians.
Once this land is built on, it is gone forever. The State Government’s decision to allow the further expansion of the UGB into an area Council has fought hard to conserve for agriculture, is a bitter disappointment , said Cr Wreford.

Obviously, profits for developers and State coffers are more important than food security.

Land is not a limitless resource

Land is not a limitless resource. We can't have urban sprawl destroying more of the most devastated State in Australia.

We already know the impacts of floods in Brazil due to massive deforestation.

According to the 2008 State of the Environment damning report, Victoria's historic use of land has left a legacy of highly cleared and fragmented native vegetation over much of the State.  Current patterns of resource use in Victoria are unsustainable. 

High levels of vegetation clearing may constitute the crossing of an ecological threshold, beyond which rapid change occurs and ecosystems may not recover.  Development in peri-urban regions is driving loss of natural habitat and biodiversity, as well as agricultural land.

Victoria is already the most heavily cleared state. In Victoria, relatively stringent controls were introduced in 1987, but in the 15 years before that time, land in private hands was cleared at a rate of about 1% per year (CSIRO). Native grasslands are a highly endangered ecological community in Victoria, and have been reduced to less than 1% of their original extent.

We can't keep clearing land and bulldozing ecosystems for housing or we continue to reap the disasters of bushfires, climate change and species losses.

Photo: An Australian housing estate before construction in 2001. This estate is in Narre Warren, Victoria.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Victoria too reliant on property development

In his first interview since assuming the role of Victoria's Treasurer, Mr Wells said Victoria needed to broaden its economic base by rebuilding the neglected areas of agriculture and manufacturing.
It is reliant on population and migration and if one of those two factors flattens then part of the economic base will suffer.

So, our we are embedded in an economy that depends on population growth? Mr Wells also slammed what he branded the unsustainable level of government debt under Labor.

Population growth

The elephant in the room, as usual, is politically-driven population growth. With Victoria's economy based on land and property development, and service industries, there is little else to support our booming growth. We don't need a big population as we do not rely on resource mining, and agriculture doesn't require much either. Our politicians are basing their policies on short-term benefits at the cost of long-term sustainability. That's the bottom-line - political lives are short and political donations drive their policies.

The Baillieus are some of the most prominent land developers around Melbourne.  As such, strategies are unlikely to change.  With this affordability impasse, they'll look to hand people more hand-outs, "open" more land for developers, and wealth will ultimately find its way back into their pockets. It is a legalised wealth transfer of public money.

Although we like to think of ourselves as civilised, we're subconsciously still driven by an evolutionary impulse for survival, domination and expansion. This is an impulse which now finds expression in the idea that inexorable economic growth is the answer to everything, and, given time, we will naturally redress all the world's existing inequalities.

However, this logic fails to recognise that the physical resources to fuel this growth are finite. We're still driven by growing and expanding, so we will use up all the oil, we will use up all the coal, “vacant” land and we will keep going till we fill the allegorical Petri dish and pollute ourselves out of existence.