The leasehold-freehold debate was fired along during the week.
Jim Service … banker, property developer, businessman and long-time Canberra resident … condemned the Stein report as an extremist philosophy because it supported the retention of leasehold.
He argued that leasehold was preventing investment in the city because it made investment unwelcome.
It is a bizarre argument. If it were true, there would be no Canberra. The whole lot has been built on leasehold. And in so far as investors and economists like “”growth” Canberra has had the greatest total growth of any city in Australia since federation. Clearly leasehold does not prevent growth and investment.
We know why Canberra, to date, has grown so rapidly and had such a huge investment … because the taxpayers of Australia have put so much money in. The city is a huge public asset.
Before Canberra was built, the land itself was virtually worthless. It is only the use you can put land to that makes it valuable, and that depends on how much work and material has been put into the land and the land around it.
A hectare of land kilometres from any roads, power and water with identical climatic and soil conditions as Canberra is virtually worthless. The same hectare in Canberra is worth a huge amount simply because of all the work and money that has been expended on the land surrounding it … provided you are not prevented from using it in profitable ways by law.
Of course, the law does prevent some land uses some of the time. It has been that way from the dawn of civilisation. And there have been squabbles about it since then, too.
Essentially, there is a balance. The more the civilisation or people collectively put in to the lands they occupy, the more they have controlled the land use. In return, occupiers of land get the advantages of the collective investment.
Throughout history, but especially since the Industrial Revolution with its attendant high population growth, speculators have bought land, waited for those around the build up the infrastructure and sold it at a profit far greater than warranted by the improvements (if any) they have placed on it. This could be called parasitic profit. The increased value was not generated by the land occupier’s own efforts, but by sitting back and profiting from the efforts of those around, including the public at large who build the roads, waterpipes and so on.
Often the profit is greater if authorities have been pressured into or allowed a change of land use to a more profitable one … from farming to housing or from housing to officers, for example.
The people who founded Canberra were determined that this would not happen here. They created a federal territory too large for people to buy the land speculatively. They also created leasehold, so that land occupiers were bound by the lease to use the land only for the purpose stated in the lease.
The aim was to capture the increased value of land as uses change … the parasitic element. It does this by allowing only certain land uses on the lease, and by insisting on a surrender of the lease (with compensation) if the use is to change, or payment of the difference in value between the old use and the new use.
So an investor or entrepreneur … through work and talent … is permitted to make good profit by excellence in building within the use permitted in the lease. And whether an investor is likely to do that is much more dependant on economic conditions than whether the land is leasehold or freehold. For example, I am sitting within 20 metres of a $30 million investment on leasehold land … our new press. The investment is being made because there is a skilled workforce and a market.
Leasehold also permits preservation of residential amenity because individual leaseholders can be constrained by the purpose-clause written into the lease.
There are a couple of problems, though. As the city gets larger, it is more efficient to change some land to more appropriate uses especially in places which were once outer and are now at the centre. Some incentive is needed to encourage existing users to move. Some of the parasitic extra value may have to be used for that because it is in the general public interest. But it need not be much.
As federal money to build the city gets scarcer, employment in the hitherto booming building section contracts. But a conversion to freehold would only give temporary reprieve. A few investors might come in to scoop up some parasitic money and then we would be back where we started. You could just as easily give some investors some public land to do what they like with; it is tantamount to the same thing.
The long-term answer is not freehold (Somalia has freehold) to enable a lucky few to grab some parasite money, but to attract investment (including building) whose profit is based on intelligent use of labour and materials, not passively waiting for an increase in land values.
Also,
No; the call for freehold is so that some can get rich quick on parasitic value, it has nothing to do with investment by u