Thursday, 16 December 2021 — Albert Park

By Catherine Cashmore Editor, The Daily Reckoning Australia

[3 min read]

Dear Reader,

A senior industry practitioner once told a colleague of mine in a post-graduate property lecture:

‘The best way to make money in this game is to buy a piece of farmland on the urban fringe and lobby to have it rezoned.’ 

That’s understandable, given the honey pot of dollars available at a mere tick of approval from the planning minister.

The ‘rezoning honeypot’ has led to some very poor outcomes and shady dealings over recent years.

Consider Fishermans Bend 1.0 and the John Woodman/City of Casey debacle as just two examples.

The uplift in Fishermans Bend’s land values delivered billions of dollars in windfall gains to existing landowners.

Not a cent was captured to fund infrastructure services in the area.

This is one reason Victoria is now introducing a rezoning windfall gains tax. 

The total value uplift from a rezoning decision will be taxed at 50% for windfalls more than $500,000, with the tax phasing in from $100,000.

It’s a step in the right direction — even if the Property Council lobbyists object to taxing owners that hold land out of the market in the hope of rezoning windfalls.

When land is rezoned, the windfall comes from the new land-use permissions — such as enabling higher density development.

Not from any effort on the part of the landholder (except perhaps intense lobbying). 

It is a pure economic rent. 

There’s a slew of real estate courses that teach investors how to landbank sites that are primed for future rezoning.

Therefore, the Property Council’s claim that it would discourage development is a weak argument at best.

In the ACT, the rezoning windfall gains tax is 75%, and there’s little evidence that it discourages or increases the cost of development.

Still, you don’t need to hold farmland these days in the hope of rezoning windfalls.

According to data from Rural Bank, farmland prices are soaring without any rezoning tick from a planning minister.

Rural Bank reports the median price of Australian farmland value has had a compound annual growth rate of 10.6% over the past five years. 

They claim it’s quadruple the rate of growth in residential properties in capital cities over the same period (2.6%).

Although bear in mind, the capital city mix includes the states and territories that went nowhere in price until the COVID stimulus packages and outbound migration took force. The coming years would paint a different outcome, no doubt.

Still, it’s looking good for the farmers.

Wes Lefroy of Rabobank (Rural Bank & Agribusiness Farm Finance) has forecast the rises to continue through to the end of the cycle (2025/6).

He speculates that the rise nationally could accelerate to 15% by 2022.

These trends are not isolated to Australia.

Globally, agricultural land is now valued at US$35.4 trillion (according to Savills) — prices have risen strongly over the past decade.

But here, they are rising faster than anywhere else.

Commodity prices are pushing record levels and farmland has taken the gains.

The exchange rate has made Australia’s farmland look cheap, too. 

If we relax our foreign investment laws further, that will feed into an explosion in the agricultural land price to the end of this cycle — easily meeting Lefroy’s forecast.

These trends globally are exacerbated by a food crisis in Europe.

The FAO Food Price Index (FFPI) is at its highest level since June 2011:

Food prices are rising due to shortages manipulated by ongoing draconian COVID restrictions.

Videos circulate the web of farmers ploughing crops into the ground and killing livestock because they cannot get produce to market.

No wonder Bill Gates has become the largest hoarder of farmland in the US. 

It’s all part of the cycle that forecasts a global land boom to 2026.

Find out more here!  

Best wishes,

Catherine Cashmore,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Two headline stories this morning point to the Winter Catastrophe we imagined two weeks ago.

First up, it’s Reuters: ‘New York City set to ban natural gas in new buildings’.

And here’s Stansberry’s NewsWire:

‘Producer Price Index (“PPI”) data for November came in at 9.6%, beating the expectation for a 9.2% rise and the prior month’s upwardly revised 8.8% bump. That marked a record high for PPI, which the U.S. Bureau of Labor Statistics has been tracking since 2009.’

Our friend David Stockman has worked out that the PPI for FINISHED goods actually came in at 13.6%:

‘Today’s report happened to put us firmly in double-digit land at 13.6% year over year — a reading that beat all the monthly prints back through the 12.9% posting of October 1980.’

What could go wrong?

Let’s see…restrict supplies…increase prices…what happens when you hit the brakes and the accelerator at the same time? We’ll soon find out!

Meanwhile, smart investors…like our dear readers…have figured out that the Federal Reserve is stuck in an ‘Inflate or Die’ trap.

They know it can’t seriously curb inflation — not without causing the very ‘hard landing’ it is trying so desperately to avoid.

Inflation on the loose

The Fed’s epic-low interest rates over the last 12 years encouraged everyone to borrow. Now, everyone — households, businesses, and especially the US government — is loaded up with epic-high debt.

How could the Fed raise rates now? Everyone depends on its low rates…from here to eternity.

And what’s the problem with a little inflation? The federal debt goes down. The assets of the rich…the elite…go up. It’s only the ordinary voters who suffer; and who cares about them?

So what’s the problem?

The problem with inflation is that it won’t stay on the leash. It runs off…tears open the trash bags…and bites the neighbour.

Several times, we’ve recalled the example of Paul Volcker’s run-in with the pit-bull inflation of the late 1970s. Consumer prices were rising at a 13% annual rate in 1979. (Note that yesterday’s PPI reading for finished goods, year-over-year, was at 13.6%.)

But in order to bring inflation to heel, he couldn’t just chase it all over town…he had to lead.

He moved the Fed’s key lending rate up to 20% — far ahead of the consumer price inflation (CPI) rate.

Even the rich couldn’t escape. Bonds were almost wiped out. Stocks fell to their lowest level since the Great Depression. (An equivalent drop today would put the Dow under 2,000 — a 94% loss.)

So what will happen this time?

Regards,

Bill Bonner,
For The Daily Reckoning Australia