Welcome to all of the beautiful new good young moneyers who have joined us since last Thursday. Weāre building a values movement, join us!
Hi š hello. This is the last instalment of Good Young Money for the year. Weāre looking into how investments in public assets lead to private wealth creation. Thanks for being here. Enjoy the festive period! š«
Investment in public goods is a key driver of private wealth concentration and wealth inequality. Thatās pretty funny given the dominant economic ideology of our time is a belief in the limited role of governments and a deep faith in individual liberty and free markets, i.e. neoliberalism.
ME Bank recently released their forecast of the top 20 places for a retail property investor to invest in Australia. Taking out the top spot is Woolloongabba, in Brisbane, Queensland. The explanation from ME Bankās Chief Consulting Director, Chris McNeil, went as follows:
āWoolloongabba, for example, is already serviced by two train stations and the new Cross City Rail Project will provide a new line running directly under the suburb, increasing connectivity and changing the way people use the area. This will only be bolstered in the coming years as Brisbane prepares its infrastructure for the 2032 Olympics.ā
Two train stations, a third coming, and Olympics infrastructure to boot are the justification for speculating on rising land values in Woolloongabba. Just look at all that development (the coloured splotches)!
Source: Brisbane Development Map, Woolloongabba is the pink circle.
If thatās not enough, McNeil takes the liberty of summarising their findings for us:
āA common theme that really stands out in MEās list is the huge impact that new transport infrastructure has on creating investment opportunities in a suburb.ā
Investments in public goods ā---------ā---------> private wealth. Typically, through rising land values. Itās not just an unintended side effect, itās often the way policy is designed - to incentivise or ācrowd inā private investment.
āWhen we use public money to build new parts of our citiesā¦the aim is to kick start funding for housing or other infrastructure to flow in. Large house builders and real estate developers then buy up land nearby to capitalise on these public goods by speculating on that land, or failing that, doubling down on profit by building as fast and as cheaply as possible. The justification for this upheaval and remodelling is that the money the public puts in will eventually be paid back through jobs or taxes. Yet the pay back often falls short of the public investment, and creates huge social costs along the way.ā ā Dark Matter Labs
As rents rise with land values, the suburbs with the best access, the most green space, the best infrastructureā¦become areas of concentrated wealth. This problem is not new, in 1929, Franklin Roosevelt wrote:
āThe man who, by good fortune, sells a narrow right-of-way for a new highway makes a handsome profit through the increase in value of all of the rest of his land. That represents an unearned increment of profit ā a profit which comes to a mere handful of lucky citizens and which is denied to the vast majority.ā
The problem is itās hard for governments to share in these unearned increments of wealth creation. There are few politically palatable ways to tax land in a neoliberal world when land investments represent so much of our wealth.
But neoliberalism wasnāt always the dominant ideology - seeded in academia in the 1940s by philanthropy, it took 30 years for the ideas to flow through into policy. Weāve changed our understanding of value before, and we can change it again.
Enter the Civic Capital Movement, a call to build new infrastructure and investment tools for the future. One grounded in creating collective benefit from investment in public goods. Not just public goods, but civic assets:
āLand, buildings, air, water, trees, datas, sewers, roads, collective intelligences, public transport infrastructures, energy distribution systems, public health, close-knit communities and shared visions for the future ā all these form the backbone of our cities. They make, hold and grow societies together. We call them civic assets.ā
Weāve seen how civic assets can drive private wealth creation. With new thinking and new models, they can drive collective value creation.
āOur current financing models have largely failed to collectively preserve, enhance and truly account for the value embedded into civic assetsā¦A new generation of civic financial models and instrumentsā¦has the potential to account for multi-dimensional and longitudinal forms of value and leverage the institutional and private capital needed to solve global social and environmental challenges.ā
āOne key pillar to create community wealth is in democratising finance.
If a new public investment happens in your suburb, the main barriers preventing you from capitalising on any surrounding rise in land values are a) capital and b) administration. Most of us donāt have the spare cash to fund adjacent developments. Together, we could, but having many small investors is administratively much more difficult than a few large ones. The first could be solved with fractionalisation, the second with distributed ledger technology.
The tools and models are there (albeit in their infancy). But to solve these problems, we first must change our ideas around how we invest in and build our society. Starting with the belief that community value should be distributed among the community.
As always, thank you for reading. I hope you found value here. If you enjoyed this article, tell a friend?
See you next year!