Real Media: The UK Obsession with Property Rights (1/2)
Open Democracy’s Laurie Macfarlane on the recent history of UK property ownership, the obscene rise in property values that is mirrored in rent increases and personal debt, and some possible solutions to consider
L. MACFARLANE: There’s been significant changes in the housing landscapes if you go back say 100 years. First of all, beginning at the turn of the 20th century, you had the situation where pretty much everyone rented privately in horrible conditions from slum landlords, et cetera. It was recognized that this was a problem and the government needed to intervene. The government intervened through public house building, increasing health and safety regulations, et cetera.
That then continued after World War II in the kind of property, in the age of social housing, et cetera, and you also had quite significant taxes on property. Then, around about the 1950s, the idea, the conservative idea of a property owning democracy began to emerge and this is the idea that what we want is a society where people can have a stake in private property.
Interestingly enough, they were quite explicit back then, among the conservative party leaders about, this was about eroding socialist sentiment. This was about giving people a stake in private property and so sort of eroding that collective identity that social housing created. Now that sort of started in the 1950s, but obviously it didn’t really kick in until Margaret Thatcher came along and really reinvented this idea and you had things like right to buy. You had huge government intervention in order to promote this idea of a property owning democracy.
This was really based on the kind of myth that everyone could get this. Everyone could get a foot on the property ladder if you like. The incentives were skewed hugely towards home ownership in terms of taxes which were removed, in terms of subsidies, in terms of all kinds of things that were really saying we’re going to push this massively and this is the game and everyone can get it if they try hard enough.
For a while that kind of worked. Home ownership increased dramatically actually, right up to the 1990s. House prices became so high, they actually became so unaffordable, the tipping point was reached where people began to just be priced out, particularly young people. We’ve seen home ownership sort of falling and falling and falling ever since. There’s an interesting kind of political economy dynamic here. Because of the drive towards the property owned mortgage that you had a situation where the majority of the electorate were home owners. Today, even 60% of people are homeowners. In a world of democracy, you have politicians pandering to that part of the electorate quite significantly, making policy that benefits them and not people who aren’t on the property ladder.
You’ve seen this with repeated governments, and you saw it after the financial crisis with, the response was all about helping people get on the property market or helping people that were already on the property market. It’s a really difficult situation right now politically because fundamentally what we’re talking about here is large parts of the population who are benefiting from this. It’s not necessarily all your aristocratic landowners. It’s actually normal homeowners here in London who’ve done incredibly well, who’ve made millions and millions of pounds just from simply owning a home.
The reality is, which is not yet confronted, I don’t think policy makers have confronted it is, that this wealth that’s been amassed, which they say is a good thing because it gets people wealthy, has actually come at the expense of current and future generations who don’t own property, and who will see ever larger chunks of their income eaten up by higher rents or having to same more for a deposit.
I think this is something that will, I think as more and more people get in the private rented market and start to recognize this will come to the fore, but I think it’s just a case of that tipping point being reached and the realization now that seems to have dawned finally on policy makers, that the idea of a property owning democracy where everyone can just own a home and everything will be fine is really fanciful. That means there’s consequences for that and policy makers need to wake up to that and start addressing housing availability for everyone on different tenures, on different types of housing models at an affordable level, because otherwise things are going to just keep getting worse.
Well, if you go back to the early kind of pioneers of economics of political economy, people like Adam Smith, David Ricardo et cetera, they saw land as being incredibly important to the processes of the production and distribution of wealth. They recognized that because land is a free gift of nature, it’s there, nobody made it, it’s fixed in supply, once you introduce private property to that system under capitalism, landowners are in a very powerful position because they can extract income, the surplus that’s being generated in society, just by the fact that they have a monopoly on a piece of space that people need to live.
As wages go up and the economy develops, they can just take more in rent. Now they actually worried about this, particularly the classical political economists, people like John Stuart Mill. They worried that this ability of landowners to just get rich from not doing anything could undermine the legitimacy of private property system itself. That’s a system he supported. You know, he was a capitalist, but he worried and thought that this could generate huge inequalities that could be destabilizing and people might rise up.
They sought to limit the extent to which people could make windfall gains simply from just owning land. They were pro things like taxing that gain away and sharing the gains that arise from land values with the rest of society. Now, if you fast forward to today, I think they would be outraged, because when you look around the UK economy, wealth in the UK has increased from one billion pounds, say 20 years ago, to five billion pounds today, but the main reason for that has been increasing house prices.
There’s this idea that exists in people’s head that people get wealthy from sort of hard work, entrepreneurialism and investing and things like that, and actually that’s just not true. The main reason that people have got wealthy, particularly in the past 20, 30 years, is because they’ve bought property and house prices have risen. They’ve got this windfall gain for doing very little, and the consequence of that is that’s had an impact on everyone else because as I’ve said that means that their rents will be going up.
What’s really been lost, which had been there in the past, is the distinction between earned income and unearned income, unearned income being these windfall gains that you do nothing to deserve. The UK, if you look at the UK economy today, most of the wealth that’s been created is unearned and this is this kind of driving force in increasing inequality over recent decades, it’s by people who’ve just been extracting wealth from doing very little. Meanwhile people who are doing lots of work and are working very hard at being, not only are they seeing their wages decrease but much of the wages that they are earning is then being eaten up in housing costs that are feeding unearned income for a select elite.
Fixing the problem with housing is incredibly difficult. Not only working out exactly what needs to do, that’s kind of the easy bit. The hard bit is politically how to do this. There’s a number of reasons for that. One is that the number of people who have benefited from this, as I said, aren’t just a tiny number of elites. It’s actually a lot of homeowners, particularly the baby boomer generation who have done immensely well out of this and who also happen to be the ones who tend to turn out to vote, which is why politicians often pander to them.
The second issue, which is equally important, is that younger generations now have seen this happen and they’ve seen that it’s kind of ingrained in them that what you do is, you try and buy a property and that’s how you get on in life. That’s how you get wealthy. People have come to feel entitled to the fact that obviously, if you buy a house, obviously that house is just going to keep going up in value. That’s often encouraged by parents because they know that they bought a house that tripled in value. They then bought a bigger house, that tripled in value and they’ve done very well out of it.
There’s this kind of psychological expectation that people have which is like an entitlement which is like obviously house prices are going to go up and obviously I am entitled to that. It’s such a peculiarly sort of British thing. It’s not something that we think that this happens everywhere and it doesn’t. So in Germany for example, house prices to incomes have fallen over the past 30 years. Most people actually don’t own a home in Germany. It’s only about 30-40% of people actually own a home. The idea that housing is a way that you kind of get on in life and get wealthy is kind of alien to a lot of people. It’s a peculiar British thing.
There’s a question as to how do you change that? How do you go about changing that in a way which kind of avoids creating vast overnight winners and losers? Because although that might be in theory, there are sort of policies you could introduce which would work, politically you’re going to create big winners and losers overnight and that’s the challenge. Is how do you do this?
For me, it needs to be a long term thing. You need to think, this is a mess and actually it’s going to take 10, 20 years for us to get away from this. What do we need to be doing over the next 5, 10, 20 years in order to phase in a number of changes which will change this system so that housing returns to being somewhere to live, not a financial asset to be speculated with or to be invested in just for the sole purpose of getting money.
It’s not an easy fix. It’s something that requires strategic thinking, long term thinking. It requires lots of people to get round the table and address this. I think without that, I think that we’re looking at potentially a pretty bleak, a pretty bleak future I think.
There’s lots of empty properties around London and the rest of the UK. The question is how do we, as citizens, as people in communities, how do we take that back? I think there’s a number of things that you can do. One obvious thing which the government should absolutely be doing is using the taxation system to say you cannot make massive gains from simply holding onto empty property. So you can tax away these gains and keep them for the public, and you can say to them, use it or lose it effectively.
I think another thing which I think is actually a lot more interesting, which we’re starting to see happen in parts of Scotland is initiatives which enable the community in that area to actually buy out vacant and derelict land. But in order to do that, of course you need support from the government. What’s starting to happen in Scotland is, where there are derelict and empty sights and buildings, if they’ve been vacant for a certain amount of time, they’ll be issued a compulsory sale order which means they have to sell that because they’ve not been using it.
Equally on the other side, there’s something set up called the Scottish land fund, and that means that communities can access money to therefore buy out derelict plots or vacant property in their area. That obviously helps massively because not everyone has spare mounds of pounds lying around. You have an enabling state which enables communities to take back control of assets which have been lying there empty, doing nothing for the community but making millions of pounds for its owners who probably doesn’t live anywhere near it and probably doesn’t spend any time there. I’d quite like to see a process of taking back a lot of these spaces back into the collective sphere through a government who’s willing to support that through resources and through legislation.