2010s >> 2018 >> no-1367-july-2018

Rising land prices: another housing problem

Housing is a permanent problem under capitalism basically because houses are built primarily not for people to live in but to be sold or let for profit. The private ownership of land adds to the problem in that the price of a house reflects not just the cost of building it but also the price of the land on which it is built. As land is not the product of human labour its price depends entirely on the effective demand for it, the key element in which is its location.

Land in the middle of a city is more in demand than land in some remote rural area. This is why the Duke of Westminster, who owns land in central London, figures as No. 10 in the latest Sunday Times Rich List, while the Duke of Buccleuch, who owns vast estates in Scotland and is in fact the largest landowner there, only comes in at No. 530. At a much lower level, it is why houses and rents near a tube station in London are more expensive, like for like, than those further away.

It also explains why so many decidedly far from noble property speculators are in the Rich List – these wide boys got rich by buying land at one price and selling it at a much higher one along with whatever they had had built on it. House-building in Britain is overwhelmingly in the hands of such ‘developers’ who will only build if they calculate they can make not just a normal profit but also a capital gain from the rise in the price of the land. As the Times (21 February 2017) put it:

‘Ultimately, building houses is not rocket science and profits are not driven as much by the cost of supplies or labour as by a company’s skill at acquiring land at the right price.’

Obviously land can’t change its location. However, its use can. Some areas of central London or near to it which have traditionally been inhabited by lower-paid workers have become desirable as places to live for higher-paid workers with jobs in the City or in government departments in Whitehall. This change has been called ‘gentrification’ but this is misleading. Historically, the ‘gentry’ were the English equivalent of the classic French ‘bourgeoisie’ whereas the higher-paid workers moving in are part of the working class in the proper sense of anyone forced by economic necessity to sell their labour power to an employer for a wage or a salary.

The higher effective demand has pushed up the price of land and so of housing there. This has had various consequences. It has provided an incentive for private landlords to improve their property so that they can let it at a higher rent, meaning that it becomes impossible for lower and even average paid workers to continue to find accommodation in the area at a rent they can afford. It has also put developers in a position to bring pressure on local councils to let them ‘redevelop’ or ‘regenerate’ the area by demolishing old, lower-rent housing to replace it by newly-built, more expensive housing.

Sweeteners

In fact so profitable is this – in terms of increase in the price of the land compared with what they paid for it –that the developers are able to offer sweeteners to local councils, in the form of providing libraries, health centres and council office space, as a way of getting planning permission, offers which cash-strapped councils cannot afford to refuse. Councils do have some power as it is them who have to give planning permission. They use this to ask that the developers include an element of ‘affordable’ housing in their scheme. They don’t do much more than ask as if they insist too much the developer will simply walk away. In any event, ‘affordable housing’, defined as up to 80 percent of the average market rent in an area where market forces have driven rents up, is still not affordable for most people.

There are also let-out clauses under which, after permission has been given and construction commenced, developers can plead ‘unforeseen’ costs or other difficulties for not being able to provide as much such housing as originally agreed, as in this example:

‘A developer has called on Kingston Council to remove an affordable housing clause from its development plans. The Battersea Development Company has submitted a planning application to “seek a revised affordable housing obligation” for Willow Court in Cambridge Road, Kingston.

In a letter to the council its agent states: “The affordable housing obligation as currently agreed makes the proposed development scheme unviable in current market conditions. Our client wishes to amend the affordable housing obligation”‘ (Surrey Comet, 15 June 2015).

There is ‘social’ housing – the modern equivalent of the 1890 Housing of the Working Classes Act – in the form either of council housing or of not-for-profit housing associations, both of which can charge a maximum of only 80 percent of the local market rate. These days, what’s left of council housing is generally low-quality accommodation used for housing people councils have a legal obligation to house. Housing associations, under pressure to balance their books, have begun to behave like property companies, even resorting to private landlord scams like charging a rip-off fee for renewing a tenancy contract as well as paying their top managers bloated salaries. As a Liberal Democrats candidate in the recent London borough elections lamented:

‘Even housing associations are now more interested in speculative development than in looking after their elderly and vulnerable tenants’ (Ham, Petersham & Richmond Riverside Comments, No. 242, February 2018).

Easily promised

Those who imagine that this particular housing problem – which is essentially an affordability problem – can be solved within the framework of capitalism offer various solutions.

One is a tax on rising land prices, or a Land Value Tax as its advocates call it. This would certainly put an end to developers (but also ordinary homeowners) speculating on the price of land rising. It would transfer the benefit of this to national or local government which could be used to reduce other forms of taxation, but it would not stop land and so housing prices from rising in the areas concerned and which make housing there unaffordable for low-paid workers.

Why not let local councils acquire the land that developers hold and use it to build houses and flats to let at a rent that lower and average paid people can afford rather than luxury flats? To many that might seem to be an obvious solution and it’s what the reformists of the Labour Party and the Green Party propose. But this is easier promised than done because under capitalism everything has to be paid for. Doing this would be hugely expensive, if only because the land would have to be acquired, even if compulsorily, at the going market rate inflated as it is by the increased effective demand for it.

Where is this money to come from? Most of what local councils have to spend comes from the central government in the form of grants (for current spending) and loans (for capital spending). House-building would be capital spending, so the councils’ debt repayment burden would go up (many are still paying off the capital plus interest for council houses they built in the past). This would be at the expense of other services unless the government increased the grants for these. But how likely is that?

As housing on the acquired land could command a higher rent than would be charged, doing this would amount to a rent subsidy for some workers. But capitalism is not a system geared to meeting people’s needs or even making things easier for people. It is a system that runs on profits under which profits and conditions for profit-making have to come first. For the past ten years governments everywhere have been committed to cutting, not increasing, state spending so as to reduce the burden of taxation on profits in the aftermath of the Great Crash of 2008 and the ensuing slump. This is not a political choice that could be reversed by a different choice, but something imposed on governments by the economic forces of capitalism that dictate that priority has to be given to profits over everything else, including social measures to benefit workers.

Even in times of boom capitalism is not a system geared to meeting people’s needs and cannot be reformed into this. This can be, and has been, attempted by Labour and reformist governments in other countries but it has always ended in tears. It is conceivable that a future Labour government under Corbyn and McDonnell might adopt a land purchase and subsidised rent scheme to deal with the problem of housing for lower and average paid workers being unaffordable in areas of rising land prices. If so, they are likely to finance it by recourse to the printing press. The resulting higher inflation and economic slowdown would sooner or later force them to do a U-turn.

The plain fact is that there is no solution to the housing problem for workers within the framework of capitalism. It will always exist, in one form or another, for as long as the capitalist system of class ownership and production for profit does.

ADAM BUICK