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Issue #1793      September 6, 2017

Housing: service or bubble?

Housing is an essential service. Everyone has the right to shelter. Under capitalism, however, housing is not an essential service but just another profit-making opportunity. The decision on what to build and where to build it should be the product of an all-round and in-depth examination of community needs, transport facilities, availability of ancillary services (education, health, recreation), impact on the natural environment and more.

Under capitalism, the needs of the community – for green-space, ready access to jobs, recreation facilities, etc – are set against the “right” of property developers to make the maximum profit from the land they have purchased. While town planners, councils and community groups might desire the retention of bushland and open space, or to provide houses with space around them for children and pets, property developers are motivated to maximise their profits by squeezing as many dwellings as possible on to every block of land.

When I visited the State Planning authority in Moscow at the end of the ’80s, they were in the process of shifting their views on high-rise living. In fact, from keen proponents of housing people in tower blocks they had become severe critics of the practice. Their research had shown, they said, that people needed to live in blocks of less than seven – preferably five – storeys in order to maintain contact with the natural environment. Put simply, at more than seven storeys, residents were longer able to see, let alone be in touch with, the trees. And this adversely affected their emotional and mental well-being.

Ironically, this line of reasoning was echoed by Prince Charles, whose excellent book on architecture and the environment tellingly showed how the tower blocks that sprang up all over Britain as the supposed answer to inner-city slums almost immediately became wind-swept, desolate and inhuman centres of ugliness and misery.

Donald Trump made his billions from property development, but significantly none of his promises to “make America great again” involved providing decent housing for America’s working people, most of whom live in housing that bears little relationship to the large free-standing houses usually shown on television. Most Americans live in cramped apartments, over-crowded houses or trailer parks.

As populations grow, property development remains highly lucrative. People must have somewhere to live, after all. Relying on the mechanisms of “the market” however simply fails to meet society’s needs. Speculation has driven up house prices in Australia to astronomical levels. First-home buyers are increasingly unable to even get a foot on the “property ladder”. People are having to reconcile themselves to the fact that they may never own their own home.

That would not matter if rents were a small fraction of one’s income, as they were in the Soviet Union. Rents there were fixed by law at not more than 4% of a tenant’s income. Being able to pay the rent was not a problem. Evictions were not only unknown they were actually illegal. In the US today, by contrast, they have reached a level greater than during the Great Depression of the 1930s.

Capitalism tries to turn everything into a commodity that can be bought and sold. Housing under capitalism is not a social need that should be satisfied at society’s expense but at minimum cost. Instead, it is just another opportunity for profit. Prior to the global financial crisis, a decade ago now, banks and other financial institutions competed with each other to provide housing loans. After all, housing loans are backed up by mortgages over real estate. If the mortgagee cannot keep up his repayments you simply seize his house. What could be more secure?

Well, when housing loans are treated as just another financial instrument, an investment that can be readily traded to other banks or institutions, greedy banks strive to accumulate them, as “assets”. To entice more people to take out housing loans in the US before the most recent financial crash, they were offered loans of the full price of the house (in other words, they were given loans when they did not even have the deposit). Then banks offered loans for more than the full price of the house, providing money for renovations, refurnishing or moving expenses.

This ready availability of finance created a housing bubble, but any downturn in the economy could produce a crisis, since these overvalued “investments” were essentially unsecured.

Dean Baker, a US macroeconomist and co-director of the Centre for Economic and Policy Research in Washington, comments: “The fact that houses were being purchased with dubious loans was hardly a secret. It was common to refer to ‘NINJA’ loans, which stood for ‘no income, no job and no assets’. Banks were happy to make loans to anyone who would take them since they knew they could resell these loans almost immediately in the secondary market.”

He says, “if mortgage debt had not been tied to an asset that was hugely over-valued, there would not have been a crisis shaking the financial system” and he also points out the obvious point: that as house prices rose, less people could afford them. “As house sale prices [in the US] were going through the roof, the vacancy rate for housing was reaching record levels.

“Soaring house prices led to an unprecedented consumption boom as people spent against the bubble generated equity in their homes. When prices came back down to Earth and the equity disappeared, people cut back their spending accordingly. We lost the equivalent of more than $500 billion in annual demand due to the fall in consumption in the wake of the crash.

“The economic disaster that cost millions of people their jobs and/or their homes, and forced tens of millions to accept lower wages, was 100 percent avoidable if the people responsible for making economic policy had been awake.”

Baker says that blaming the financial crisis is “a way to let those who are responsible off the hook ... And if they have to rewrite history to make the case, well that can be done.”

Indeed it can: rewriting history is a capitalist speciality.

Next article – Ukraine: A chilling rewriting of history

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