How Land Property Is Tied To Inequality
Article originally proposed for New Start magazine in the UK, in October 2014
By Robin Murray:
"The Land Question: on Land and wealth
In Britain in 1700 agricultural land accounted for three fifths of all wealth. Land and its rents were the source of power and the pre-occupation of politics. Until the mid 19th century they remained so – in Parliament, in literature as in political economy. The franchise was based on landed property holdings. Jane Austin’s characters assessed their mutual prospects in terms of their annual rent rolls. The economist, David Ricardo, argued that land rent and its stranglehold on industrial growth was the primary economic problem. His focus was not was on the returns to a landlord’s investment on his estates but rather on the growing proportion of his returns that came from his control over the land itself – the so-called ground rent.
By the time of the First World War, the long dominance of the great landed estates was largely over. Their power had been challenged by the new industrial, financial and labour interests. Agricultural land fell to less than 5% of all wealth, and today is less than 1%. The great 18th and 19th questions of enclosures, land rents and rural depopulation have now been shifted to the countries with large peasant populations in the South.
In the North, the land issue has re-appeared in a different form. In the UK as in France, while wealth is partly held in stocks and shares, three fifths of it is now in housing. In both countries the rack rents paid by the tenant farmers of the 18th and 19th centuries now take the form of mortgage payments and urban rents paid largely by their descendants. For many people today housing accounts for as much as a third of their disposable income. Housing and the land on which it stands now has the same significance in wealth and inequality as rural land in the 18th and 19th centuries.
Thanks to the remarkable work of the economist of the moment Thomas Piketty, we can trace the continuities in the concentration of wealth. In 1810 the top 10% owned 80% of the wealth in the UK. In 2010 the figure was still 70%. The common factor has been the concentrated ownership of land. Land is tied to inequality like the shirt of Nessus.
* Land and speculation
The link between them is partly direct. Tenants pay landlords rent. But now it is also through finance. Finance and landed property are like partners in an economic dance. Of the £540 billion gross lending in Britain in 2013, a third was for domestic mortgages. A further 30% was to businesses, in which the leading sector was real estate companies. Other companies commonly use their real estate as security for the banks. A full £180 billion of British banks debts were held against commercial property.
In Britain, land and its rents have been financialised. They now serve as a store of value, a source of capital income, and are the primary security for the financial system. They are also an object of speculation.
As became clear in the collapse of 2007/8, easy money had led to a property bubble. It was a bubble based on fictitious expectations about the future value of land rents. In the post crash policy debates the focus has been on the pyramid of financial instruments that the banks developed on the basis of mortgages (so-called derivatives). Little attention has been paid to the source of the problem - the very existence and control of ground rent itself.
* Reclaiming rent
Land by its nature is scarce. A site in Mayfair cannot be reproduced like a pair of shoes. The monopoly rent it commands plays no productive role. It acts as a private tax on the productive economy. The question has always been what can be done about it.
The first approach has been tax, from the French Revolution onwards. In modern Britain there have been three successful attempts by post 2nd world war Labour governments to tax the increases in ground rent (the so called betterment). They all faced the problems that land and wealth taxes have always met with: regular and accurate assessment, evasion, exceptions, and strong political opposition. All three Labour initiatives (in 1947, 1967 and 1976) were quickly repealed by incoming Tory governments. Some forms of property tax have survived, notably Council taxes and stamp duty, but none have tamed the tiger of property speculation.
The second approach has been to socialise ground rent. The Prussian state, with its great patrimonial estates and public railway developments, were so successful in this that they could keep tax rates close to zero. In the UK successive governments used compulsory purchasing powers to take over land, primarily to limit the land costs of state infrastructural investment. By 1980 this has grown to be a large public bank of land that was removed from the mainstream land market.
In the past thirty years the tide has turned. Privatisation, the sale of council houses, the funding of budgetary deficits by property sales, have all returned a substantial part of public land to the forces of the private market.
* Community ownership
An alternative current – limited by the 20th century predominance of the state – has been the expansion of the social economy. Land reform in Scotland has seen whole islands returned to the ownership of their inhabitants. Throughout Britain there has been an expansion of co-operative housing. Councils in England and Wales have transferred the ownership of public housing to their tenants ‘in common’. There has been a remarkable growth of community land trusts – 170 to date in Britain, 300 in the USA.
The most ambitious of these projects is an old one. Letchworth Garden City is over 100 years old. It is based on the principle of the community ownership of the freehold, so that any increase in ground rent could be enjoyed by the town’s citizens in common. Today, though Labour’s 1967 Leasehold Reform Act meant that many residents bought their freeholds, the town still collectively owns the industrial and commercials freeholds. It receives £7 million a year, with which it funds a day hospital, a museum, a public cinema, extensive parks and a great variety of activities.
Ebenezer Howard’s Letchworth is co-operative and ecological in its inspiration. It provides model for the reclaiming of the control of land as a platform for the diverse inventiveness of its leaseholders. The recent winners of the Wolfson Economics Prize for the design of new garden cities have adopted Howard’s principles of a common freehold, and shown how the developmental value of the ground rent in a new garden city would be sufficient to fund all necessary infrastructure. They also identify forty sites in England where such cities could be developed. The development of garden cities is now supported by all three main political parties. Similar support should be given to the rapid expansion of community land trusts.
* Reversing enclosure
The Hungarian economist Karl Polanyi, writing in the shadow of the Great Depression and the Second World War, insisted that land, like labour and money, could not be treated like any other commodity. When they have been, society has been in danger of falling apart. The speculative turbulence of the current private land market, and the concentration of land ownership by the top 10%, bear out his argument. To resolve the current housing crisis, to tame the financial tiger and to curb the ever growing inequality that eats like an acid into our common bonds, now calls for a major initiative: to reclaim the freehold of Britain’s land for the public and the social realms."