Groucho Marxism

The western world is currently facing what is commonly referred to as a ‘housing crisis’: a situation where many people can’t find safe, decent, and affordable homes. This crisis is particularly acute where I live in south-eastern England. The usual explanation given for this is that there isn’t enough housing to go around. However, according to data from the Resolution Foundation, a British think tank, there is currently a total of 67 million bedrooms in England alone, easily enough for one per person and almost double the 38 million they estimate is actually required (assuming that couples can share a bedroom). This suggests that all we need to do to fix the housing crisis is to more optimally allocate existing houses among the population.

Such a reallocation would of course be very difficult to do in practice, but not impossible. These figures demonstrate that there clearly isn’t a lack of housing in the UK; what there is a lack of is affordable housing. The reason for this is that house prices have ballooned in recent decades. Since the 1970s, UK house prices have dramatically outpaced wages, with the house price-to-income ratio more than doubling from around 3-4 in the 70s to around 8-9 currently. This increase cannot be explained by supply-and-demand alone. The UK population has increased since the 1970s, which has increased demand for housing; but the population has only increased by around 25% in that time, which is nowhere near the 200%-300% real terms increase in house prices.

Moreover, the UK housing stock has also grown by approximately 40% during this period, easily outstripping the growth in population; so if anything, the real-terms price of housing should have gone down! This is one in the eye for those who wish to blame the housing crisis on immigration: the evidence for this simply doesn’t stack up. However, this also runs counter to what many people see as the obvious solution to the housing crisis – namely, building more homes. It is clear that simplistic supply-and-demand arguments cannot explain the surge in house prices we have seen over the past 50 years, and it follows that the problem will not be solved through solutions like reducing immigration or building more homes.

In order to understand the true cause of the increase in house prices, we need to take a different approach. The Marxist approach to explaining prices is to invoke the labour theory of value: the exchange value of commodities is proportional to the socially necessary labour time required to produce them. However that doesn’t seem to work in this case either, as there is no reason to think that the socially necessary labour time required to produce a house would have increased by 200%-300% in the past 50 years. On the contrary, it should have gone down during that period due to the introduction of labour-saving technology. A potential solution to this paradox lies in understanding that the value of a house is related not to the building itself, but to its location.

Housing is unique in that its value appreciates rather than depreciates over time. For most other assets – machines, for example – it is the other way round! What makes housing special? Again, it is the fact that unlike other assets, the value of a house is primarily derived from its location. The reason that the value of houses tends to go up over time is that the infrastructure around them – roads, shops, schools, and so on – tends to improve. This improvement in infrastructure is of course created by human labour. So when you buy a house, you are only in small part paying for the labour that went into building the house itself; what you are mainly paying for the labour that went into improving the surrounding infrastructure.

There is a famous quote that nicely sums up this idea: “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains… Every one of those improvements is affected by the labour and cost of other people and the taxpayers. To not one of these improvements does the land monopolist contribute, and yet, by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived… The unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”

The Marxist firebrand who said this was none other than one Winston Churchill, writing in 1909. If nothing else, this demonstrates just how far our political discourse has shifted to the right in the past 100 years. Imagine a Conservative politician saying something like that now! Or even a Labour politician for that matter. This quote points to the real reason house prices have risen so significantly: an increase in landlordism. We have seen that there is a plentiful supply of housing in the UK, but landlords artificially reduce this supply by purchasing more than their fair share of it. In this respect, landlords effectively act like ticket touts. However, whereas ticket touting is illegal in the UK, landlordism is seen as a perfectly acceptable way of making money.

This is something that needs to change. Landlordism involves making passive income, and like any passive income, it is ultimately derived from other people’s labour. The usual rebuttal that landlords provide a service to their tenants is obviously nonsense. Landlords prevent other people from getting on the housing ladder by buying up property and making it unavailable for others to buy, and by raising the price of property to well above what most people are able to afford. Until we get rid of landlordism, the housing crisis will only get worse.