Rethinking the Economics of Land and Housing

Ryan-Collins, T. Lloyd, L. Macfarlane, with the New Economics Foundation,

Zed Books, London 2017

Living in a house is a basic need, like eating. However, like food, housing has never been included in the core of welfare state. provision Moreover, it has been relatively marginalized in the social science debate and in economic theory. But the need to lay the foundations for an interdisciplinary analysis of the economics of housing emerges is now urgent for two reasons. First, the relevance of housing to the growth of poverty and inequality has become particularly evident. Second, the 2008 financial collapse highlighted the dimensions of the subprime mortgage bubble and therefore how the housing market is intricated in the processes of financialisation and in the instability of the economic systems. It’s now clear how strongly housing markets are linked to financial markets in all the high- income countries.

More often than not, the socio-economic literature on housing addresses these issues in terms of crisis in social housing provision and the growth of financial speculation, in the context of the neo-liberal turn from the 1980s. The great merit of this book is to extend the scope of analysis, in a radical and coherent manner, far beyond our recent problems. Understanding the role of housing in the processes of financialisation and in the dynamics of inequality requires understanding how the value of land is produced, accepting that land is locational space, and its value is a locational one. Land rent — i.e. the return deriving from property of land — is therefore based on social processes (including regulation, planning, economic activities), which should be broadly considered by a well-founded economics of land and housing so that they be3come visible to citizens and administrations.

In line with these premises, only a minor part of the book deals with the problems of housing in contemporary society. A first and large part, instead, is concerned with the historical and theoretical foundations for a credible. economics of land and housing. First, the history of the emergence of tradeable private owned landed property, at the dawn of capitalism, is presented. Second, the authors explain why the question of land and rent was ousted from economic thought with the shift t from agricultural to industrial production. Third, the authors analyze the use of land as locational space for housing in the twentieth century and its effects, including the role of housing subsidies in increasing land rent.

A second part of the book (chapters 5 and 6) explains the transformations of housing in the last thirty years of  financialisation and housing’s role in the growth of inequality. The authors develop two closely related themes. Since the 1980s, housing has been increasingly conceived as a source of collateral for the extension of credit, inflating mortgage lending, with extreme consequences for the instability of the economic system. Financialisation has led to a transformation of the economic and social function of housing: the value of the house as a financial asset (and positional good) has overcome his traditional use value, and the development of real estate funds has conflated land rent with purely financial rent. Second, the authors argue that the growth of inequality of income and wealth is strictly connected to these processes, as the expansion of credit has led to the increase in the price of houses (worsening life conditions for poorer households), and to the use of houses as instruments of accumulation and enrichment for richer households. Secondary effectys include displacing the original populations of the city centers and boosting gentrification by urban renewal; with consequent problems for urban administrations, forced to redesign public transport and networks accordingly. Moreover, the financialisation of real estate has encouraged non-financial companies to shift their investments from production to real estate property, reducing employment and wages.

The final chapter of the book is dedicated to possible solutions for the problems described. In accordance with their radical premises, the authors do not recommend the redistributive remedy of more social housing. Instead, the authors argue the need for new rules for property and rent, and a new system of taxation whereby society could claim the value extracted by land rent.

This book is a serious and major contribution to our understanding of the economic dynamics of foundational goods and services provision, routinely ignored by citizens and neglected by the mass media. Through the history of landownership and land rent it shows how economic processes have to do with rules and customs, with politics and power. Understanding land and housing requires an interdisciplinary analysis, as sociologists and urban planners cannot understand the transformation of urban space if they ignore drivers and logics of transactions on land and housing; conomists, in turn, cannot understand how the value of land is created, if they ignore how it is dependent on social uses, power, regulation. This obviously applies, mutatis mutandis, to any infrastructure of daily life.

Angelo Salento November 2018