In metropolitan areas around the US, rents are soaring and show no signs of slowing. Average wage earners have to pay up to half their income on housing. More and more long-term tenants are displaced from urban areas and it’s hard to find a new place to live because its not only in hotspots like New York and San Francisco where landlords are demanding more rent. A lot of people are forced to live in their cars or on the street. This is publicly recognized as a “social problem” – not an economic one.
Just as the lousy situation in the housing market is critically examined in the media and the “human tragedies” that follow in its wake are sympathetically profiled, the very same media in its business pages applauds this situation as welcome news: when good and even better business is being done with real estate, this is a sign of vibrant economic growth. This is factored into the overall growth number which is so essential for the entire community – so they say.
Many critics see policy failures: weak rent controls or none at all; laws that make it too easy for landlords to evict tenants; zoning plans which permit older housing stock to be converted into luxury units; and the privatization of public housing. Could it be that local governments have nothing against this? That they are actually exercising their official responsibilities when they use public funds to encourage investors to “improve” areas in order to make more money on the higher price of housing?
That’s what the hard-pressed and outraged citizens are told by their elected leaders. When they cry for help with their housing needs, the local politicians promise to work on it – an acknowledgement that housing remains unaffordable despite all the economic growth. Then they point out that without profitable real estate prices, the shortage in the housing market would just get worse and prices even more expensive.
So if the housing market causes hardships for many while proving wildly lucrative for a few and, according to the politicians’ own information, this situation is impossible to remedy, what does this say about our wonderful economic system?
The Business With Housing
The housing stock whose use is for sale for a time as rented living space is part of the workers’ wage goods – along with food, clothing, and everything else. The reason they get pushed out of neighborhoods is because they are poor. It’s the same reason they are not drinking fine wines or driving nice cars or wearing well-made clothes: they can’t afford what they need because the wage doesn’t cover all their needs. At best, it covers what they need to show up for work the next day. In this respect, housing is no different from any other commodity. But when people look at the rising rents they wonder: what’s wrong?
Policy experts explain that the rent explosion is caused by a rental housing supply shortage and failure to keep up with demand. But if this is true, wouldn’t the solution be to simply build more housing? There is no shortage of building materials or construction workers. So why isn’t more housing built? The owners of housing respond to changes in supply and demand in a different way. They raise rents. If new housing units are built for the long term, then its to get in on the currently high and rising rents.
The change in market conditions is the lever for the owners of land and housing to extract more money from anyone who needs a roof over their head. This basic need is a means of enrichment. Many people have no land, some have a little, and a few own a lot.
Those who can’t pay the prices demanded by the owners are out of luck. However, the lack of money of working people does not mean that profitable business can’t be done with their limited purchasing power. There are two main tricks for this: squeeze them in together to get a lot of little rents and cut corners on repairs and maintenance to produce a high turnover of investment. Nice places to live are not affordable; affordable places seldom nice.
The supply of rental housing is a dependent variable of the profit calculations of the owners. If a profitable business can’t be made from it, it doesn’t take place. That’s why in every urban landscape it is normal to see homeless people right next to empty buildings. The purpose of housing in capitalism is not to supply people with homes to live in, but to make a business. This does not mean that the empty buildings are not fulfilling their purpose. They are being speculated on for future use as capital and the city is trying to bring them back into producing rents for owners. They are being used for the same purpose they were built in the first place: to make money. This may be deplorable, but it is entirely in keeping with the principles of the market economy.
Is “Gentrification” the Scandal?
It’s an absurdity of capitalism that an improvement in an apartment building or an upgrade in a neighborhood is like a knife in the back to those already living there. A new transportation link or a park are signs that they won’t be able to stay. Their poverty doesn’t allow them to live in improved areas. Vice versa, a noisy airport or high crime rate are signs they won’t have to pack up.
Gentrification takes place partly by people buying a house in a damaged area and fixing it up themselves because this is one of the few options they have to escape the tyranny of rent. Partly its by real estate firms renovating entire areas to attract a higher paying clientele and speculating on a higher return for their asset; this is part of the competition between real estate firms. Sometimes it is politically motivated, as when certain areas are designated as economic development zones or buildings are condemned by eminent domain. Housing is a capital investment like any other and the owners of land and buildings try to make the most money with what they’ve got. They use their property in a way that is consistent with the economic logic of property: to maximize their benefit at the expense of everyone else.
Many who are understandably annoyed about being pushed out of a gentrifying area claim: “this is our city!” But what is “ours” about a neighborhood that is somebody else’s private property? The yuppies moving in prove it isn’t theirs. The competition for housing includes the super rich and the super poor and this bids up the price, putting it out of the reach of those with meager means. The fuss about gentrification just takes it for granted that wage earners can’t afford nice housing. It only starts getting critical about the rent relation when the culture of a neighborhood changes. But when somebody from a traditionally Latino or bohemian district by luck gets some money, they usually don’t have any problem moving someplace nicer. Suddenly its not theirs anymore.
This process works the reverse way as well: neighborhoods which were once solidly middle class become working class or slums or just abandoned. This all depends on the whether those who wield the power of money decide they can make more money by locating elsewhere.
Workers have to buy everything they need as a commodity and to get a cheaper place to live means they have to move because of what it is they are buying: the use of a piece of space. There are a whole array of different spaces with different prices, so they move from one part of a city or region to another. Its the same reason they switch from cod to mackerel when fish gets too expensive. So they get pushed around in this area of commodity life as well. Its not a criticism of poverty to say that poor people need affordable housing. They also need affordable health care and good food and wine and vacations. In short: they need more money if they want to function well in capitalism.
How Do Growth and Housing (not) Fit Together?
It is publicly recognized that workers’ incomes are less and less adequate to the demands of landlords. Not only are rents rising, but employers try to keep a lid on wages or even reduce them if possible. With an ever-present price “inflation,” the workers are getting choked by two sections of the propertied class. For employers, wages can’t be low enough; for landlords, they can’t be high enough.
The state has to get involved in the housing market because it is a basic requirement which the housing capitalists don’t meet. It is simply not their concern. The state steps in with in all sorts of programs, such as rent control and section 8 vouchers. It might be said these programs are inadequate or not thorough enough, but what is it that they are meant to fix?
The working class, no matter how hard they work, are always plagued by the fact that their source of income, wage labor, is always too precarious and inadequate for their housing needs. Landlords, no matter how much rent they pocket, are always demanding more. So the need for housing comes into conflict with the business of housing. The state in its social welfare role tries to make these two conflicting interests compatible: the working class should not be left in the rain because of its poverty, and the landlords should not see their dazzling business ruined by poverty.
Many tenants say they want to pay rents but can’t afford them, so they look to city officials for rent control. This serves the tenants’ interest in affordable rents and acts as a constraint on the landlords because it prohibits them from raising them as they please. At the same time, it validates the landlords’ interest in always higher rents: they can increase rents, but only at the official rate. At best, this postpones the date when the housing becomes unaffordable.
If the state taxes the rich and builds housing for the poor, this assumes and maintains poverty. On the one hand, public housing is a service to the poor. On the other hand, it must not ruin the service to the property-owning class because housing policies which are advantageous to the poor can also ruin the market for owners.
It is not a betrayal of a city’s real mission when it gives tax breaks to condo developers. A city depends on the economic life that takes place on the territory it rules or administers. It is always looking for ways to get more economic activity happening and that includes the appreciation of real estate assets. It is always asking the question: how can we enlarge our tax base? For many localities, the main tax base is real estate. When politicians develop a neighborhood, its not like they are not doing their job or pursuing corrupt interests (though they very well might be). As authorities over capitalism, they have an interest in all aspects of capitalist growth, including the success of landlords.
It speaks volumes about the nature of this economy that state involvement is necessary in the housing market: this crucial aspect of existence can’t be left up to it. Capitalism is supposed to be so great, but it can’t even meet a basic need like housing. If the government then faces the problem of managing poverty in a way that is not hurtful for the economy, this is not a reason to be grateful. The government enacts housing services for the poor, not to abolish poverty, but to maintain them in the poverty it creates with its protection of private property and support for economic growth.
GEOFFREY McDONALD is an editor at www.ruthlesscriticism.com
