Why can’t we afford a house: a brief history of the political economy of housing
So, I am from Hong Kong, the land of protests and crazy housing prices. I used to believe that how tiny the city was is the solely factor responsible for the insane cost of housing, it wasn’t until my undergraduate days that I realise how stupid Iwas. Housing crisis have long been a global phenomenon. Places like London and Sydney are also grappling with skyrocketing prices. On the flip side, Singapore, a tiny city-state with limited land, managed to keep its housing prices in check over the years.
As I dug deeper into the housing situations across different cities, I had a major realization. Housing crises aren’t just about supply, demand, and geography. No! They’re deeply intertwined with the power struggles of economics and politics. Those who claim it’s all about supply and demand are simply masking the political roots of housing problems in our capitalist society.
The birth of (capitalist) housing
Back in the day, as industries boomed and cities grew, a new problem emerged: housing the poor. The rise of factories meant that workers needed to live close to their workplaces, as transportation was a luxury most couldn’t afford. This led to a scarcity of living spaces in urban areas, turning homes into a valuable commodity.
During the era of laissez-faire capitalism and the industrial revolution, housing conditions for the working class were abysmal. Imagine cramped quarters, lack of hygiene, and shared toilets. It was a tough life, and the main reason behind this was the lack of government involvement. Private land developers took charge of housing construction for the working class, driven by the pursuit of maximum profits. Their focus was on minimizing costs and maximizing the number of tenants. As a result, they used substandard materials and built flimsy walls that allowed you to hear your neighbors’ every word. By today’s standards, these living conditions would be considered a serious public health hazard, with diseases like cholera running rampant.
Everything changed with the advent of the New Deal Policies in America. Government intervention and Keynesian economics brought about a shift in the housing market, with more government spending going into the housing sector. Post-war reconstruction efforts empowered the government to step in and provide publicly funded housing under the banner of the “welfare state.” This marked a turning point, as the government became actively involved in addressing the housing needs of its citizens.
Keynesian Housing movement
Back in the early 1930s, when the Great Depression hit hard, President Roosevelt introduced the New Deal policies to revive the struggling economy. These policies involved significant government spending to stimulate demand during times of crisis. The New Deal was based on the principles of Keynesian economics, which advocated for government intervention and spending to restore investor and consumer confidence. One of the areas that received attention and funding was housing.
But why focus on housing when there were so many other sectors that could benefit from increased liquidity? When analyzing housing within the context of political economy, it’s crucial to remember that housing is more than just a commodity with market prices and rents. It holds broader significance. For instance, providing new houses for working-class communities helps mitigate the negative public health and security effects of cramped, slum-like living conditions. Also urbanization often involves outward expansion, and relocating the urban poor from city centers to newly developed public housing on the outskirts frees up valuable land in the urban core areas for redevelopment. This is especially important considering that early working-class communities were often located near central business districts, providing workers with easy access, sometimes even within walking distance, to industrial areas.
Furthermore, the housing market and construction industry mobilize various sectors of the economy. From the construction of housing units, which provides employment for construction workers, to the production of raw materials like steel and cement, and even the manufacturing of furniture, urban planners, and bureaucrats involved in land use regulations, these are all interconnected industries that benefit from public funding and support.
This approach to public housing provision was also adopted by European states during the post-World War II reconstruction of urban areas devastated by the war. It reflected a cultural shift in the welfare state paradigm, particularly during the early Cold War era. With the rise of the Soviet Union and its rapid industrialization, there was a specter of competition between the capitalist and communist blocs, each showcasing how their respective economic systems could improve the quality of life for their citizens. Faced with the potential threat of communist revolution, the welfare state model emerged as an attractive idea, guaranteeing citizens a quality standard of living “from the cradle to the grave.” It aimed to strike a balance between capitalist competition and a concerted effort to protect the vulnerable segments of the economy.
Neoliberal turn of housing
During the era of the oil crisis and economic stagflation, a wave of neoliberal reforms swept across nations, fundamentally altering the perception of government spending. Neoliberalism, a management philosophy embraced by policymakers, aimed to minimize government expenditure and transfer distributive responsibilities to the free market. This marked an age of austerity, characterized by budget cuts in public healthcare, the financing of university degrees through student debts, and the outsourcing of government staff to contract positions. These measures reflected the global trend of government austerity, resulting in a shift where resources such as education, workers’ rights, and healthcare became matters of individual responsibility rather than government provision.
At the core of the neoliberal system lies a belief in the meritocratic illusion of the free market. Instead of acknowledging the government’s failure to fulfill certain societal “rights” for those in need, the neoliberal culture tends to attribute poverty to individual shortcomings in securing personal security. While proponents argue that neoliberalism saved economies from the inefficiencies of the welfare state model during economic downturns, critics refute this claim by highlighting that the 1970s economic crisis was primarily triggered by external supply shocks, particularly the oil embargo from the Middle East. Regardless of the ongoing debate, the harms of neoliberalism are evident.
The rise of neoliberalism led to the dismantling of social security systems established during the “New Deal” era, including those related to housing. Maintenance and construction of public housing were viewed as social liabilities and interventions in the free market. The welfare state model of housing, with its emphasis on government involvement, stood in stark contrast to the neoliberal policy philosophy. However, while there was a strong impulse to reduce government efforts in housing, a complete withdrawal of states from the housing market would risk a resurgence of the dire housing conditions experienced by the working class during the 19th century Victorian era.
Heralding the debt society
Neoliberal governments had a bright idea: let’s stop spending on maintaining public housing and instead privatize it, here is when home ownership becomes the central narrative of the housing problem. Policy makers believed that if the working classes could own their homes, it relegates the housing distribution problem to the free market. By promoting widespread homeownership, the responsibility of having a decent roof over one’s head would shift from the state to the individual. There was also this subtle hope that as property prices rose and more people owned homes, it would create a wealth effect. Basically, when your house gets more valuable, you feel richer and are more likely to spend more. Additionally, the ultimate goal was for homeowners to rely less on state pensions, especially if housing prices increased. So, in the 1980s, many Western welfare states started buying back working-class public housing, with the UK’s right-to-buy scheme being one of the most famous examples. This shift in the economic and political landscape led us to the world we live in today, where housing is seen as a commodity to be bought and sold, rather than a basic right.
But here’s the problem: the neoliberal dream of widespread homeownership has failed us. Instead, we find ourselves in a situation where 20 tenants compete for a single rental house. How did this happen?
Well, alongside the privatization of public housing, there were government austerity measures that resulted in fewer public housing units being built. Combine that with a booming urban population, and you can imagine what happened next: housing prices shot through the roof. This was actually the expected outcome under the neoliberal housing regime, thanks to the invention of mortgages. Contrary to popular belief about how the private sector operates, the banking industry is heavily influenced by policies. Debt and borrowing are risky endeavors that can destabilize the economy. Under neoliberal reforms, the requirements for down payments and means-tests for mortgages were lowered, leading to a massive housing market fueled by homeowners and mortgages. Mortgages became the major form of bank borrowing, shifting the risks and uncertainties of debt from business owners to everyday working people. Especially, despite mortgages have increased ordinary peoples’ ability to own a home, but it occupies the individual wages for so large of a degree. As a result, home owners feels like they are renting from a bank, instead of owning their own homes. And at the same time, housing prices are pushed through the roof in the process making the dream of home ownership more and more inaccessible to the everyday working class.
The rise in property prices was further exacerbated by the influx of financial capital in the age of neoliberalism. Neoliberal policies not only decreased government spending but also deregulated finance capital. In economics 101 courses, we’re taught that profits and investments should go into productive activities like research and development, improving factories, and upgrading machinery for future growth. However, when it comes to finance capital, the story is different. Investments flow into stocks, properties, and assets. These speculative investments may eventually contribute to production, but the mere change of ownership (in property and stocks) doesn’t count as GDP because it doesn’t generate actual output (only translated to production through wealth effects). Governments used to regulate these types of investments through measures like capital gains taxes or windfall taxes, as mismanagement of speculation can make the economy vulnerable to bubbles and crashes. However, with neoliberal reforms and the belief in the trickle-down effect (which has proven ineffective given stagnant wages for working people), the housing market opened up to unregulated capital seeking speculative gains. This further drove up housing prices, dashing the dreams of everyday working people who aspired to own their homes.
Conclusion: The future of housing
In this article, I have historiczed the current housing crisis, aiming to shed light on the underlying factors and provide a broader context for understanding the issue at hand. It is crucial to examine the historical development of social problems to recognize that prevailing norms, culture and ways of doing are not fixed, but rather subject to change over time. It is through the problematizing of the status quo through the lens of history, that we can foster innovative solutions and drive positive social change.
The housing problem, while daunting, is not without hope. Following the 2008 financial crash, triggered by the subprime mortgage crisis in the United States, policymakers, particularly in Europe, have begun to recognize the harms of risky mortgage practices and loose regulations of speculative capital on the society, particularly the working class. As a result, we have witnessed the resurgence of policies such as rent control and the revitalization of public housing in various European countries. These measures aim to address the challenges faced by citizens in securing affordable and stable housing.
However, on the otherhand, ever since the pandemic, global housing prices are on the rise again today, and we, the 99%, are ones that learns from the history, and we are not to suffer through crisis and wait for big bank bailouts again. We, as citizen’s, are responsible while entitled, to our own right to housing, and we are not to let our policy makers go empty handed today.
References
Aalbers, M. B., & Christophers, B. (2014). Centering housing in political economy. Housing, theory and society, 31(4), 373–394.
Harvey, D. (2015). The right to the city. In The city reader (pp. 314–322). Routledge.
Pacione, M. (2009). Urban geography: A global perspective. Routledge.
Rolnik, R. (2013). Late neoliberalism: The financialization of homeownership and housing rights. International journal of urban and regional research, 37(3), 1058–1066.
