Want to get thousands of pounds for nothing? It’s easy if you own property in the right places.
In one in five local authorities, houses in the UK have ‘earned’ more than their owners over the last two years. For them, unearned income has exceeded earned income. Predictably, almost all these places are in the South-east and London. Top of the list is the London Borough of Hammersmith and Fulham, with average house prices rising nearly £200,000 in this period, while the median household earnings in the borough have been £56,698. You may say the owners can only realise these gains if they sell their property, but they can also take advantage of them because higher prices mean more collateral for borrowing to buy more property. And of course most bank lending goes not to productive business for investing, but for buying existing property, particularly housing. Housing in upcoming areas of London is becoming improperty – property bought not for use, but as a source of unearned income – something for nothing – an object of speculative investment.
So what’s the problem? Well, as many noted, such rises in house prices make things all the more difficult for those trying to buy a house first time, and anyone wanting to move into the south from outside. This is true enough, and it is a further indication that young people can increasingly expect to have to rent their homes from private landlords instead of owning it.
But what the reports missed was the simple injustice of the property windfall as unearned income. Think about those capital gains – for some, the equivalent of a lifetime of free lunches. The only way you can get a free lunch is if someone else produces it for you. Those who gain an extra £200,000 in this way have a claim on £200,000 of goods and services that others produce, and without having to produce any goods and services that didn’t already exist in exchange. If there were nothing to buy with the windfalls, then they would be worthless. Clearly those producers – wherever they may be – have to produce that extra over and above what their own pay (earned income) can buy, to support the unearned income of the rentiers.
So yes, we should worry about first time buyers, but we shouldn’t miss the elephant in the room: unearned income and the rentier economy. The broadsheets, BBC’s Newsnight and the chattering classes love discussing house prices but they seem incapable of noticing this. Could it be because of the massive over-representation of the 1% in the media?
It’s not only unjust: it’s also dysfunctional for the economy, as it’s unproductive. At this time when we urgently need massive investment in the green economy to cut CO2 emissions, and in the construction of new social housing, most bank lending is going to fuelling yet another property bubble in existing housing. Over the last 40 years, debt related to property has risen as a percentage of GDP, and it’s not because people want to buy bigger and better houses but because supply hasn’t kept up with demand, causing land values and house prices to inflate. It’s the kind of inflation neoliberals secretly love, but they keep it hidden by excluding mortgage interest repayments and house prices from the inflation figures. As political economist Colin Hay said, they clearly thought ‘retail inflation bad, house price inflation good’. It’s good for property owners, but at other people’s expense. When politicians and uncritical commentators talk about ‘reviving the housing market’ they mean making sure house price inflation continues, not building more houses.
Those who seek out such gains may think of themselves as smart, prudent ‘investors’, exactly the kind of people the economy needs, but they couldn’t be more wrong; they are living off others’ work and drawing investment away from productive uses.
George Osborne’s latest budget threatened £12 billion cuts to welfare, but at the same time his giveaways on property enlarge the private welfare state for the rich and comfortably off. ‘Help-to-buy ISAs’ for first-time buyers further fuels demand for housing without increasing the supply. Result?: more windfalls for existing owners.
When will we stop asset-based unearned income?
 This is one reason why the ratio of wealth to national income has risen from c.200% in 1940s to over 500% in 2010. An increasing proportion of what we produce is soaked up through the inflation of property values.