Vol. 68/No. 31 August 31, 2004

Why capitalism creates a housing crisis



(feature article)

The owners have taken the building out of the Mitchell-Lama program, a state plan instituted in the 1950s that gave landlords tax breaks and low-interest loans in exchange for constructing apartments that limited rent increases for at least 20 years. Having milked this state subsidy for 28 years, the landlord decided to opt out of the program in order to jack up rents, drive out the largely working-class and retired residents, and renovate the housing into luxury high-rises for well-paid professionals. The whole neighborhood is being transformed in a similar way.

This process, commonly known as gentrification, is one aspect of the sharp housing crisis that working people face in cities across the country. This squeeze is part of the mounting economic grind felt by workers and farmers today, from declining real wages to price increases for fuel and other necessities.

Two articles in the Militant, last week and on page 2 of this issue, have described the housing crisis in New York, which is similar to what working people face throughout the United States. This problem is not a new one. Tenements, slums, overcrowding, rent decontrol, and gentrification are terms describing aspects of the housing question that have marked the history of big cities like New York. The housing crisis is a permanent feature of capitalism, both in the United States and worldwide.

More than a century ago, Frederick Engels, who along with Karl Marx was one of the founders of the modern communist movement, addressed this question. He wrote a series of articles that appeared in the German socialist newspaper Volksstaat in 1872. They were reprinted in 1887 as a booklet titled The Housing Question. The pamphlet, which also appears in the second volume of the Selected Works of Marx and Engels (both by Progress Publishers), can be ordered from Pathfinder.

The basic explanation Engels gives about housing in capitalist society reads as if he had written it today.

Engels wrote his first articles in response to several pieces by Arthur Mülberger, a German follower of Pierre Joseph Proudhon, a French middle-class socialist reformer. He also polemicized against Emil Sax, a liberal bourgeois economist.

Engels explains that the housing shortage is rooted in the capitalist system, in the conflict between labor and capital.



Root of the problem: capitalism

Whence the housing shortage then? he asks. As a necessary product of the bourgeois social order; that it cannot fail to be present in a society in which the great laboring masses are exclusively dependent upon wages, that is to say, upon the quantity of means of subsistence necessary for their existence and for the propagation of their kind; in which improvements of the machinery, etc., continually throw masses of workers out of employment; in which violent and regularly recurring industrial fluctuations determine on the one hand the existence of a large reserve army of unemployed workers, and on the other hand drive the mass of the workers from time to time on to the streets unemployed; in which the workers are crowded together in masses in the big towns, at a quicker rate than dwellings come into existence for them under the prevailing conditions.

Given the overcrowding in the cities, Engels says, there must always be tenants even for the most infamous pigsties.

The landlord, faced with competition, is driven to ruthlessly making as much out of his property in house rent as he possibly can. In such a society the housing shortage is no accident; it is a necessary institution and can be abolished only if the whole social order from which it springs is fundamentally refashioned.

Rent is only part of the profits that capitalists extract from workers. The pivot on which the exploitation of the worker turns is the sale of his labor power to the capitalist and the use which the capitalist makes of this transaction, Engels explains. Workers produce far more value for the bosses than they are paid in wages, which, on average, equal the cost of maintaining their ability to work and reproduce themselves, that is, of their labor power.

It is this transaction between capitalist and worker which produces all the surplus value, afterwards divided in the form of ground rent, commercial profit, interest on capital, taxes, etc., among the diverse varieties of capitalists and their servitors, Engels says.

In that sense, the housing shortage is not the main question working people confront, but one of the secondary evils which result from the present-day capitalist mode of production, he notes. The root of the problem, which needs to be attacked, is the exploitation of the worker as a worker by the capitalists.



What is rent?

Land rent arises from the private ownership of the land. It contains an element of monopoly pricemany people want to live in cities but the amount of available land is limited. On the island of Manhattan, for example, the demand for a finite amount of land leads to very high rents.

The urban ground rent adds to the house rent, which derives from the fact that an apartment building or a house is a durable commodity built on a piece of land whose use can be sold a little bit at a time. The costs of repairs and utilities are added to the rent. The landlord also demands additional compensation for the fact that his capital is tied up in the building for an extended period.

The expansion of the big modern cities gives the land in certain sections of them, particularly in those which are centrally situated, an artificial and often enormously increasing value, Engels explains. As the buildings deteriorate over time, they lower the value of the land, so they are pulled down and replaced by others. This takes place above all with centrally located workers houses, whose rents, even with the greatest overcrowding, can never, or only very slowly, increase above a certain maximum. They are pulled down and in their stead shops, warehouses and public buildings are erected.

The result, he writes, is that the workers are forced out of the center of the towns towards the outskirts; that workers dwellings, and small dwellings in general, become rare and expensive and often altogether unobtainable, for under these circumstances the building industry, which is offered a much better field for speculation by more expensive dwelling houses, builds workers dwellings only by way of exception.

This explanation by Engels gives a pretty accurate description of the long cycle in urban real estate values in New York and other big cities over decades.



Cycle of urban real estate values

The most exploited layers of the working class, who are the worst-paid and suffer the highest levels of unemployment, are forced to live in the most dilapidated neighborhoods. The ground rents and land values there are at their lowest. Eventually the capitalists tear down these buildings and often replace them with luxury apartments or commercial buildings. The land values soar and so do their profits.

Over time, the housing deteriorates and the land values drop. Lower-paid workers move in as better-off residents flee to other neighborhoods.

The capitalists often unload urban real estate when its value is at its peak, for example, in a neighborhood with well-built but somewhat aging apartment buildings. The real estate sharks then use their positions in the banking system to help drive land values sharply lower.In the 1970s numerous cases of redliningwhere banks would not grant mortgages to renovate or build new apartments, especially in Black or Puerto Rican neighborhoodswere challenged and some lending terms were improved. While many of the most blatant practices were ended, banks and insurance companies continue to use discriminatory methods.

When the urban ground rents and land values reach their lowest point, the real estate interests can buy the land back at bargain rates. The housing is torn down or remodeled and replaced with luxury apartments or commercial buildings.

In the 1960s and 1970s there was widespread abandonment in the poorest New York neighborhoods, including waves of arson in which landlords torched buildings to collect the insurance money. Rubble-strewn vacant lots dotted working-class areas like the South Bronx. The city government was forced to take over thousands of buildings and empty lots and to launch a substantial housing program, resulting in the improvement of many city-owned buildings. Over time, the city has sold off many of these properties to private developers.

Meanwhile, gentrification has continued, from Manhattans Lower East Side to Williamsburg in Brooklyn. Working people who can move are pushed to the northern part of Manhattan and to other boroughs in search of more affordable rents.

The vermin-infested housing and rundown neighborhoods simply reappear somewhere else. As Engels explained, The breeding places of disease, the infamous holes and cellars in which the capitalist mode of production confines our workers night after night, are not abolished; they are merely shifted elsewhere! The same economic necessity which produced them in the first place produces them in the next place also.

Instead of building decent housing for working people in the urban centers, the construction industry builds high-priced real estate.



Is worker ownership the solution?

Engels argued against the solutions to the housing crisis offered by Mülberger and Sax. The two middle-class social reformers echoed the views of Proudhon, who advocated that workers be the owners of their own homes and set up co-operatives as a way to a secure future. Is that the answer?

Engels said no. First of all, under capitalism workers need maximum mobility to put themselves in the strongest position in relationship to the capitalists in the unending struggle for livable wages and job and living conditions. It is precisely modern large-scale industry which has turned the worker, formerly chained to the land, into a completely propertyless proletarian, liberated from all traditional fetters, a free outlaw, Engels said.

In fact, capitalist factory owners prefer that workers own their homes and small plots of land. They want working people tied down in a certain locality, forced to accept whatever conditions the bosses impose and unable to pick up and move elsewhere to find a better job.

For our workers in the big cities, Engels wrote, freedom of movement is the prime condition of existence, and land ownership can only be a fetter to them. Give them their own homes, chain them once again to the soil and you break their power of resistance to the wage cutting of the factory owners. The individual worker might be able to sell his house on occasion, but during a big strike or a general industrial crisis all the houses belonging to the workers affected would have to be put up for sale and would therefore find no purchasers or be sold off far below their cost price. That is why, Engels pointed, out, some capitalists set up a company town and provide housing for workersto make them more dependent.

Secondly, homeownership offers capitalists another way to exploit workersthrough mortgage payments and property taxes that fall heaviest on working-class home owners. Instead of paying the landlord, workers pay the bank.

Thirdly, capitalists encourage homeownership to convince workers who own their homes that they are property owners sharing common interests with the capitalists against other sections of the working class, especially those who are unemployed.

Engels noted that housing cooperatives are simply a version of this trap for workers. Proudhon promoted the utopian and reactionary view that such cooperatives could serve as a refuge from the conditions of exploitation and uncertainty under capitalism.

There is no solution to the housing crisis under capitalism, Engels explained. As along as it exists, it will keep reproducing the social relations of class exploitation and all its related evils, from unemployment to economic depression, war, racist discrimination, and housing shortages. And the capitalist government, through its parties, will always defend the interests of the class of billionaire families who rule this country.

The only way to end these conditions is for workers, allied with small farmerswho are exploited by the capitalist system of rents and mortgagesto overturn the rule of the factory owners, bankers, and landlords, and to take political power into their own hands.

Engels suggested that as an immediate step, a government of working people could expropriate the surplus houses of the capitalists and make them available to the worst-off sections of the population.

A workers and farmers government would nationalize the land so that it is no longer a commodity, and instead its use could be guaranteed to working people without fear of eviction. This would be part of the solution that Engels explained was necessary: The abolition of the capitalist mode of production and the appropriation of all the means of subsistence and instruments of labor by the working class itself.





Related articles:

Rise in homelessness in N.Y. is fueled by 5-year welfare cutoff





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