House price blues (1989)

From the February 1989 issue of the Socialist Standard

In the first few months of this year millions of workers will have to cut their personal spending in order to pay more interest on their mortgages. In other words, their standard of living will fall. All will have to cut back on food and holidays, some will even lose their homes. This, however, doesn't worry Nigel Lawson. As Chancellor he has not only welcomed this situation but claimed responsibility for it. While this is merely empty boasting (governments can't control interest rates at will), the fact that he should want to cut back on consumption illustrates that capitalism is not a system geared to meeting people's needs.

Lawson says he has raised interest rates (the price paid for borrowing money) in order to combat inflation. In fact it is the other way around: he has raised interest rates because of rising inflation. The capitalist institutions that lend money to the government are interested in what is accurately called the "real" rate of interest — the return they get after rising prices have been taken into account. So, if the general price level is rising, the government has to offer a higher nominal rate of interest to those lending it money, at least if it wants to maintain its level of borrowing.

The price level has been rising in Britain over the past year, partly due to the government continuing to inflate the currency by printing too much money but also because of the increased level of activity as the economy moves slowly out of the stagnation phase of the capitalist business cycle. Hence the repeated rises in the minimum lending rate (what used to called the Bank Rate) over the past year, culminating at 13 per cent last November.

Building societies are financial institutions which, like banks, survive by borrowing money at one rate of interest and then re-lending it at a higher rate. This means that when the general rate of interest goes up building societies, being no more able to “create credit" than the banks, are obliged to raise the rate of interest they pay those who lend them money (their depositors) and the rate they charge those who borrow from them. As their name suggests, building societies specialise in long-term loans — of twenty, twenty-five years — to house buyers. They operate by lending people the money to buy a house and then requiring them to mortgage it to them as security against repayment of the loan. In law this means that they become the owner of the house, although the person taking out the mortgage retains full occupation rights as long as he or she continues to repay the loan.

So, when we are told in a recent government publication, Britain: An Official Handbook, that at the end of 1986 there were more than 14 million owner-occupied dwellings in Britain, this is not strictly true. Those still paying off their mortgage — some 7.5 million — are only occupiers, not owner-occupiers; they don't become owners until they have repaid in full and with interest their debt to the building society. It is only after a lifetime of being in debt and occupying a house belonging to a building society that they finally attain the lofty status of "property owner", fit citizens of Thatcher's “property-owning democracy". In the meantime their position remains insecure. If ever they fail to keep up their payments the building society will evict them from its house and sell it to recover the amount of the loan, a fate suffered by tens of thousands of people each year and which can now be expected to increase. They also remain at the mercy of rises in the rate of interest, which the government can cynically welcome as a way of making them cut back on their personal consumption.

Since coming to power in 1979 Thatcher has pursued a policy of encouraging people to become homeowners, as part of her plan to eliminate Labour party-type reformism ("destroying socialism", as she misleadingly puts it). She hopes that people who own their own homes will believe they have sufficient a stake in the country to abandon traditional working class demands for higher wages and salaries and better state provision for health and welfare; that in fact they will oppose such demands and vote for the Tories for ever. For her, capitalist property will be more secure if surrounded by a mass of small house owners.

While a few social climbers may have swallowed Tory ideology, Thatcher's policy has been popular for quite other reasons. Many people want to own their own home simply because it gives them some control over part of their lives. They don't like to have to ask permission of a landlord, whenever they wish to modify or improve their home; they want to be able freely to exercise the creativity denied them at work.

Even if all workers owned their own homes, capitalist society would remain class-divided: the majority forced to live by selling their ability to work for a wage or salary and a minority of owners of the means of production living off unearned income in the form of rent, interest or profit. When socialists talk about inequality of property ownership being the basis of capitalist society in Britain we mean ownership of the means of production, of land, raw materials, factories, machines and other instruments for producing wealth. Owner-occupied houses are not means of production; they are not, and cannot, be used to produce more wealth. In this sense they fall into the same category as cars, washing machines and other household goods; they are consumer goods, means of consumption — workers have to consume accommodation, be it owned, mortgaged or rented, in order to keep themselves fit to work. Homeowners, therefore, are not capitalists and neither do they have any interests in common with capitalists.

This important distinction between property in means of consumption (houses, cars, household goods) and property in means of production, or capitalist property, is lost in the statistics of property ownership published from time to time. Even so, these figures show a considerable inequality: in Britain the top 1 per cent own 23 per cent of "accumulated wealth". This means that if property in means of consumption is taken out of the figures the level of inequality is far greater. Figures for West Germany in 1969. for instance, showed that while 1.7 per cent of private households owned about 35 per cent of "total private wealth", they owned 70 per cent of "private wealth invested in production". The proportions in Britain will be similar. Owners of capitalist property are, quite literally, in a different class from owners of means of consumption. To gain entry into this class you need to own a lot more than your home.

Besides, owning your own home in no way frees you from having to go out and sell your ability to work for a wage or salary in order to live. Workers who own, or who have mortgaged, their home have to sell themselves on the labour market just as much as workers who live in council houses or private rented accommodation. Nor, as the recent rises in mortgage rates shows, does it free you from the financial problems inextricably associated with being a wage and salary earner in capitalist society. “MORTGAGE BURDEN TURNS YOUNG INTO NEW PAUPERS" read the headline of a recent article in The Times (31 December) which featured a young couple in Hertford who had bought and mortgaged a home (a one-bedroomed maisonette, or sort of glorified Portakabin) in July. Their first monthly payment had been £360. From January they were going to have to pay £460 a month, leaving them just £55 a week between them for personal spending (food, car, gas. electricity, telephone).

Homeowners remain non-owners of the means of production and so remain members of the working class, with the same interests as wage and salary earners have always had under capitalism: to establish a system based on the common ownership and democratic control of the means of production and to press, while capitalism lasts, for higher wages and salaries. Thatcher has got it wrong. Home ownership does not give workers an interest in the continuation of capitalism.