[Marxism] the value of real estate

Jurriaan Bendien andromeda246 at hetnet.nl
Tue Dec 28 10:41:42 MST 2004


>from a marxian perspective, what is the source of value for residential
real estate? and why does it tend to increase in value over time?

Interesting question. For a classical Marxian analysis, see Frederick 
Engels, The Housing Question
http://www.marxists.org/archive/marx/works/1872/housing-question/

For a modern analysis, see e.g. David Harvey's classic text Social Justice 
and the City (1973).
http://www.amazon.com/exec/obidos/tg/detail/-/0631164766/qid=1104251137/sr=1-2/ref=sr_1_2/102-0455415-4516108?v=glance&s=books

These topics are dealt with mainly by urban geographers, such as David 
Harvey and Manuel Castells. Marx did not deal with them in any depth - he 
focused mainly on the sphere of production and circulation, not on the 
sphere of consumption or distributional issues in civil society. This was 
basically because Marx believed that in human history, the mode of 
production "overdetermines" the modes of distribution, circulation and 
consumption.

For Marx, "value" is a social attribute of labor-products (production 
outputs), which basically refers to socially average production-costs, as 
related to a given social need (expressed through monetarily effective 
demand). These production-costs can be expressed in money-units, or socially 
average amounts of labor-hours.

Thus, the "value" of residential real estate (buildings, improved land) 
really refers to the current physical replacement cost of a durable consumer 
good that would normally be incurred (as distinct from acquisition cost, or 
current selling price in the housing market). In other words, to build or 
rebuild and equip a dwelling of a given type costs a certain amount of 
labour, materials and incidental expenses.

But housing prices obviously may and do rise above or fall below that value, 
depending on supply and demand factors and access rights. Strong increases 
or decreases in housing prices typically cause speculation in real estate. 
The 1990s have been a good example of a housing boom fueled by cheap credit 
and causing speculation. In East Germany, however, a lot of residential 
property has declined in price. So the Marxian "value" of residential 
property might be only a theoretical nicety in real life.

However, your question is rather general and therefore difficult to answer 
quickly. For instance, residential real estate can function as a type of 
fixed capital, if it is bought specifically for the purpose of profitable 
resale.
The fact that residential property consists of structures built on land, 
means that land rents can and do influence price formation (in Amsterdam, 
for example, most urban land is owned and leased out by the city council, 
which acquired it over many years in order to forestall speculative 
activity; if that land was sold, it would probably price most tenants 
currently living there out of their homes). Also, we obviously need to 
distinguish between rental housing and owner-occupied housing.

In some countries, home ownership has become established as part of the 
value of labour-power, i.e. the value of labour-power (its reproduction 
cost) is at a level that makes (or should make) home-ownership possible, and 
home-ownership is regarded as a legitimate social need of workers.

Home ownership, like the nuclear family, is generally regarded politically 
as an important factor promoting social stability in capitalist society, and 
encouraged for that reason. For ordinary working folks, investing in 
home-ownership is often a way of protecting their savings, and provide 
collateral for loans.

To say that unimproved land has no intrinsic economic value, and only a 
price, seems prima facie absurd. However, what Marx really intends by this 
idea is that relative market prices in this case are not ultimately 
determined or regulated by production-costs (because of the fact, that 
unimproved land is a non-produced and non-reproducible asset).

Interestingly though, the concept of "gross fixed capital formation" used in 
national accounts includes only investment in land improvements, not land 
acquisition as such - land ownership as such is excluded from the social 
accounting concept of "production". Land sales, and the net income generated 
by it, are thus excluded conceptually from aggregates such as GDP and GNI. 
On the other hand, GDP and GNI include an imputed rental value for 
owner-occupied housing. I still haven't exactly establish the official 
theoretical rationale for this imputation though. The imputation usually has 
the effect of moderating quarterly and yearly fluctuations in GDP and GNI.

The price of unimproved land could be set "artificially" by the state, or be 
due to scarcity factors, or set by whatever a buyer is prepared to pay. And, 
obviously, if a valuable mineral is discovered in a piece of otherwise 
worthless land, the land price is likely to increase, when this discovery 
becomes known. Often though the price imputed to unimproved land is related 
to its potential earning capacity, i.e. the income (the return on 
investment, surplus-value) which can potentially be derived from owning or 
using it, calculated among other things through comparison with similar 
tracts of land already privately owned and used. A good example of this is 
the privatisation of state-owned forests.

As a digression, Marx himself discussed Wakefield's theory of systematic 
colonisation at the end of Capital Vol. 1 - Wakefield suggested that to form 
a proletariat in the colony, the state should legally monopolise land 
purchases and set an artificial price for land acquisition, such that 
emigrants would need to work productively for a boss for a number of years, 
before saving enough to acquire their own land. But this strategy obviously 
depended on the ability to enforce the state monopoly, and the inability of 
settlers to negotiate land purchases independently with the indigenous 
population (or simply annex land on their own accord). Because this state 
restriction on land access was not easily enforcible, Wakefields theory 
really could not be applied to any great extent in practice.

Generally speaking, colonisation through annexation is the ultimate frontier 
of privatisation, the "cutting edge" of Marxian original accumulation 
(translated in English as primitive accumulation). There are already people 
who have staked legal claims to pieces of land on the moon, appealing to 
various laws and treaties.

Colonisation and empire-building of sorts can of course also occur in the 
sphere of intellectual territory, as distinct from physical territory - in 
2002 for example the total number of patent applications worldwide was about 
9,750,000 (according to the Japanese Patent Office). A Dutch corporation 
like Philips already owns about 100,000 patents, from which it derives a 
significant stream of revenue. In the US, the IBM corporation made the most 
patent applications through the 1990s. At some point however the quest for 
patent rights seems to reach a limit. Thus, already by 1990, the number of 
patents produced per US scientist or engineer had fallen to just 55% of the 
1970 level, with even steeper declines in Europe.

Hoipe this helps,

Jurriaan

Our house is a very, very fine house
With two cats in the yard
Life used to be so hard
Now everything is easy
'Cause of you

- Our House, by Crosby, Stills, Nash & Young






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