[Marxism] the value of real estate
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
For a modern analysis, see e.g. David Harvey's classic text Social Justice
and the City (1973).
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
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
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,
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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