Re: [Marxism] Dueling Powers and Capitalist Property in the UnitedStates by Matt Russo

["Joaquin Bustelo" <jbustelo@xxxxxxxxx>]

Anthony Boynton wrote: "I think houses that are bought and sold in markets
like any other commodity are clearly a form of capital."

Yeah, that's what the ruling class has been preaching for decades, and I
guess some "Marxists" have swallowed it hook, line and sinker. The
"ownership" society and all that. 

Boynton's blog post argues that people buy houses expecting to profit. 

"Every person who buys a home in the United States, or at least every person
who bought one in the past, expected to gain a portion of the surplus value
generated throughout the society. The belief that real estate prices
inevitably and inexorably rise is deeply held in all layers of society in
the United States. And, over the long run, it has been historically true."

It is not true that people automatically assumed they could make a killing
by buying a house. "Desirable" neighborhoods are in a constant state of
flux, as developers and local banks (the latter until the last decade or
two, when local banking was gradually abandoned) manipulated local
governments to create ground rent differentials. 

The basic trick is you let a neighborhood get real run down, then you move
in and gentrify it, making top dollar because you bought in when it was
cheap, and sold when you transformed it into a luxury neighborhood. 

Savvy people have always exercised a great deal of care NOT to buy into
neighborhoods about to go into decline, and those who DO buy in less
desirable areas do so because they can't afford anything more. 

Also, for most working class families with children, when you buy a house
you're also "buying" the right to send your child to a certain school.
That's one of the main things that makes "middle class" neighborhoods
desirable. 

This is all easily verifiable by anyone who turns to the real estate section
of their local Sunday paper or the corresponding area of its web site.
There's detailed information on where prices are going up or down, recent
sales by zip code, how many houses have sold, for how much, a feature about
some new development or high rise and so on.

What Anthony describes is the sucker-bait laid before people by shyster loan
brokers who said, but this half million dollar house and I'll give you a 2%
interest rate for the first three years, and then you can sell it before the
real interest rate kicks in and make a nice killing. That's how the housing
bubble was inflated. 

And then after much hemming and hawing and quoting Marx, Anthony says in his
blog:

"This is the famous formula for capital of M-C-M which Marx explains at
length in Volume 1 of Das Kapital. If we define a house as a commodity, then
the formula can easily be applied. Money is invested in the house in order
to gain more money when the house is later sold. (The only important
variation in this formula when the commodity happens to be a house (or any
other form of real estate), as compared to other types of commodities, is
that the amount of time between the first transaction and the second
transaction could be longer for real estate.)"

The fallacy in the argument is Anthony's facile assumption that gains based
on comparisons of nominal purchase and selling prices are real. 

But the nominal contract price is only a part of the cost of owning a house.
Start with inflation, averaging 3% a year. That is a real "cost" because you
want to get back not the same nominal dollars, but the same purchasing
power.

Add a mortgage, say 6%-7%, property taxes of 1%-2%, as well as maintenance,
2% a year, and house prices have to increase at an average annual rate of
12%-14%, i.e., double every 5-6 years, to keep up, in reality 1% more to
take into account the transaction costs of selling a house (7% typically,
and the "average" period of home ownership is seven years). Oh, and I forgot
house insurance. Add 1/2%-1% for that. 

So let's look at an example: I've lived in the same townhouse for 10 years.
My down payment was around $5,000, the original mortgage was for around
$82,000; I still owe something like $70,000. In this neighborhood right now
you might get $120,000 for this house. But having been paying around $700
(including insurance and taxes) a month for the mortgage for 10 years I've
laid out $84,000, not counting  a ton of other expenses. So if I were to
sell it for $120,000, I would get $113,000 (subtracting the commission for
real estate agents) or $26,000 more than I "paid" for it ($87,000), and I'd
have $43,000 left over after paying the mortgage. 

Even if the house had doubled in price over 10 years (7% average annual
increase), selling for $174,000, there would be around $163,000 left after
real estate commissions and $93,000 after the mortgage. So I've paid $84,000
in mortgage, $5,000 down, and even leaving maintenance etc, completely out
of it, I got $93,000 BACK for my $89,000 PAID OUT. But it gets worse, since
those original $5,000 were decade-ago dollars, worth something like $1.40 or
$1.50 today, and then you'd have to do the corresponding calculation for
each year's mortgage payment to translate to current dollars, and you will
see you paid out A LOT MORE than you're getting back.

Now you may think I made a particularly poor choice of house; don't house
prices rise more than mine has? Not really. The house pricing numbers that
float around have a very sharp, systematic upward bias. Because the housing
stock is constantly being replenished. And you have 2,000-3,000 square foot
homes replacing 900-1200 square foot homes built right after WWII. The
"average selling price of existing single-family dwellings" becomes an
increasingly apples-to-oranges comparison because prices may have doubled in
the last 10 years, but they are not the prices for the same houses. Some
percent --15, 20 or 25-- of this year's "used" houses are ones built within
the last ten years; they have replaced 10, 15 or 20 percent of the houses
that were selling a decade ago, and precisely the smaller, older, less
attractive houses in "declining" neighborhoods with lower selling prices.

To get a REAL average figure you'd have to include in the calculation the
price of houses that leave the market (lower than even an empty lot because
it costs money to clear away the rubble, and as likely as not in
neighborhood where ground rent is very low). And to figure out the real
appreciation of *existing* housing stock over that ten year period you'd
need to EXCLUDE all new construction, and ONLY count houses that were
already there a decade ago.

Am I saying that the American public has been taken for a ride with a bunch
of hoakey, propagandistic "facts" about the "benefits" of home ownership?
Think about it: Federal, state and local governments are all for home
ownership, banks are for it, real estate developers are for it. When was the
last time all these sorts of people got together to promote something that
actually BENEFITS the working class?

A given home in a specific neighborhood will not appreciate nearly as much
as housing price indices suggest. The ones who make the real killing are
real estate developers and redevelopers (for example through
gentrification).

Does this mean people are better of renting? Probably not, except for
perhaps the lowest-income quarter or third of the population, at least not
usually. If you can use the interest and real estate tax deduction and are
likely to stay put for a few years, you will be better off "buying," and the
longer you stay put --all other things being equal-- the greater the
benefit, because your monthly housing payment is likely not to go up nearly
as fast as inflation (if you have a fixed-rate mortgage). In the end, you're
likely to clear some money, but nothing like what government and
industry-promoted statistics suggest, or the phony "case studies"
"calculators" and other garbage that newspapers put in their housing
sections. Especially important is that at some point, houses have to be
"renovated" or otherwise the danger is you fall out of the top tier of the
retail market for houses like yours in your neighborhood and have to sell it
as a "fixer upper." That, including the new appliances, built-in microwave
and so on, new carpeting or flooring, new kitchen cabinets, etc., costs many
thousands of dollars. 

*  *  *

There is, in addition, something much more fundamentally unsound with
Anthony's argument. Which is that the point Marx makes in Capital is that
capital is not merely a monetary or economic power, but a SOCIAL one. In the
last analysis, in this kind of society economic relations are NOT between
people and things, they are between people (and classes of people) and OTHER
people.

It may be an easy thing to say that just because you have a few thousand
dollars earning interest in a bank or a couple of hundred thousand in a 401K
that you're now an "investor," a capitalist. As current events show, those
"investments" did not entitle you to any return on your "capital." And
UNLIKE the REAL capitalists, regular working people whose retirement savings
have been decimated ARE NOT going to get "bailed out" by the government.
That tells you who is in the REAL ruling class. 

If you can go to the government and say, gee, I lost a bunch of money could
you print up some more and give it to me, and the government says, sure,
then you're part of the ruling class. 

If your "capital" is your house and some retirement savings, you're really
NOT an "investor" or part of the "ownership society," you're just a working
stiff -- notwithstanding what Barak, Bush or Boynton may say to the
contrary.

Joaquin


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