The rise and fall of the property-owning democracy

Sometime in the late 1980s, a friend who was on the libertarian right of the Conservative Party explained the idea of the property-owning democracy to me. The point, he said, was to detach the respectable working class from their poorer neighbours, encourage them to identify with the middle-class and thereby turn them into Tories.

It worked for a while. Middle earners had been doing relatively well since the 1970s and home ownership was within the reach of many once mortgages became more readily available. Helped along by cheap council house sales, home ownership rose. In recent years, though, things have started shifting back the other way. The property-owning democracy is now looking like a one-off event rather than the ongoing process it was meant to be.

Property analyst Neal Hudson pointed out that, as a proportion of all tenure, home ownership peaked in 2003 but mortgage ownership peaked in 1996. As older property owners paid off their housing debts, they were not being replaced at the same rate by new  mortgagors.

The rise in home ownership exacerbated the rise in inequality. Until the 1990s, the cost of housing only made a slight difference to the inequality figures but from the 1990s, housing tenure became a significant factor in the make up of people’s disposable income and the divide between owners and renters widened.

The recent Resolution Foundation report on living standards goes into this in some detail. As this chart shows, the increase in home ownership gave a further boost to the sharp rise in inequality seen during the 1980s.

For those who owned their own properties, lower housing costs helped to increase their disposable incomes. It was a different story for those in social and private rented accommodation. After deducting housing costs, the median incomes for both fell during the recession and have barely made up any ground since. What little pay increase they may have had was soon gobbled up by rising rents.

As the Resolution Foundation comments:

The typical mortgagor AHC income is now twice that of the typical social renter, and over the past decade this income has grown by 17 per cent compared to just 4 per cent growth for the typical private renter. Even more than was the case before the financial crisis, the living standards split between those who own their own home and those who do not has become a key divide.

While the proportion of households owning their own homes has fallen generally, that decline has been sharper among those on low to middle incomes. (Defined by the Resolution Foundation as working-age households with someone in work but with less than the median household income.) In the mid 1990s, over half of those on low to middle incomes were mortgagors. Now that has fallen to a third. Over the same period, private renting among this group rose.

Last week’s report on poverty and inequality by the Institute for Fiscal Studies notes that most of those in poverty (defined as income less than 60 percent of the median) are now from households where someone is in work.

[R]elative poverty among children and working-age adults has increased and, over the past 20 years or so, has increasingly become an in-work phenomenon due to declines in worklessness, low earnings growth and widening earnings inequality.

It is likely that things will get worse for low to middle earners over the rest of the decade. The Resolution Foundation forecasts that, largely because of the continuing pay squeeze and cuts to working age benefits, the real-terms incomes those in the lower half of the distribution will fall significantly over the next four years.

IFS director Paul Johnson made some sharp observations in the Times yesterday.

Poverty is no longer overwhelmingly associated with lack of employment. The majority of those officially classified as poor live in a household where someone is in work. More than four in ten children in families where one parent works now fall below the poverty line.

Another profound change relates to what it means to be in the middle of the income distribution. The incomes of those in the middle are no further behind the top than they were 20 years ago. But today half of middle-income families with children live in a rented property. Less than a third did so in the mid 1990s. With the extension of in-work benefits they are also more reliant than before on welfare. In the mid-1990s both the rich and the middle were generally owner-occupiers dependent on their own earnings. Increasingly the renting, benefit-dependent middle earners have, and perhaps feel they have, more in common with the poor than with the rich.

Which, of course, was precisely what the property-owning democracy was designed to stop. Aspirational working class people were supposed to identify with those further up the income scale, not those further down. But the rise in the proportion of home owners soon petered out. Council house sales didn’t create a home-owning democracy. When those who bought sold out and retired, the buy-to-let barons moved in. Those who might have owned twenty years ago now rent from private landlords and benefit dependency is no longer confined to the very poor.

The property-owning democracy was meant to make people more conservative. What effect its reversal might have on our politics is anybody’s guess. Combined with the impoverishment of those in the lower half of the income distribution, it might lead to less reverence for property and more demands for its taxation or for laws protecting tenants from landlords. If those on middling incomes really do make common cause with the poor, politics could get very interesting. It’s certainly not what the Conservatives of 30 years ago had in mind.

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30 Responses to The rise and fall of the property-owning democracy

  1. srjc3 says:

    This has happened because the libertarian Right have failed to apply their principles to the housing market. Land for housing is severely rationed by the planning system, and the inability of supply to keep up with demand has driven up prices. Hence the chasm between owners and renters. Current policy has just been on the demand side, letting some marginal buyers get a house, but making housing more expensive in the process.

    If the Tories want to save a property-owning democracy, they need to allow more property to be created. Make it easier to build housing in and around high-demand areas – even if it annoys their Home Counties, home-owning base. Those aspirational working class voters may be able to afford a home in a new suburb, and bring up a new generation of Tory voters.

    It will be politically difficult in the short-term, but necessary in the long term.

    • Damo says:

      There is some evidence to suggest that the market is the problem, rather than planning. Too few house builders sitting on too much land and blaming ‘planning’ when they simply are happy to sit on the land.

      • Elvis Presley says:

        My guess is that it is rarely the developers that land bank. Imagine you owned a plot of land. You’d be mad not to get planning permission for it *before* selling it off to a developer (thereby capturing most of the uplift in price).

        Net migration in excess of 300k each year might have something to do with excess demand relative to supply too.

    • Tony Cain says:

      This is of course, total nonsense. Releasing more land for housing will have only a limited impact on supply and no impact on price. House builders will continue to release new homes at a rate designed to keep the price up. They certainly wont risk downward pressure on price by building more than the can sell.

      relaxing planning constraints will serve only to enrich landowners and encourage speculation.

      • srjc3 says:

        Surely it is a question of how much land is released. Imagine the Government abolished the London greenbelt (which I don’t advocate). How much market power would any one house builder have? If they didn’t build, a competitor could.

        • George Carty says:

          If London had no greenbelt it would probably take up about 50% more land area, which would make it comparable to Los Angeles in density. But Los Angeles is still an expensive city.

          The cheap cities in American red states have a density that is absurdly low by British standards, about a quarter of LA’s or about a sixth of the density of a typical British city. Or alternatively, an American red-state city is about twice the population density of the entire country of England!

          • srjc3 says:

            I think London will always be an expensive city. But if it could increase housing supply more easily, prices wouldn’t have risen as much, and would have housed more people in the meantime.

            Red-state sprawl is not politically viable in England, but I’d like to see a halfway house. Incremental expansion of our cities, at higher densities with appropriate mass transit being provided.

            I’d like to see this take place via a planning system that is more responsive to market signals, and with local governments able to collect the land and property taxes the expansion will bring to provide infrastructure and services.

  2. srjc3 says:

    But this is an effect of the planning process. Land for residential building is very scarce, and its value will increase as demand rises faster than supply. If significant quantities of land became available, it would cease to be so scarce and therefore not worth hoarding for ‘land banking’.

    • Richard says:

      The issue is that land for building supported by the necessary infrastructure is scarce. Simply having “more permissions” doesnt tackle this problem.

    • Tony Cain says:

      No, if significant quantities of land become available it will be captured and controlled by land speculators who will keep it from the market so that land and house prices remain high.

      • Brendan says:

        This seems like a wonderful way to fund our public services – we just release land to the speculators, who purchase it far above value, but never build upon it.

        • srjc3 says:

          Actually, it could provide public funds. When the allowable use of land changes from agricultural to residential, it becomes much more valuable. Local government can capture this land value uplift via some mechanism. This would provide useful revenues, and could fund impact fees for local residents, which might assuage some of their objections to new development.

      • George Carty says:

        A lot of the proponents of bringing down house prices by repealing planning laws seem to cite American red states as their model. What is different there compared to places like Ireland or Spain (which had plenty of land, but still had bubbles due to speculation)?

        In Texas house prices are probably controlled by the state’s property taxes (which are high as the state has no income or sales taxes) but many other red states have low property taxes without having speculative bubbles…

        • srjc3 says:

          I’m no expert, but I believe the Irish and Spanish experience was due to monetary union. Interest rates converged for Eurozone economies after the Euro was introduced. Interest rates were far lower than the Irish and Spanish economies warranted, and so money flowed into a house bubble in those countries.

          While there are undoubtedly a financial aspect to house prices in the US and the UK, the rise in house prices in the UK is more of a secular trend due to lack of housing supply.

  3. Nikki says:

    Excellent analysis. Any loss of equity due to a burst bubble could push things into revolutionary terms. Here’s hoping the complacent start to mobilise!

  4. Toby Lloyd says:

    Excellent summary of the death of property owning democracy. I would add that this process was largely inevitable: property markets naturally tend toward concentration of ownership, a trend that is sometimes temporarily reversed by policy intervention – like the late post war drive for more ownership. But the concentrating tendency soon reassess itself, supported by the political power of the new owners, whose interests are now served by keeping property prices up, choking off ownership rates…. in our book we explore this cycle as it has repeated over centuries!

    • Blissex says:

      The book “Toby Lloyd” refers to is obviously “Rethinking the Economics of Land and Housing” of recent publication. As to land, there is a special detail that I have come to appreciate only in recent years…
      Prof. M Gaffney of UCR (a georgist neoclassicist) has compellingly argued in various papers and a book (“The Corruption of Economics”) that in the 19th century JB Clark expunged for political (anti-georgist) reasons the notion of “land” (generating “economic rent”) from neoclassical Economics. This has made “mainstream” Economists unable to discuss “land” and concepts like its “fertility” and more in general asset-based arguments, which instead are central to any sensible study of the political economy. Note that M Gaffney’s critique is a traditional “right wing” position by a whig supporter of productive capitalism against a tory defense of rentier landlordism. It is not a critique by a “left wing” heterodox, but by a neoclassicist against a fake-neoclassicist.

  5. Therese says:

    In London it’s increasingly looking like “right to buy” was a rip-off for anyone intending to carry on living in their ex-council home. Leaseholders’ homes are due to be demolished (with doubtless poor compulsory purchase prices) alongside the homes of neighbours who didn’t bother and who still rent from the council in many schemes right across the capital, such as Haringey’s “HDV” arrangement with notorious property company Lendlease. No-one in their right minds would buy a property on a council estate now unless they have short term rental profits in mind and have factored in the probable low price such firms will offer them when their estate is “decanted” for redevelopment. It’ll be interesting to see how attitudes to right to buy change as the penny increasingly drops that such “owners” cannot sell their houses unless at well below market price, and perhaps not even then.

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  8. jayarava says:

    Thanks. This helps to make sense of the program of selling off social housing. It’s not simply an ideological objection to government being involved in commerce, it is an attempt to turn people into Tories. Got it.

  9. Blissex says:

    «Sometime in the late 1980s, a friend who was on the libertarian right of the Conservative Party explained the idea of the property-owning democracy to me. The point, he said, was to detach the respectable working class from their poorer neighbours, encourage them to identify with the middle-class and thereby turn them into Tories.»

    The big turning point was a study (mentioned in “The Economist”) by a conservative think-tank in the late 1970s that showed that voting for right-wing politics correlated with owning a property, travelling by car, having a share-based pension account rather than renting, using public transport, having a defined-benefit pension. Now that that seems obvious, but the really important bit of the study was that applied largely independently of the income and status of the voters.

    That is voters with relatively high income and status tended to vote for left-wing politics if they rented, travelled by train, had a DB pension, and voters with a relatively low income would vote for right-wing politics if they owned even a tiny house, used a cheap car, had even a tiny amount of shares in a pension account.

    Obviously the first effect was small, because people of relatively high income and status are few, but people of relatively low income and status are many, and it takes very little house, car, share ownership to swing their vote to right-wing politics.

  10. Blissex says:

    «the real-terms incomes those in the lower half of the distribution will fall significantly over the next four years.»

    Big success for a policy of improving the “affordability” and “competitiveness” of english workers, as recommended by the “Britannia Unchained” authors. And that is perhaps without taking into account the effect of exit from the EU:

    * A further fall in the pound would make english wages even more “affordable” in international terms.
    * That would also drive quite a number of EU immigrants to move back to the eurozone countries, allowing the government to massively increase the immigration of much cheaper asian and african workers.
    * Below average wages could then fall around another 30% according to a hedge fund manager.

  11. Blissex says:

    «If those on middling incomes really do make common cause with the poor, politics could get very interesting. It’s certainly not what the Conservatives of 30 years ago had in mind.»

    They had in mind this, perhaps without the excessive rise in property prices and rents, but not averse to it either. The conservatives of 30 years ago knew very well that there were was not enough around to make everybody an affluent property owner, and that there would be winners and losers. But the if the losers were voting Labour already, why care? The key was to move a chunk of the middle and upper-middle income classes firmly into voting Conservative.
    The other strategy used was to turn Labour into property-owner supporting New Labour, and therefore motivate the losers to stop voting altogether.
    The result has been 35 years of rentier-rewarding governments.

    Note 1: Labour unwittingly contributed by fighting for better wages and good pensions for workers. The pensions turned many Labour workers into Conservative rentiers on retirement if not earlier, and the higher wages made mortgages affordable to lots of Labour voters, which then with the Right-To-Buy discount turned directly into property rentiers.
    Note 2: Accidentally allowing members to elect J Corbyn as Labour leader has voided the strategy of positioning New Labour as a second rentier-friendly “quasi-Conservative” party, discouraging renters and workers from voting. Abstentions and protest votes have shrunk a lot.

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