Rentierisation, Financialisation and Absorption Rates. Monopoly or The Landlords Game, (AntiMonopoly, Class Struggle)
"The definition of rent used in the present article – income derived from the ownership, possession or control of scarce assets and under conditions of limited or no competition"
The rentierization of the United Kingdom economy
The Landlord's Game is a board game patented in 1904 by Elizabeth Magie as U.S. Patent 748,626. It is a realty and taxation game intended to educate users about Georgism. It is the inspiration for the 1935 board game Monopoly.
: for Piketty (2014: 422) rent is
‘remuneration for ownership of [an] asset, independent of any labor’;
for Sayer (2015: 44) it is
a payment extracted ‘by those who control an already existing asset, such as land or a building or equipment, that others lack but need or want, and who can therefore be charged for its use’;
and finally for Standing (2016: 2) it is
income generated ‘from ownership, possession or control of assets that are scarce or artificially made scarce’.
The set had rules for two different games, anti-monopolist and Monopolist. The anti-monopolist rules reward all players during wealth creation, whereas the monopolist rules incentivize forming monopolies and forcing opponents out of the game. In the anti-monopolist or Single Tax version (later called "Prosperity"), the game is won when the player with the least money doubles their original stake.
in this alternative framing is income defined not by the asset to which it represents a payment – land rents, financial rents and so forth – but instead by the quantum of market power enabling its derivation. It is the profit attainable specifically due to a dearth of market competition. Thus, if ‘normal’ levels of profit are those that can be realized in a competitive situation, rents are the ‘excess’ returns afforded by any departure from that idealized scenario, the abnormal profits occasioned by the capitalist power to monopolize a market
When homes earn more than jobs:
the rentierization of the Australian housing market by,
Josh Ryan-Collins & Cameron Murray
citation: Josh Ryan-Collins & Cameron Murray (2021): When homes earn more than jobs: the rentierization of the Australian housing market, Housing Studies, DOI: 10.1080/02673037.2021.2004091
.Rents can also be generated from assets that are not naturally scarce via the creation of monopolistic controls (e.g. patents) or other competition-reducing interventions. In modern times the most valuable land use is residential housing. Housing is a composite good consisting of property rights to a location (the land) and the structures built upon that land (the capital). With the spread of home ownership to the middle classes following World War II, land and land rents became less concentrated than in the times in which the classical economists were writing, when a limited number of land-owners controlled the majority of land. Yet land rents remain and have been growing rapidly in the last four decades. The huge increases in home prices relative to incomes in advanced economies in the post-ward period were mainly in the form of rising land values, accounting for around 80% of growth since the 1950s on average, with construction/replacement costs increasing only at the rate of inflation (Knoll et al., 2017). Wealth accumulation since the 1970s in many capitalist economies has largely been driven by increases in property prices via capital gains, rather than increases in profits from the production of goods and services (Rognlie, 2014; Stiglitz, 2015). Across advanced economies, the return on housing (capital gains and rental yield) has averaged 7% (Jordà et al., 2019). This is over twice as high as that on benchmark financial assets (government bonds/Treasury bills) and similar to equities, but with markedly less volatility, in particular since World War II (ibid). The term ‘safe as houses’ has some merit from an investment perspective.
"As asset proprietor and in putting the asset to commercial use, the rentier sweats monopoly from every pore"
The principal policy supporting the value of financial assets since the financial crisis, pursued in the USA and continental Europe as well as the UK, has been the ‘unconventional’ monetary policy known as quantitative easing (QE), which in the UK’s case has seen the Bank of England purchase some £375 billion of financial assets (Bunn et al., 2018: 1). QE has had a strongly positive effect on the prices of such assets. Bunn et al. (2018: 8) estimate that, without the Bank’s intervention, real prices of LSE-listed equities would have been 25% lower in 2014 than they actually were. And this, needless to say, has disproportionately benefited those who actually hold financial assets, which is to say the UK’s financial-rentier class, comprising the wealthiest households – the top decile by household wealth realized an estimated average gain in pensions wealth of over £200,000 between 2007 and 2012–2014 purely as a result of monetary policy changes, versus an average household gain of less than £40,000 (Bunn et al., 2018: 26) – and, even more so, the country’s leading financial institutions. No wonder that in 2011, as the lay of the post-crisis policy landscape on both sides of the Atlantic became increasingly clear, Paul Krugman (2011) railed against policymakers ‘catering almost exclusively to the interests of rentiers – those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense’. In the absence of fiscal stimulus or debt relief, Krugman claimed, the ‘only real beneficiaries’ of existing policies were ‘bankers and wealthy individuals’. And QE has not only benefited the UK’s financial rentiers. Land rents have also been fuelled, through comparable, policy-driven inflation in the value of land assets. The estimated value of UK land increased by an eye-watering 64% between 2008 and 2016, from approximately £3 trillion to approximately £5 trillion (ONS, 2017: 5). Nowhere was this inflation more visible – and problematic – than in the nation’s seemingly perennially overheated housing market. Bunn et al. (2018: 8) estimate that, without the Bank’s unconventional monetary policy intervention in response to the financial crisis, UK real house prices in 2014 would have been 22% lower than they actually were. Post-crisis monetary policy, in short, has served to bolster major portions of the asset wealth of a rentier class already advantaged by three decades of exceptionally accommodating neoliberalism.
A housing supply absorption rate equation Cameron
January 3, 2023
What is the optimal rate of new housing supply? We answer this question with a simple model of new housing supply where the choice variable is the rate of new housing lot sales. This model is informed by the cost-side assumptions of the static equilibrium model but allows for demand for home-buying to vary over time. It differs from static models of housing production equilibrium by assuming that landowners hold land assets that are sold in asset markets to create new supply. Landowners maximise the present value of their balance sheet by choosing a rate of new housing lot sales, accounting for the effect on asset price growth from their sales in a housing market of finite depth. The resulting absorption rate equation has radically different parameter effects compared to the popular static housing density model. Constraints on density, for example, increase the optimal rate of supply by reducing the return to delaying development. Interest rates, land value tax rates, and demand growth, positively relate to the optimal rate of supply. The policy lessons are (1) the relationship between demand growth and the optimal supply rate limits the ability for market supply to reduce prices, and (2) increasing the cost to delaying housing development is the primary way to increase the market rate of housing supply.
Keywords: Absorption rate, housing supply, planning regulations. JEL Codes: R31, R38, R52
The intuition here is that new housing lots are assets, and supplying (selling) them to the market is an asset swap of land for cash. It does not matter whether a dwelling structure is built by the seller or the buyer of the lot; an asset swap of cash for construction is immediately reversed upon sale of developed housing. In Australia, for example, almost all new dwellings are sold by private housing developers rather than retained, and the prevailing business model is a build-to-order method with sales driving production rates (Murray, 2020a,c) Because housing is an asset in a market with a finite trading depth, additional lot or house sales in a period of time will affect price growth, limiting the market rate of housing absorption (see Letwin (2018)). The rate of supply is increased until the marginal benefit from supplying at that rate now equals the marginal cost from selling at that rate later. The marginal benefit now comes from converting the housing lot asset to a cash asset and is the interest return on the lot sale price and property tax savings compared to retaining ownership. The marginal cost later comes from the effect of sales today on housing asset price growth, and hence on the value at which the later housing lots can be sold. In short, the development market will limit the rate of new housing supply independently of the optimal or allowable development density because new housing production responds to asset market conditions. Our model is motivated by the observed behaviour of housing developers. Murray (2020c) showed that landbanks held by developers are managed as assets, not inventories, and supplied in response to housing asset market conditions. For example, one housing developer in that study owned 56,000 apartment lots on appropriately zoned sites but planned to supply only 1,000-2,000 per year (a 28-56 year pipeline) (Lendlease, 2019). Letwin (2018) also found that the rate of sales per period that developers were willing to make was a limiting factor for overall housing supply. To explain this behaviour our approach differs from static equilibrium models of housing density such as the Alonso-Muth-Mills formulation.
1. Over two decades ago DiPasquale (1999) noted that Virtually every paper written on housing supply begins with some version of the same sentence: while there is an extensive literature on the demand for housing, far less has been written about housing supply. Although this statement is clearly true, at this point, there have actually been a considerable number of papers on housing supply. However, the empirical evidence on the supply of housing is far less convincing than that on the demand for housing. (p.9) Little has changed. Indeed, the cost-based approach to housing supply, such as used in Glaeser & Gyourko (2018), remains dominant despite being repeatedly discredited (Murray, 2020b; Somerville, 2005; O’Flaherty, 2003).
2. The academic debate surrounding the effect of planning changes on the rate of housing supply and prices remains hotly contested (Manville et al., 2020; Rodr´ıguez-Pose & Storper, 2020; Cowan, 2019; Monkkonen, 2019; Wiener, 2020; Manville, 2019; Wegmann, 2019). Despite this, the pop-culture position seems to be that planning has extremely large effects on housing affordability (see, for example, Cowan (2019) and Yglesias (2012)), and has resulted in many planning reform proposals (MHCLG, 2020; Wiener, 2020; Hansen, 2020).
3. As described in the studies of housing supply studies of Murray (2020c) and Letwin (2018). The absorption rate puzzle applies to any single subdivision and also across the set of feasible and allowable development sites in a region.
7. There is often confusion in the housing supply literature between the rental price of a dwelling and the capital value of a dwelling. A divergence between these prices cannot be attributed to supply-side effects; they must be due to asset-pricing factors, such as low interest rates or growth expectations.
Varieties of rentierism
Financial rents. Financial rents are one of the ‘classical’ forms of rent. When Keynes (2018 : 334) famously called for the euthanasia of the rentier, it was the financial rentier – and the financial rentier alone – that he had in his crosshairs: the holder of financial assets or, in Keynes’s own terms, the ‘functionless investor’. For Keynes, the primary form of financial rent was the interest income ‘earned’ by holders of financial assets (such holders, as noted earlier, including households as well as companies). The speech marks are necessary because, in Keynes’s view, investors did not really earn this income. It came to them not by virtue of ‘genuine sacrifice’, but instead because capital was scarce – there was a limited amount of it – and thus borrowers were required to pay to access it. As Keynes saw it, there were no ‘intrinsic reasons’ why capital should be scarce. It was scarce, he surmised, simply because financial rentiers managed to keep it that way; hence his description of the ability of the financial-capitalist class ‘to exploit the scarcity-value of capital’ as a ‘cumulative oppressive power’
Land rents. Land rents are another classical form of rent. What gives the landowner the ability and right to charge a third party rent for using her land? In the most immediate sense, the law does. But the more fundamental answer is a combination of power, scarcity and geography. Without the power to exclude, as enforced by the law, land rent would be unimaginable. The power to exclude would itself be for little, however, if land were infinitely abundant. Land is finite – or, as the famous quip variously attributed to the American humourists Will Rogers and Mark Twain has it, ‘They’re not making any more of it’ – and this scarcity buttresses rent. Yet even though it is finite, and, under capitalism, subject to excludability, not all land generates a positive rent. This is because of geography. The ability to charge rent varies significantly across space, depending in particular on the attractiveness of land to potential tenants in terms of both the innate qualities of the site itself (such as soil fertility) and its relative locational merits (such as accessibility to local services).
Natural resource rents. Rents are generated from the subsurface as well as the surface of land, namely through exploitation of naturally occurring resources, including both energy products (oil, gas and coal) and other minerals (metal ores, stones, sands and salts). Indeed, natural resources are the specific source of rents for one of the most widely recognized types of rentier institution, the so-called ‘rentier state’. But obviously it is not just governments that enjoy such rents. Capitalist firms also do, and some of the biggest – the likes of BP, Glencore and Rio Tinto – are British.
Intellectual property rents. Many of the most valuable assets in contemporary capitalism are not physical assets such as land and non-land natural resources, but rather creations of the mind or intellect. Most creations of the mind, of course, are not ‘assets’ in the sense used in this article – nobody owns the concept of love or the knowledge of how to boil an egg. But some creations of the mind are owned, in so far as the law recognizes and polices exclusive property rights over those creations. This is the terrain of so-called ‘intellectual property’,
A common example is the licensing and third-party use of proprietary software protected by copyright of the source code (and sometimes also by patents). To recognize this second model of IP rentierism is to appreciate that Microsoft is probably the most prolific rentier in capitalist history.
Spectrum rents. The radio spectrum refers to a particular range of frequencies of electromagnetic energy that can be used for various types of communication. It is often likened to land; it represents, if you like, virtual real estate. Like land, it is a finite, or scarce, resource. And also like land, any part of the spectrum can accommodate only a limited number of uses; this is primarily due to the potential for interference
Platform rents. One of the most notable and important economic developments of the past two decades has been the emergence of the so-called ‘platform economy’ and the growing power of the owners of today’s leading digital platforms. While definition is tricky, the key functionality of a platform is arguably intermediation –
As Kenney and Zysman (2016: 68) write, ‘many platforms by their very nature prove to be winner-take-all markets, in which only one or two companies survive, and the platform owner is able to appropriate a generous portion of the entire value created by all the users on the platform’
Natural monopoly rents. A ‘natural monopoly’ can be defined in several ways, but perhaps the most useful definition is an industry in which the most efficient number of suppliers is one. Monopoly is said to be ‘natural’ in such cases because the introduction of additional suppliers would necessarily increase overall production costs and hence also the prices charged to customers. A classic example of a natural monopoly so-defined would be the regional or local physical supply of drinking water to businesses and households.
Contract rents. A longstanding mantra of the management consultancy industry has been that clients – in the public and private sectors alike – should focus exclusively on their socalled core competences and outsource all other activities.
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