The rise of the property-owning plutocracy

If you had to think of one article of faith for the Conservative Party, a property-owning democracy would come pretty close to the top of the list.

David Cameron reached back to the idea in his ‘magic money tree’ speech yesterday:

‘It is important that people who work hard and do the right thing are able to buy a home. As I said in my party conference speech – it is a rebuke to those of us who believe in property owning democracy that the average age for someone buying their first home today, without any help from their parents is 33 years old. And we are determined to tackle that.’

The prime minister was clearly hinting at something to come either in the Budget or the housing announcement he’s planning just before it. Whether that’s a new stamp duty holiday, or an extension to FirstBuy or even perhaps making existing homes eligible for NewBuy remains to be seen.

For my money it will take more than just another government initiative to achieve very much. As the recent English Housing Survey revealed, home ownership fell for the seventh year in succession in 2011/12 to 65 per cent of households. The fall is about much more than just the financial crisis: the proportion of households who own outright is still rising but the proportion buying with a mortgage is now back at mid-1980s levels.

Walking in the footsteps of Eden

That got me thinking about the deeper implications of a property-owning democracy. The phrase is indelibly associated with Margaret Thatcher and the right to buy but it’s actually been woven into the DNA of the party for decades. The woman herself talked of walking ‘in the footsteps of Anthony Eden, who set us the goal of a property-owning democracy’ in her first speech as party leader in 1975. It was actually coined by Noel Skelton in the 1920s (more on him here from David Torrance) but taken up by Eden and Macmillan after the war and passed down through the Tory generations.

The attraction is not surprising since ‘property-owning democracy’ seems to combine everything that’s good about traditional Tory values: aspiration and self-reliance placed in a context in which liberty means defending property rights.

However, it’s always struck me as a bit of a contradiction in terms. After all, surely the point of a property-owning democracy is that everyone owns property. That sounds more like egalitarianism or even socialism than conservatism.

There are other, quite different versions of ‘property-owning democracy’. For the British economist James Meade, writing in 1964, it meant complementing the welfare state with ‘measures for the equalisation and the socialisation of property ownership’. In the 1970s, the American philosopher John Rawls developed the idea as a way of distributing wealth and capital as widely as possible. He argued that welfare state capitalism could not satisfy his two principles of justice as fairness or of a just society: that it should guarantee basic liberties for all and that social and economic inequalities must satisfy both fair equality of opportunity and be to the greatest benefit of the least-advantaged members of society. In contrast (see here for more):

‘The background institutions of property-owning democracy work to disperse the ownership of wealth and capital, and thus to prevent a small part of society from controlling the economy, and indirectly, political life as well. By contrast, welfare-state capitalism permits a small class to have a near monopoly of the means of production.’

In the context of the last US election, and Mitt Romney’s comment about ‘the 47 per cent’, those ideas were developed in a book edited by Martin O’Neill and Thad Williamson last year. See here for more on Property-Owning Democracy: Rawls and Beyond.

The rise of renting

Back on this side of the Atlantic, the prospects for a property-owning democracy look grim however you choose to interpret the phrase. While the obvious explanation might seem to be restrictions on mortgages imposed by the banks since the credit crunch, much more is going on than that. As I blogged earlier this week, figures published in the UK Housing Review show that home ownership was falling among younger age groups (the 16-24s, 25-34s and 35-44s) from the 1990s onwards. That has rippled up as time has gone on, with rates for the 45-54s falling from the early 2000s and even the 55-64s falling after 2008.

The counterpart to the fall in home ownership is the rise of private renting. As the Census showed, the highest rates of private lending are in inner London boroughs but the biggest increases over the last 10 years have come in Northern Ireland and the north of England.

Meanwhile an investigation by the Daily Mirror and GMB union revealed this week revealed what has happened to the cornerstone of Margaret Thatcher’s housing policy: the right to buy. Freedom of information requests to local authorities revealed that a third of council flats bought by tenants are now owned by a leaseholder with a different address. In Wandsworth, one of the birthplaces of the right to buy, whole swathes of former council property are owned by private landlords: 57 by two Guernsey-registered companies owned by former venture capitalists; and at least 40 owned by Charles Gow and his wife. Symbolically, he is the son of Ian Gow, a housing minister under Margaret Thatcher in the heyday of the right to buy.

The rise of private renting has been fuelled by the explosive growth of buy to let. Two years ago Fergus Wilson, one of the pioneers, said that the credit crunch meant it was ‘absolutely dead and will never return’ but CML figures last month revealed that buy-to-let advances are now running at the highest level seen since 2008. The papers are once again full of articles like this.

Flexible labour market

Many factors are responsible for this slow death of the Conservative idea of a property-owning democracy. The credit crunch, the housing boom that preceded it, buy to let and changing attitudes among mortgage lenders are obvious candidates. However, the underlying explanation may lie beyond housing and the financial system and in the other side of the Thatcherite revolution. The long-term impact of labour market deregulation, the defeat of the trade unions and contracting out in the public sector has been a profound shift in the nature of employment in Britain and levels of income inequality that match those seen in the 1930s. What price a property-owning democracy under a flexible labour market?

That has been compounded by the impact of the current recession. I’ve highlighted before the astonishing growth of self-employment (367,000 over the last four years) but that has been matched by the rise part-time employment. Over the same period, the number of part-time workers who want to work more hours (underemployment) has risen by 980,000. The full-time work that is available is more insecure and lower paid: a survey by the TUC this week found that real wages fell 4.5 per cent in Britain between 2007 and 2011, the largest decline in the world’s ten most developed economies. As I blogged a few weeks ago, a combination of austerity and low interest rates means a further redistribution of wealth from renters to owners.

In many ways, the short-term, insecure private tenancy is the housing market counterpart of insecure work in the same way that the 25-year mortgage was the counterpart of rising and secure employment. For lenders, the older investor wanting a buy to let mortgage seems a much safer bet than the young couple wanting to buy their own home. Buy to let effectively allows investors to borrow against the future incomes of their tenants while denying those tenants the chance to do the same. The switch to renting will also have long-term consequences for asset-based welfare and the benefits bill.

Property owning is clearly not dead in Britain when 65 per cent of us are still homeowners (although owners are in a minority now among the under-35s). By the standards of a political system that allows governments to gain an overall majority with 35 per cent of the vote, that might even count as vaguely democratic. However, the Conservative dream of a ‘property-owning democracy’ – one in which rising aspirations can be met – is surely over no matter what new wheezes David Cameron and George Osborne come up with the week after next.

And we seem to be moving towards the complete opposite of the Rawlsian idea of a property-owning democracy. A rising proportion of the population are locked out of home ownership and young people without access to parental help are trapped in renting. Meanwhile property wealth and all the other social advantages that flow from it  are concentrated in the hands of existing owners and investors and insulate the political and business elite from the rest of society. Might what we have now be more accurately described as a property-owning plutocracy?

For those with access, the journal History of Political Thought carried an interesting article from Amit Ron on the development of the idea of property-owning democracy.

Since writing this, I’ve also come across two interesting academic pieces that are freely available:

Ben Jackson’s chapter on Property-Owning Democracy: A Short History from the book edited by Martin O’Neill and Thad Williamson’s 2012 book mentioned above.

Martin’s O’Neill’s paper on Liberty, Equality and Property-Owning Democracy.

Courtesy of Jules Birch