Notes on the Crisis of Imperialism: Housing & Speculation

Kangbashi, a subdistrict of the City of Ordos, stretches for 137 square miles. Rows & rows of apartment blocks make up its streets, flanked by enormous, concrete towers. The city is thought to have the capacity to house over 1m people. Around 20,000 live there. (Rosie Cima, ‘Surveying the Ghost Cities of China’, Priceconomics, 19 November 2015.) Building began in 2004. In 2006, the Ordos local government moved its offices into Kangbashi, triggering a small growth in the population. 1.1tr yuan – the equivalent of $161bn – was invested in building the district as early as 2010. (‘China’s Desert Ghost City Shows Property ‘Madness’ Persists’, Bloomberg News, 23 June 2010.) The population in 2010 was higher than that today.

There are 20 such cities across China. Another example is the Yujiapu Financial District – a completely barren replica of Manhattan, with an empty Rockefeller building. (Laura Mallonee, ‘The Unreal, Eerie Emptiness of China’s ‘Ghost Cities’’, WIRED, 2 February 2016.) This has its basis in a material process: the urbanisation of China’s population. In 1990, 26% of the Chinese population lived in cities. In the latter portion of last year, this figure had swollen dramatically: 54% of the total population now live in cities. An estimated 70% of the population – over 1bn people – will live in cities in 15 years time. (Cima.) This has lead to mass investment. 19% of Chinese total fixed investment [1] is in real estate. (Organisation for Economic Cooperation & Development (OECD), OECD Economic Surveys: China, March 2015, p.11.) House prices have swollen accordingly. In 2010, it would take 59 years worth of an average wage to buy a 100m2 property in Beijing. In 2004 it would have taken around 34 years of an average wage for the same property. (Ibid, p.12.) Constant, quick & cheap GDP growth has created a speculative housing bubble in completely unaffordable real estate.

The relationship of the working class to housing is 1 embedded in exploitation. Rent is the expropriation of wages from the working class by a stratum of the bourgeoisie & petty bourgeoisie – landlords. It is the extraction of profit. It is important to note that the extraction of profit in the form of rent does not create surplus-value: no labour-power has been expended. Rent is the exchange of commodities (rent, housing) between 2 forms of commodity owner. (Friedrich Engels, The Housing Question, 1872.) In the totality of Imperialist economics the role of housing in the hunt for quick & easy profits reaches absurd proportions. In order to understand the role of housing under Capitalism & with it the housing crisis, we need to examine this economic function & relationship concretely.

1. Basic Economic Terms

Mortgage: A mortgage is a loan, with interest, secured against the title deeds to a property. In other words, a bank will lend money toward the purchase of a house. They charge interest on this loan. Throughout the period in which the lender is in debt, the bank retains the legal rights to a property. The legal rights to the property are returned to the debtor, once the debt is paid off. If the debt defaults, then the bank may seize the property.

Bond: A bond is, essentially, a symbol of debt. If a bond is issued, then the issuer owes money, interest or Capital to the holder. The terms of bonds differ & will be described by each bond’s terms. A bond must be repaid by its maturity date, as defined in its terms. If either the interest is not met, or the principal not repaid by maturity, the bond defaults. Bonds are a way to trade debts between financial institutions.

Government securities: Government securities are bonds or another form of debt obligation issued by governments, with the promise to pay back by a given maturity date. They are considered low-risk investments because they are backed by taxes.

Liquidity: Liquidity refers to the ease with which an asset may be bought & sold. Money is the most liquid asset, due to its use in all forms of trade. The liquidity of a concrete asset – real estate, for example – refers to the ease with which it can be converted into money, coupled with a measure of value. For example, an asset with high liquidity can be easily sold & will lose an insignificant amount of its value.

Repurchase agreement: A repurchase agreement (repo) is an extremely short-term loan for traders in government securities. The dealer sells government securities to an investor, normally on an overnight basis, then buys them back the next day. This is done to raise short-term Capital.

Leveraging: Leveraging is the use of borrowed Capital or financial instruments to increase the return on an investment. Margin debt is an example of leveraging: a buyer arranges with a broker to borrow “on the margin”, allowing them to buy twice as much shares as their cash reserves would allow them. They buy $20,000 of shares, rather than $10,000. If the stocks go up 10%, the buyer makes $2,000, rather than $1,000.

Hedge fund: A hedge fund is an offshore investment fund. It pools Capital from a limited number of accredited individual or institutional investors & invests in a variety of assets.

Credit: Credit is an arrangement of deferred payment. Commodities may be bought, investments can be made, with the promise that payment will be made in the future.

2(a). The sub-prime mortgage crisis

Franklin D. Roosevelt issued Proclamation 2039 at 1am on Monday, 6 March 1933. It suspended all banking transfers, effective immediately. 2 days earlier, the New York Reserve Bank’s gold reserve had fallen below the legal limit. This was the start of the New Deal. (Robert Jabaily, ‘Bank Holiday of 1933’, Federal Reserve History, 22 November 2013.)

The aim of the New Deal is agreed upon, even by bourgeois historians. Its aim was ‘to save the banks and start money pumping once more through the nation’s arteries.’ (Piers Brendon, The Dark Valley (Vintage Books: New York, 2000), p.258.) A mechanism it used to do so should be very interesting to us. In 1938 the Federal National Mortgage Association – also known as Fannie Mae – was founded. The organisation was intended, essentially, to bail out the banks. By 1933 – 4 years after the start of the Great Depression – 13.3 of every 1,000 mortgages in the US were in foreclosure. A year later almost ½ of all outstanding urban home mortgages were delinquent [2]. (Chris Foote, ‘Mortgage relief in the Great Depression’, Federal Reserve Bank of Atlanta, 15 November 2010.) In 1932 US house prices fell by 10.5%. (‘Through the floor’, The Economist, 29 May 2008.) This left US banks with a lot of debt. Armed with $1bn Fannie Mae went out ‘to buy mortgages from lenders, freeing up capital that could go to other borrowers.’ (Kate Pickert, ‘A Brief History of Fannie Mae and Freddie Mac’, TIME, 14 July 2008.)

In the 2007-2008 financial year, US house prices fell 14.1% – the worst drop in recorded history. (The Economist.) By this point, Fannie Mae & its brother organisation – Freddie Mac – were both private companies, funded by stocks, loans & investment. Together, they held $5tr in mortgage debt. (Pickert.) The comparison I’m drawing here is 1 that the Revolutionary Communist Group drew at the beginning of the sub-prime mortgage crisis in 2007: ‘How far this will spread this time round we cannot know. It is easy to throw around comparisons with the stock market crash of 1929, the precursor to the great depression of the 1930s. But the similarities are striking’. (Steve Palmer, ‘As safe as houses’, Fight Racism! Fight Imperialism! 198, August/September 2007.)

To understand the sub-prime mortgage crisis we need to understand speculation. In Socialism: Utopian and Scientific (1883), Engels argues that speculation is an inherent tendency of the Capitalist mode of production. A Capitalist invests in the production of commodities without any consideration of their utility whatsoever – they produce for profit. In its most basic form, production for the market is a form of speculation:

‘We have seen that the capitalistic mode of production thrust its way into a society of commodity-producers, of individual producers, whose social bond was the exchange of their products. But every society based upon the production of commodities has this peculiarity: that the producers have lost control over their own social inter-relations. Each man produces for himself with such means of production as he may happen to have, and for such exchange as he may require to satisfy his remaining wants. No one knows how much of his particular article is coming on the market, nor how much of it will be wanted. No one knows whether his individual product will meet an actual demand, whether he will be able to make good his costs of production or even to sell his commodity at all. Anarchy reigns in socialized production.’

As with the tendency of Capital to monopoly, the essential characteristic of Capitalism as speculation has, under Imperialism, taken on a monstrous form. Between 2005 & 2007 credit expanded at an absurdly rapid rate. The US ‘money supply’ – the sum of the most liquid forms of money – grew by 12.6% over this period, the same rate as production. Between June 2005 & June 2006, ‘margin debt’ increased 67% on the New York Stock Exchange. All of this money was speculative: all of it was fictional. (Palmer.) The central tendencies underpinning the US economy over this period were its growing parasitism & its growing debt. In 1951 interests & dividends – money paid to Capitalists who take no part whatsoever in the productive process – stood at just over 27% of the total profits plus interest of US Capital. By 2001 it had swollen to 70% – ‘a colossal shift from capitalist industry to capitalist idleness and consumption’. (Palmer, ‘Capitalism on the rocks’, Fight Racism! Fight Imperialism! 199, October/November 2007.) The share of profits and interest coming from abroad increased over the same period – from around 10% in 1961, to over 46% (Q2, 2007). In 2002 US non-finance corporate net borrowing stood at $12.8bn. In Q2 of 2007 it stood at $625.9bn.

If you put all this together, the absurdity of Capitalism comes to the fore. These figures are the same as saying that the US stole nearly ½ of its economy from its Imperial territories, made up a dollar for every single commodity it produced & borrowed a billion dollars for every dollar it made up. It is gambling. It is insane. It is the subjugation of human life to a grotesque game of roulette. The sub-prime mortgage crisis was, however, when reality caught up with Capital.

Residential mortgages in the US grew enormously from the 1980s onwards. After reliable debtors faded away, banks turned to a new market – the poor, the risky, people who couldn’t afford houses. To do this, they developed the sub-prime mortgage. A sub-prime mortgage is initially sold with low interest rates, allowing the borrower to keep up with payments. However, after a defined period (2-5 years) the loan “resets”. A far higher interest comes into effect. At the time of the crisis, about ¼ of all mortgages in the US were sub-prime. (Palmer, Fight Racism! Fight Imperialism! 198.)

& let me tell you: it was a fucking party. In the decade from 1996 the consumer price index rose by 28% whilst the housing price index rose by 208% – raising the loans even higher. The lenders & bankers came up with a new way to sell the debt: securitisation. As soon as the loans were made, they were packaged up together & sold to investment bankers as Mortgage Backed Securities (MBS). In 2006 alone this made $2bn. This wasn’t enough – the MBS were hard to sell because the risk was uncertain. They sliced them up, sorted them up & gave them a new brand – Collateralised Debt Obligations (CDOs). The CDO trade grew from $25bn in Q1 of 2004 to $158bn in Q1 of 2007. They made billions & they thought they were secure – even if the debt was never paid, they could always take the houses.

The bubble popped, not from any pressure, but because it fucking insane in the 1st place. As the interest on loans began to rise, people started to default in their droves. In June 2007 164,444 foreclosures were issued, an increase of 87% on the previous year. House prices plummeted. (Ibid.) Over 2m people were made homeless. (Joe Rennison & Anna Nicolaou, ‘Riskier mortgage bonds are back — but don’t call them subprime’, Financial Times, 7 September 2015.) Investors were left with impossible debts or useless assets. The entire Imperialist world had entered its crisis.

2(b). Housing as a contradiction

2 central tendencies of Capitalism were in operation during the sub-prime mortgage crisis & its preparation. As I have already said, the 1st is that the Capitalist mode of production is, in & of itself, a form of speculation. The house, as a commodity, is nothing more than its exchange value in the arena of the market. Yes, there was corruption. Yes, sub-prime mortgages were gambling on an inordinate scale. This is nothing that Capitalism does not tend toward: it is a perfectly normal trend within its development to monopoly Capital.

To understand the 2nd tendency, we need to understand housing as a concrete object. Beyond this, we need to understand the conditions surrounding this question in the United States.

Housing is a human need. It has numerous functions: recreation, relaxation, storage etc. Those features which gain prominence for the working class under Capitalism are basic, fundamental & function: rest, eating & child rearing. The concrete, sensuous nature of housing under Capitalism is removed of most of its potentials. The home becomes a physical location for the worker to replenish their labour-power [3]. In the absence of secure or adequate housing, the home becomes an instrument of economic terrorism. This is described with terrifying clarity by Sylvia Pankhurst:

‘Close by, across the High Street, is a narrow doorway leading to a little alley in which is a row of cottages. “I thought these houses were condemned,” someone says to an old woman standing on the first doorstep. “Oh, no,” she answers eagerly, “they’re all right. Oh, mine is beautiful!” She is afraid that if her cottage were condemned she would never get another. She knows that again and again where slum property has been demolished, no provision has been made for the evicted tenants.’ (Sylvia Pankhurst, Housing and the Worker’s Revolution: Housing in Capitalist Britain and Bolshevik Russia, 1918.)

Housing, dulled to its most basic components, therefore becomes an emblem of the most basic need of workers under Capitalism: to return to work the next day. As we have already said, rent serves as a manner by which to extract further surplus-value from the worker. Therefore, both adequate & independent housing conditions are immensely desirable to the working-class from a concrete standpoint.

In 2005, the average rent in the US was $894, whilst the average wage was $46,242 per year. Even without considering these statistics are skewed toward a higher wage, this means that rent came to around 23% of income. In the same year, there was a vacancy rate for rental properties of just under 8% [4] – good quality, low rent properties would have been near impossible to find. Capitalism, through its impoverishment of the working class & the housing conditions it offers us, created a ready market for its speculation. Combining this with the growth in the US’ parasitism & the expansion of its labour aristocracy gives us the catalyst for the sub-prime mortgage crisis.

The crisis of profitability which defines Imperialist crisis was given its initial expression in the US by the explosive resolution of this contradiction.

3. Britain – the housing crisis

Rampant speculation is again at play today in Britain. Again, it concerns housing. In Part 1, Chapter 1 of the Housing Bill we see some evidence of this: “Starter Homes”. The present government is on a ‘national crusade to transform generation rent into generation buy’, by creating housing for sale a 20% below market value – £450,000 in London, £250,000 across the rest of the country. This is called affordable housing & it is unaffordable across 98% of the country for people on low incomes & across 58% of the country for those on middle incomes. (Simon Elmer, ‘Blitzkrieg! sink estates and starter homes’, Fight Racism! Fight Imperialism! 249, 24 February 2016.) This is speculation. An example a little closer to home for me is the building of student properties in Newcastle. There are around 29,000 students living in the city centre, compared with around 55,000 student only properties. By contrast, Newcastle City council has produced an estimated 102 council homes per year – 38.3% below its own targets [5].

The transformation of the property market today in Britain is 1 of a rapidly shrinking social housing stock, a rapidly expanding private rented sector & a slow decline in owner-occupied properties. In 2003 owner-occupied properties hit their historic peak, at just under 70% of the total housing stock. In 2013 this had fallen to just over 60%. Social housing stock has dramatically declined since its peak in 1973 (around 25% of all housing stock) as a result of the right to buy policy, a lack of construction etc & in 2013 accounted for around 19% of all housing stock in Britain. (James Pickford, ‘Is stamp duty switch a final straw for the buy-to-let sector?’, FT Money, 23 January 2016.) In 1979 over 40% of the population lived in council housing. By 2014 this had fallen by nearly ¾s to 12% of the population. Between 1980 and 1996 2.2m homes were sold off. (Jane Bennett, ‘Housing crisis – Social housing not social cleansing’, Fight Racism! Fight Imperialism! 238, April/May 2014.) The right to buy, the growth of buy-to-let mortgages, the expansion of investment into the private rented sector by housing associations, defaults & foreclosures on dodgy mortgages – all this has combined to create an enormous expansion in the privately rented sector. In 1993 privately rented accommodation accounted for less than 10% of all housing stock in Britain. Now, it is around 20%. (Pickford.)

Between 2010 & 2013 the private rented sector grew by 86%. Over the same period, rents increased 33% in London. There was a 4.3% nationwide rent increase between 2012 & 2013. As a consequence, landlord evictions increased by 70%. Conditions in these houses are appalling: in 2013 42% of tenants lived in sub-standard accomodation. Overcrowding abounds – in 2013 2m households in Britain had 1 less bedroom than they needed. Health care to treat illnesses caused by poor housing conditions costs an average of about £7bn per year. (Barnaby Mitchel, ‘Housing crisis deepens’, Fight Racism! Fight Imperialism! 231, February/March 2013.) This is how the housing crisis presents itself to the working class. With no hope of buying a house & little chance of securing council housing, the working class are being forced into slum conditions at rents they cannot afford. Desperation, squalor & fear colour every estate.

94% of private landlords own less than 5 properties. (Pickford.) This means that the class composition of landlords belong, not to the bourgeoisie, but to the petty bourgeoisie. At the beginning of 2013 & the beginning of 2014, buy-to-let mortgages made up 10% of mortgages in Britain. (David Yaffe, ‘British capitalism: a recovery built on sand’, Fight Racism! Fight Imperialism! 235, October/November 2013.) These mortgages are, by & large, taken out by small landlords to build up their portfolios. The problem as it presents itself to this class of landlords is simple: they must extract enough profit from their tenants to pay back their loans, whilst retaining some profit for themselves. With the removal of higher-rate mortgage tax relief by up to 45% by 2017 & an increase in mortgage rates by 2% (Pickford), there is 1 option for small landlords: cut back on costs & raise the rent. The housing crisis is a form of the crisis of profitability & the message of the banks to these landlords: “You are not making us enough profit.” This has clear limits: when the tenants can’t afford the rent, the mortgages will default. This is how the housing crisis presents itself to the petty bourgeois landlords.

At the top, speculation & insanity reign. The Funding for Lending scheme, introduced in August 2012, allows bankers & investors quick access to cheap cash. With huge amounts of liquid assets, the housing market has quickly formed itself into a bubble. Mortgage lending stood at £16.6bn in 2013, a 29% increase on the previous year & higher than the rate in October 2008. (Yaffe.) In the 1st ½ of 2015 investment into student housing soared to £3.98bn – compared to £2.35bn for the whole of 2014. (‘UK student property investment growing, latest figures show‘, Property Wire, 13 July 2015.) Housing associations have begun to form themselves into new monopoly landlords. There are 1,700 housing associations in Britain with £40bn of grants, a leverage of £60bn in private finance & a surplus of £15bn. (Nick Temple, ‘Housing associations: the sleeping giant of social enterprise growth’, The Guardian, 3 April 2013.) As an example of what these companies do: London & Quadrant (L&Q) have joined with the Greater London Authority to build a town the six of Windsor over a former power station. The total investment amounts to £263m, £70m of which will be provided by L&Q. Not a single council house will be built. This is entirely private investment. It is funded by £250m of bond debt. (Mark Lawrence, ‘Mayor joins with housing association to deliver 11,000 homes’,, 11 March 2016.)

Housing prices artificially inflate because of the amount of investment being pumped into them. There is no material basis to this money. It is speculation on a grotesque scale. The housing crisis is, to the bourgeoisie, simply another round of debt fuelled speculation. Fun & games until the bubble pops, but it will pop.

4. The crisis of profitability

Palmer, in his 2nd article (‘Capitalism on the rocks’) on the sub-prime crisis in Fight Racism! Fight Imperialism!, is correct to make the following observation: the expansion of credit ‘keeps capitalism afloat’ & this resulted in the mortgage crisis of 2007-2008.  The mortgage crisis is a symptom of how Imperialism & Capitalism fall into crisis – it was and expression of the problem, not the problem itself. The structural crisis of Capitalism is the crisis of profitability. The same may be said of the housing crisis in Britain today: it is a symptom of a structural crisis of Capitalism.

[1] Total fixed investment refers to investment in physical assets over a measured period, that are held for over a year.

[2] Delinquent means a failure to accomplish what is required by law or duty. Here, it refers to a failure to pay back a mortgage.

[3] This not to ignore the specific, oppressive characteristics that the home gathers in regards to women workers. Unfortunately, due to space, this question cannot be treated here.

[4] Statistics are calculated from here and here.

[5] 55,000 student properties in Newcastle statistic given by a letting agency. Number of students in the city taken from the latest ‘economically inactive’ statistics. Estimate of council houses by myself & Anna Clough, based on this & this.


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