These four charts show why you should worry about rising house prices and inequality

LOL, no chance. Image: Getty.

When we want to measure the economic activity of a country, we tend to reach for the gross domestic product, or GDP. This may be an imperfect measure, but it does allow us to track where the money comes from for every item bought and sold. It tells us whether we worked to earn it through wages, or whether it came from capital income – including stock dividends, rents and capital gains on assets such as housing. The Conversation

When it comes to the US, economists became used to the idea that the share of GDP attributable to labour income fluctuated around 60 per cent while the remaining 40 per cent was capital income.

Then came Thomas Piketty. His 2014 book, Capital in the 21st century explained that the labour share has actually been more unstable over the past century than commonly assumed.

Piketty’s data also showed that the capital share has increased quite significantly at the expense of the labour share over the past three decades. Both in the US and in the UK, for example, the labour share declined from about 70 per cent in the 1970s to about 60 per cent in recent years. This was seized upon as it helps to explain the recent increase in wealth inequality. A large majority of the population gets most of their income almost exclusively in the form of wages. Only a few lucky ones own enough financial assets such as real estate and stocks to earn the equivalent of an annual wage.

More than 80 per cent of the stock market’s value in the US is held by the top 10 per cent. With an average interest rate of 5 per cent, $1m in stocks are needed to get a return of $50,000, which is close to the median household income. The person who can make a living from his capital income is certainly no average Joe.

Capital gains

A look at four charts helps to show why this matters, and the impact it can have on those without the means to live on income from capital assets.

Image: Erik Bengtsson and Daniel Waldenström/author provided.

The chart above shows the average capital share for 17 advanced economies from 1875 to 2012. This new dataset, based on work by Erik Bengtsson and Daniel Waldenström, includes more countries than Piketty’s original analysis. The figure confirms the same inverted U-shaped pattern, with high values for the capital share at the beginning and at end of the 20th century, that Piketty found for some major economies such as the US and the UK.

He argued that three major global shocks, the two world wars and the Great Depression, led to a large reduction in wealth around the world. This destruction of capital can also explain the very low capital share in the post World War II period. The recent increase might thus simply represent a reversion towards a value that is more in line with the historic long-run average.

So why is this important for workers? Well, the next chart shows the net capital share in the US from 1929 until 2012.

Image: Erik Bengtsson and Daniel Waldenström/author provided.

Some economists argue that the net share is more relevant than the gross share if one is concerned about inequality. The net share excludes depreciation, the gradual decline in the value of physical capital such as machinery, which is normally included in the GDP figures – even though it is not an income stream to anybody. The data clearly shows the recent increase in the net capital share from a low of 22 per cent in the early 1980s to a high of 30 per cent in 2010. This means that an additional 8 per cent of net national income now takes the form of capital income instead of wages.


So, why is it important if capital takes a larger slice of the pie? If the economy is still growing, surely everybody must win? Well, not quite. The answer is, of course, that capital ownership is highly concentrated. The increase in the capital share effectively means that capital incomes have grown at a faster pace than wages. This leads to a more unequal society since most of the stock market and even a significant portion of real estate is owned by a wealthy few. The more money invested in assets such as property and stocks, the less available to pay workers and boost productivity.

This can work out as a significant hit to the average worker. Net national income in the US was about $48,700 per person in 2015. Had the net capital share remained at the low value of 22 per cent, an additional $3,900 per person would flow in the form of wages instead of capital income. This translates to an additional $10,000 per employed person, certainly a sizeable amount of money.

The importance of real estate

Some researchers, including Piketty, point out that the recent increase in the capital share is related to the rising values of real estate. The next chart shows the average value of real house prices, adjusted for inflation, for the same 17 economies from 1870 until today.

Image: Jorda/Schularick and Taylor/author provided.

House prices stayed fairly constant for almost a century after 1870. However, over the past 50 years real house prices have more than tripled. In some countries such as Australia, they have even increased by a factor of ten over the same time period. Furthermore, these are just national averages. Big cities, including New York, London, and Stockholm, have experienced even larger increases in the value of real estate.

The following chart describes the impact of that and compares the median net worth of families in the US who are home owners with those who are renters. The gap widened significantly during the years of the housing boom. The net worth of home owners exceeded those of renters by a factor of about 46 in 2007. House prices have recovered from the bust in 2008 and are now as high as before the crisis.

Image: Federal Reserve/author provided.

This is a challenge chock full of concerns for policy makers – especially those politicians hoping to win the votes of home owners. But rising house prices, especially in big cities, and the rise of the capital share are both trends which decisively favour asset owners over workers and which slowly chisel out a crevice between the two. Inequality could well increase much further without adequate responses from national governments. These charts should be a simple way of explaining just why things such as subsidies for housing construction in high-demand areas, easing of zoning laws, and higher taxes on capital income should be put on the table by anyone serious about reducing inequality.

Julius Probst is a Phd candidate in economic history at Lund University.

This article was originally published on The Conversation, and was co-published with the World Economic Forum. Read the original article.

 
 
 
 

In South Africa's cities, evictions are happening despite a national ban

An aerial view shows a destroyed house in Lawley, south of Johannesburg, on April 20, 2020. The city has been demolishing informal structures on vacant land despite a moratorium on evictions. (Marco Longari/AFP via Getty Images)

On the morning of 15 July, a South African High Court judge ruled that the city of Cape Town’s Anti-Land Invasion Unit had illegally evicted a man when it destroyed the shack where he was living.

That afternoon, the Anti-Land Invasion Unit was out again, removing shacks in another informal settlement.

Evictions were banned in South Africa for nine weeks, after the national government placed the country under a strict Covid-19 lockdown in late March. At present, eviction orders are automatically suspended until the country moves to a lower “alert level” and can only be carried out with a special order from a judge.

Yet major cities including Cape Town, Johannesburg and eThekwini (created through the merger of Durban with several surrounding communities), have continued to use municipal law enforcement agencies and private security companies to remove people from informal housing. In many cases those operations have been conducted without a court order – something required under regular South African law.

Around 900 people were evicted from three informal settlements in eThekwini during the eviction ban, according to the Church Land Programme, a local NGO. Its director, Graham Philpott, says it’s also aware of evictions in other informal settlements.

While evictions aren’t a “new experience” in these communities, the NGO released a report on lockdown evictions because they were “so explicitly illegal”. “There was a moratorium in place,” Philpott says, “and the local municipality acted quite flagrantly against it. There’s no confusion, there’s no doubt whatsoever, it is illegal. But it is part of a trend where the eThekwini municipality has acted illegally in evicting the poor from informal settlements.”

Evictions also took place in Cape Town and Johannesburg during so-called “hard lockdown” according to local activists. In eThekwini and other municipalities, the evictions have continued despite restrictions. In Cape Town, authorities pulled a naked man, Bulelani Qholani, from his shack. That incident, which was captured on video, drew condemnation from the national government and four members of the Anti-Land Invasion unit were suspended. 


The cities say they’re fighting “land invasions” – illegal occupations without permission from the land owner.

“Land invasions derail housing and service projects, lead to the pollution of waterways, severely prejudice deserving housing beneficiaries and cause property owners to lose their investments over night,” Cape Town’s executive mayor, Dan Plato said in a statement. (Plato has also claimed that Qholani did not live in the shack he was pulled from and that he disrobed when municipal authorities arrived.)

South African municipalities often claim that the shacks they destroy are unoccupied. 

If they were occupied, says Msawakhe Mayisela, a spokesman for the eThekwini municipality, the city would get a court order before conducting an eviction. “Everything we’re doing is within the ambit of the law,” Mayisela says. But “rogue elements” are taking advantage of Covid-19, he added.

“We fully understand that people are desperately in need of land, but the number of people that are flocking to the cities is too much, the city won’t be able to provide housing or accommodation for everyone overnight,” he says. 

While eThekwini claims to be a caring city, local activists say the evictions show otherwise.

In one case, 29 women were evicted from shacks during the hard lockdown. With nowhere to go, they slept in an open field and were arrested by the South African Police Service for violating the lockdown, Philpott says.

“These evictions are dehumanizing people whose dignity is already compromised in many ways,” says S’bu Zikode, the president of Abahlali baseMjondolo, a community organization whose Zulu name translates to “the people of the shacks”. 

“It has reminded us that we are the people that do not count in our society.”

Municipal law enforcement and private security contractors hired by cities regularly fire rubber bullets, or even live ammunition, at residents during evictions. Some 18 Abahlali baseMjondolo activists have been killed since the organization was founded in 2005, Zikode says, most by the eThekwini Land Invasion Unit and Metro Police.

(Mayisela says that if city employees have broken the law, Abahlali baseMjondolo can file a complaint with the police. “There is no conclusive evidence to the effect that our members have killed them,”  he says.)

Other Abahlali baseMjondolo activists have been killed by what Zikode calls “izinkabi,” hitmen hired by politicians. Two eThekwini city councillors were sentenced to life in prison 2016 after they organized the killing of Thuli Ndlovu, an Abahlali baseMjondolo organizer. A member of the Land Invasion Unit who is currently facing a charge of attempted murder after severely injuring a person during an eviction remains on the job, Zikode says.

South Africa’s 1996 constitution is intended to protect the public from arbitrary state violence and guarantees a right to housing, as well as due process in evictions. But for Zikode, the South African constitution is a “beautiful document on a shelf”.

“For the working class and the poor, it’s still difficult to have access to court. You’ve got to have money to get to court,” he says. 

The actions by municipal law enforcement are breaking down social trust, says Buhle Booi, a member of the Khayelitsha Community Action Network, a community group in the largest township in Cape Town.

“There’s a lack of police resources and those very few police resources that they have, they use to destroy people’s homes, to destroy people’s peace, rather than fighting crime, real criminal elements that we see in our society,” Booi says.

For him, it’s a continuation of the practices of the colonial and apartheid governments, pushing poor people, most of whom are Black, to the periphery of cities.

Around one-fifth of South Africa’s urban population live in shacks or informal dwellings, according to a 2018 report by SERI. Many more live in substandard housing. City governments maintain that the shacks destroyed during anti-land invasion operations are unfinished and unoccupied. But Edward Molopi, a research and advocacy officer at SERI, says that this claim is an attempt to escape their legal obligations to get a court order and to find alternative accommodation for affected people. 

The roots of the current eviction crisis go back to apartheid, which barred non-white people from living in cities. Between the 1940s and 1970s, tens of thousands of people were forcibly relocated from neighbourhoods like Johannesburg’s Sophiatown and Cape Town’s District Six to remote townships.

In the 26 years following the end of apartheid, deepening economic inequality and rampant unemployment have limited access to formal housing for millions of South Africans. Government housing programs have mostly focused on building small stand-alone homes, often on the peripheries of cities far from jobs and amenities.

While these well-intentioned projects have built millions of homes, they’ve failed to keep up with demand, says Marie Huchzermeyer, a professor at the Centre for Urbanism & Built Environment Studies at the University of the Witwatersrand in Johannesburg. Government-funded housing projects “will never on it’s own be enough,” she says. “It has to be accompanied by land release.”

Government policies call for the “upgrading” of informal settlements and the formalization of residents’ occupation. But “there are still very, very, very few projects” of that nature in South Africa, Huchzermeyer says. “Even if it’s an informal settlement that’s been around for 20 years, there still seems to be a political wish to punish people for having done that.” The government wants people to go through the formal process of being given a house, she says – and for them to be thankful to the government for providing it.

At the municipal level, change will require “real leadership around informal settlement upgrading and around ensuring that land is available for people to occupy,” she says. 

Despite the end of enforced racial segregation, spacial apartheid remains a factor in South Africa. There are few mixed-income neighbourhoods. Those who can afford to often live behind walls in sprawling low-density suburbs, while the poor live in overcrowded slums and apartment buildings.

The creation of the apartheid city “didn't happen by chance,” says Amira Osman, a professor of architecture at the Tshwane University of Technology. “It was a deliberate, structured approach to the design of the city. We need a deliberate, structured approach that will undo that.”

Since last fall, Johannesburg’s Inclusionary Housing Policy has required developments of 20 or more units to set aside 30% of those units for low-income housing.

The policy, which faced significant opposition from private developers, won’t lead to dramatic change, says Sarah Charlton, a professor at the Centre for Urbanism and Built Environment Studies, but it is “an important and significant step.”

Zikode isn’t optimistic that change will come for shack dwellers, however.

“People in the high positions of authority pretend that everything is normal,” he says. “They pretend that everyone is treated justly, they pretend that everyone has homes with running water, that everyone has a piece of land – and hide the truth and the lies of our democracy.”

Jacob Serebrin is a freelance journalist currently based in Johannesburg. Follow him on Twitter.