Right to the City

As the three or four "dedicated" followers of this blog will know, I have recently been reading David Harvey's book Limits to Capital. This book is a remarkable exposition of capitalist economics and frighteningly relevant nearly 28 years after it was written.

So far the greatest personal benefit I have received from reading this book are a greater understanding of two extremely confusing issues that are particularly relevant given the time/place in which I live. (Vancouver - 2010)

These are;

1. Rising real estate prices in Vancouver
2. The nature and cause of the "Financial Crisis"

The price of real estate in Vancouver, both rental stock and for purchase, is absurd. A point frustrating demonstrated by this article talking about the glorious new 270 square feet condo's. Estimated monthly rent $750 dollars.

To put it another way, the average assessed value for a single family detached home in Metro Vancouver is approximately $600,000. Based on CMHC standard metrics of affordability, servicing a mortgage of this size would require an annual income of approximately $104,400 dollars a year. With median family income in Vancouver hovering around $60,000, it seems clear, no matter how you slice it there is a real estate affordability crisis in Vancouver.

This problem is not unique to Vancouver and has been replicated across the globe in most major cities, with real estate, and particularly urban real estate becoming increasingly unaffordable to the vast majority of people.

The question of course is why is this happening?

The short answer to this question is that the price of real estate in Vancouver is unrealistically high, due to the investment of surplus capital into real estate through the full incorporation of the use value of land into the financial system as a form of fictitious capital.

The next question is of course, what does this mean?

Capitalism, operates on the principle of growth. Throughout the history of capitalism economic growth has averaged around 3% a year (war/recessions aside). The importance of maintaining economic growth can be clearly seen in the global reaction to the current economic crisis/recession. Low or zero growth in the economy is clearly a problem for capitalism. However, this eternal, everexpanding growth creates a problem. As the economy becomes ever larger it is increasingly difficult to find profitable outlays or methods to achieve continued; growth, profit, and surplus generation.

When capitalism was a relatively new phenomenon, this problem was easily remedied by expansion into new markets. Growth and returns on investment could easily be achieved through expansion into new untapped markets where capitalism did not previously exist. However, with the almost complete permeation of capitalist production processes over the entire globe this solution is no longer readily available.

While new markets, are created all the time though; need generation, privatization of previously publicly held goods, and expansion of internal markets this does not have the same effect that the collonization of North America, or recent expansion of capitalism into China has had. In this sense, capital must at all times find new forms of investments that promise a reliable return, and continued economic growth.

This is where real-estate comes back into the picture. Real estate provides a solution (temporary) to this problem, especially when it is incorporated into the financial system through expanded credit.

Easy access to credit allows new houses to to be built, interest payments to flow to banks, and when combined with other factors, the expansion of demand for real-estate. With this expanded demand, constructing houses continues to be a profitable venture, even if the price is unfordable to the average person under "normal" credit relationships.

The second aspect of this, is the treatment of real-estate as a purely financial asset. People invest in real-estate as an investment to achieve a return. This furthers demand for new houses, as rich people, banks (through mortgages), and even the City of Vancouver will purchase multiple houses as a seemingly safe and lucrative investment.

The problem with this, is the self-perpetuating ponzzi like character of real-estate markets. As more people invest in real-estate, prices go up, this leads to more people investing, and ever increasing prices until the whole thing comes crashing down. Through this process, real-estate prices move away from their actual value. With prices no longer reflecting their overall usefulness to society, and instead representing what is needed for the continued generation of economic growth/profits. A large part of the current financial crisis is a correction taking place in previously inflated real-estate markets.

This has disastrous social consequences. Ever rising prices, push poor people out of the urban environment, and the city becomes a domain for the rich. Public space is increasingly cannibalized, sacrificed to condo developers eager to make a return on real-estate development.

This problem is a remarkably transparent, especially in Vancouver, I hope to expand on this later, but last night I spent some time in Gastown. The new Woodwards building has recently been completed and it is truly a remarkable development. However, despite this and "social" housing contained in the development, the long and short of it is that around 60 million dollars of profit was made from the direct, and violent, dispossession of homes from the previous residents (squatters), the poorest of the poor.

So in conclusion, real-estate prices in Vancouver are increasingly detached from their real societal value, with a ponzzi like investment market, and expanded credit facilitating expanded demand and increasingly higher prices, with horrible social results.

Inevitably there will be a correction. Personally, I think this correction is a fair way off for Vancouver, the desirability/livability of our region, the recent enormous improvements in fixed capital being invested by the provincial government (Canada Line, Gateway Project, Sea to Sky Upgrades), and yes the Olympics (although that is primarily related to the previous point) would seen to place Vancouver as an ideal place for continued surplus investment. However, significant changes to the world economic climate could change this quite quickly.

Thanks for reading this. Writing it was remarkably difficult and there are so many issues that I would need to expand further in order to truly do this issue justice. Hopefully I can expand on it in the future. Here are a few of the ideas I should have discussed.

1. How the credit system operates, and the role it plays in capital circulation
2. Real-estate as a form of fictitious capital
3. The Ideology of home ownership and the pressure it creates on individuals
4. Expanded social consequences of rising real-estate prices.

If you want to know more, read this article which I borrowed heavily from and is better than mine.

http://www.reclaiming-spaces.org/crisis/archives/245