I’m back to reading a book called Manhattan For Rent, 1785-1850, by Elizabeth Blackmar. I overheard intellectual greats Peter Kinder and Joy Anderson discussing their favorite books at a conference a year ago and made notes. This book helps shed important light on gentrification. “Far from fulfilling the egalitarian potential of abundant land distributed to independent proprietors, the neutral market had carried a new class dynamic into the process of residential neighborhood formation, and it persisted throughout the rest of the century. This dynamic rested on three conditions: the artificial scarcity created by concentrated ownership of vast stretches of vacant land; the structure of the competitive housing market and particularly the purchasing power that permitted elite New Yorkers to claim particular blocks for their exclusive use; and the diminishing power of mechanic families to acquire property –in other words, the power of property to reduce the value of labor.” … “Propertied New Yorkers’ control of the land supply and ability to determine effective demand raised the price of proprietary independence for the city’s artisans.” like us still today, they “seldom directly confronted the question of what these housing issues had to do with the larger structures of social power.” And instead, over time, we’ve made poverty synonymous with immorality and thus conveniently and circularly deserved.
This first section really got me thinking about land and capital. I really don’t believe in classic supply and demand and “fair” pricing – there’s just too much friction. The first concrete example I found prior to this book was apartment pricing – when the market is overbuilt, rents don’t go down in clean response to the market, because it turns out the rent pricing is built into the financing when the building is built. Instead, owners offer “concessions” like free services or discounted move in costs. With both land and capital, there’s not the same supplier pressure to negotiate as there is with a product that can lose value like technology, fashion, food or events, all of which have a time-value. People talk about the “time value of money” and certainly inflation creates some pressure, but once you have an excess of capital (or land) beyond that which you need to live, you have a negotiating power that can alter the market rather than merely participate in it. That’s what was happening on Manhattan in around 1800, that landowners who controlled vast stretches of usable land, sat on it while prices drove up on what land was available in the marketplace, and then parceled it out at high prices. I also see a dynamic of a dysfunctional market because of capital that doesn’t “need to work” in angel investing.
I got busy with school, but I picked the book back up again recently, and hit the phrase where she refers to the shift of land being allowed to circulate as capital. It seems like this is a key to gentrification – that government became funded by property taxes and thus property owners gained greater say in government, and then amenities like water, sewer & parks became funded via property taxes, so they would only be put in if a corresponding increase in property values justified their cost. The book talks about a period of park establishment, and how landowners in low-rent neighborhoods resisted creation of a park because it would have required taking some of their property, and they didn’t think they could raise rents enough to justify it. Where they could raise rents, the poor were left with nowhere to go.
It makes me think about Hernando De Soto and his book (The Mystery of Capital) on how lack of clear land titling prevents folks in Latin America from building fortunes because they can’t effectively use land as capital. He advocates for fixing that, and many people (both right & left) think he’s a genius. But it suddenly strikes me as the perfect example of how a few will gain significantly financially – those who establish clear titles and take control, at the expense of the current proprietors & residents (who will be recategorized as squatters or forced to pay new rents). I wonder if there’s a “homelessness” problem in Peru – one of the countries Hernando De Soto talks about. Contrast that lack of clear title and people setting up shops & homes where they can, with privatized public space like 2200 Westlake (not that I have a particular issue with them, but it was recently built and is close to me). I suppose there would be (and have been) homes and small businesses in odd lots in Seattle if we were not now doing regular shakedowns of this clearly titled property in the name of its owner “The Public”.
In the first paragraph where I quote from the book, there was one more point that I’ve been chewing on, and that is the point that property owners could keep renting proprietors from making the leap to being owners themselves by keeping rents sufficiently high. Sometimes there’s market pressure to compete on rents, but the overall goal to maximize return leads most property owners to effectively work together because keeping the property market tight benefits both eventual sellers and current landlords. So as long as there’s no pressure to make land be economically productive, very wealthy owners can continue to hoard it as a resource, benefiting property owners as a class at the expense of non-property owners as a class. My next thought, is that market pressure to compete comes from a hungry rising class, which is disappearing in our hourglass economy and thus making it easier for the wealthy segments to use capital as negotiating power and not need to compete.
Shaulablog 