Monopoly rent, residential differentiation and the second global crisis of capitalism — The case of Melbourne

Monopoly Rent, Residential Differentiation and the Second Global Crisis of Capitalism -

The Case of Melbourne

Ross KING

School of Environmental P~a~~~, The ~nive~~it~ of ~e~~o~~e, Pa~kvi~ie, Victoria, Australia 3052

prosrUs in Planning. Vol. 28, pp. 19S298, 1987 Printed in Great Britain. Ail rights reserved.

Contents

A~Wledgt?IItelltS

Abetract

1. Iatmhwtioa -The Question of Housing Crises

0305-m smo+ 50 Copyright @ 1987 Pergamon Journals Ltd.

2. Investment, Residential Differentiation sod Class - Some Tbeomtkal Issues 2.1. Circuits of Capital, and Investment in Housing 2.2. Housing Investment, Ground Rent and Residential Diflerentiation 2.3. Class Structuration and Residential Differentiation 2.4. A Discussion - The Question of Housing Crises Reconsidered

3. Circuits of Capital and Investment in Housing - Melbourne, 1920s to 1980s 214 3.1. A Statistical Overview 214 3.2. Housing Investment in the First Global Crisis - 1920s to 1932 217 3.3. The Switching Crises - 1932 to 1952 219

3.3.1. World War II and switching crisis I 219 3.3.2. The failure of planning 219 3.3.3. Switching crises II and III 220

3.4. The Long Progress - 1950s and 1960s 221 3.4.X. Towards a home-owning democracy 221 3.4.2. Rental housing - devaluation, disinvestment, reinvestment 223

3.5. The Coming of the Second GIobal Crisis - 1969 to 1973 224 3.5.1. Over-accumulation, investment and speculation 224 3.5.2. Housing investment and housing speculation 225

3.6. Global Crisis and Housing Crisis - 1970s and 1980s 226 3.6.1. From recession to jobless growth 226 3.6.2. Housing devaluation 227 3.63. Housing crisis - (I) aflorakbility 228 3.6.4. Housing crisis - (2) disinvestment 229

3.7. A Discussion - Housing Revaluation and Devaluation 230 3.7.1. The role of consumer behaviour 230 3.7.2. The question of absolute rent 231

Notes: Chapter 3 232

197

201

202

203

206 208 210 212

198 Progress in Planning

4. Class Structuration - Melbourne, 1920s to 1980s 4.1. Social Class and the Division of Labour

4.1. I. Industrialisation and de-industrialisation 4. I. 2. Bourgeois eclipse, professional hegemony?

4.2. Ethnicity and Social Mobility 4.2.1. The material progress of the migrants 4.2.2. Reproduction, mobility and crisis

4.3. Household Structure and the Distribution of Income 4.4. A Discussion - Structuring Housing Submarkets and Opportunities for

Investment Notes: Chapter 4

5. Residential Differentiation and the Production of Submarkets 5. I. Residential Differentiation to 1947 5.2. Residential Differentiation in the Long Boom

5.2.1. The bourgeoisie, the professionals and the working class 5.2.2. The immigrants and the inner suburbs 5.2.3. Theflats boom 5.2.4. The role of the Housing Commission Victoria 5.2.5. Market changes in the 1950s and 1960s

5.3. Residential Differentiation in the Second Global Crisis 5.3. I. The professionals - colonisation and concentration 5.3.2. The working class, the immigrants and suburbanisation 5.3.3. The special case of the new migrants 5.3.4. The passing of the flats boom 5.3.5. The land boom

5.4. Submarkets and Market Change in the Second Global Crisis 5.4. I. Differential house price changes 5.4.2. Dtfferential flat price changes 5.4.3. Explaining differential price changes - (I) the shifts in

consumer preferences 5.4.4. Explaining dtfferential price changes - (2) the production

of differences Notes: Chapter 5

6. Residential Differentiation, Submarkets and Cumulative Change 265 6.1. Market Segregation in the Second Global Crisis 265

6.1.1. Shtfts in the affordability of housing 265 6.1.2. Alternatives 267 6.1.3. The Housing Commission Victoria as final solution 269 6.1.4. Housing crisis - (3) segregation 271

6.2. Housing Submarkets and the Redistribution of Wealth 272 6.2.1. Tenure, tax and capital gains 272 6.2.2. Housing crisis - (4) redistribution 273

Notes: Chapter 6 275

234 234 234 236 238 238 239 239

240 243

244 244 245 245 247 248 249 250 251 251 255 256 257 257 258 258 260 260

262

264

7. conclasions, Assertions 7.1. The 1980s and the Question of Housing Crisis 7.2. Global Crisis and Housing Crisis 7.3. Housing Crisis as Barrier 7.4. Resolutions 7.5. Finally . . .

Appendix A. Estimating Annual Changes io House Prices 282

Appendix B. Estimating the Affordability of the Dwelling Stock 288

Appeodix C. Estimating Housing-Related Costs and Retmu

Monopoly Rent 199

276 276 277 278 279 280

290

Bibliography 297

Acknowledgements

Various components of this research were supported by the Reserve Bank of Australia, the National Energy Research Development and Demonstration Council, and the University of Melbourne. Special thanks are due to the indefatigable research assistance of Anne Henderson, especially in much of the data collection and management, and to Morag Vandetzee’s wordprocessing of seemingly endless drafts of the text.

201

Abstract

Investment in housing in Melbourne from the 1930s to the 1980s is explored with reference to David Harvey’s ‘circuits of capital’ hypothesis. It is concluded that major shifts in investment relate to various forms of ‘switching crisis’ in the broader economy, that shifts in ground rent analogous with the Marxian concept of absolute rent have been crucial in rewarding investment switched into the housing sector, but that the previous mechanisms collapsed after 1973. Since then, investment has had a greatly increased dependence on the uneven development of spatially differentiated housing submarkets (therefore on urban planning), and on differential shifts in house prices analogous with the Marxian monopoly rent. The housing crisis of the 1980s is accordingly to be seen as a local effect of the ‘second global crisis of capitalism’, magnifying contradictions underlying that crisis, and compounding it.

202

CHAPTER 1

Introduction - The Question of Housing Crises

By the early 1970s the Australian cities might have attested to some beneficence in private enterprise and public policy. The major cities, for instance, had approximately doubled in population over the 25 years following World War II (Sydney from 1,484,OOO to 2807,800 between the 1947 and 1971 censuses, Melbourne from 1,226,400 to 2,503,500), but the occupied private dwelling stock had expanded by an extra third again (Sydney’s from 370,500 to 845,700, Melbourne’s from 3 10,900 to 73 1,700). Virtually full employment had been maintained (indeed, unemployment was only 1.4 percent in Sydney and 1.6 percent in Melbourne in 1971), real wages had risen (by 97 percent relative to consumer prices generally, between 1947 and 1971), and their rise had enabled the increasing diffusion of home ownership - from 40 percent to 66 percent of households in Sydney between 1947 and 1971, and from 46 percent to 70 percent in Melbourne. More significantly, by the 1970s some 90 percent of households with married heads (i.e. couples, families) had achieved owner occupancy by the time the head was in his 40s.

Certainly there were agonisings in public debate and academic publication over the plight of the small proportion of households still excluded from owner occupancy, the financial penalties thereby thrust upon them, and the conditions they faced in both the public and the private rental sectors. However, one might reasonably have expected it to be only a matter of time before their situation too would be benefited by the general advance. To the more optimistic it might also have seemed merely a matter of time before gross spatial inequalities in public transport arrangements, schools and other education services, job opportunities, local environmental conditions, etc., would also be corrected through enlightened public policy and well guided private investment. Indeed, impatience for such distributive equity and belief in its possibility partly underlay the early support for the 1972-75 Whitlam Labor Government with its mildly reformist welfare and urban programs.

By the early 1980s however no such comfortable illusions were possible. In 1972 and 1973 house prices boomed in Sydney, and they did so in Melbourne in 1973 and 1974. Nominal interest rates on housing loans rose to historically high levels during the early 1970s and remained high. Accordingly, as we shall observe following, the affordability of the dwelling stock was seriously eroded, and access to owner occupancy became increasingly dependent on a household’s having two incomes. House prices generally

fell relative to overall inflation in the late 1970s and early 198Os, however the previous pattern of affordability did not return. The onset of high and persisting unemployment

203


in the late 197Os, affecting some 10.7 percent of the national workforce by February 1982 (9.2 percent of Melbourne’s), added yet further constraints. Although the overall level of owner occupancy in the major cities scarcely declined between the 1971 and 1981 censuses, its distribution began to change significantly. The urban reforms of the Whitlam Government were being wound back even before its dismissal in November 1975, and were largely dismantled by the 1975-83 Fraser Government - a coalition of the conservative Liberal and National Parties - that followed it.

Nor were goals of urban reform reinstated when Labor returned to national government in March 1983. Indeed the intellectuals’ cries for the reform of urban inequalities, expectantly strident in the early 197Os, were by the 1980s quite muted; instead, the spatial inequalities seemed increasingly to be assumed as normal, and competition for the most advantageous housing locations in the cities to have intensified correspondingly. The better endowed suburbs were increasingly occupied by the expanding ranks of the professionals, managers and other ‘middle-class’ groups, while relatively disadvantaged groups - including households on a single, low wage and the (also expanding) unemployed - were increasingly relegated to the least convenient locations. The social polarisations in the urban community were becoming more apparent, and reflected in - and reinforced by - new spatial polarisations (though, as we shall see, the forces underlying this process of differentiation had been well in train since the 1960s).

The contrast between conditions in the Australian cities in the early 1970s and those of the 1980s raises three questions whose exploration is the focus of this paper.

(i) Do the conditions of the 1980s indeed differ materially from those of the 1960s and early 7Os?

The Melbourne housing market will be used as a case study for exploring (1) the processes of investment in the built environment, (2) social (class) structuration underlying competition for and access to housing, (3) housing consumption and its role in social reproduction, and (4) the role of housing in transforming social (class) relations. In this context, the first question can thus be restated: do the apparently altered conditions in the urban housing market reflect some fundamental changes in housing investment, access, consumption, and contingent social transformation; or are they quite consistent with longer-term trends in such processes; or are they simply to be seen as manifestations of some temporary disequilibrium in market conditions, with the ‘normality’ of the 1960s and early 70s soon to return?

(ii) How are the altered conditions of the 1980s to be related to the apparent broader crisis in the national and international economy?

Whether or not the seeming crisis in the urban housing market, and by implication in the broader urban economy, is fundamental or merely superficial, investment in the built environment needs to be understood in the context of contemporary changes in patterns of investment globally; and shifts in social structure and related housing consumption need to be seen in relation to shifts in the international division of labour, ‘de-industrialisation’, etc.

Monopoly Rent 205

Do the altered conditions of the 1980s represent some failure in the previous ability of the cities to provide requisite opportunities for capitalist investment or to ensure requisite levels of demand for the output of capitalist production?

Whereas the second question is concerned with what the national and international economy does to the city, this is concerned with what the city does to the national and the global economy; in one sense it deals with the ‘feed-back’ effects. There are two possible answers to the question: (1) recent instability in housing and related markets merely reflects the devaluation of capital previously invested in the cities, as a prior condition for renewed investment; or, alternatively, (2) the dysfunction of the cities is such that their ability to offer investment opportunities, and to guarantee sustained demand for the output of capitalist production, has been seriously impaired. Stated otherwise, is the ‘second global crisis of capitalism’ (Harvey, 1978) to be interpreted partly as an urban failure, at least in the sense that the crucial contradictions in the capitalist system have been especially (and perhaps disastrously) magnified in the cities of the western-style economies (de-industrialisation necessary for capitalist reorganisation fatally impairing requisite consumption, for example)?

(iii)

Although interest centres on the urban housing market of Melbourne in the 1970s and early 8Os, the exploration that follows covers the period generally from the 1930s. The paper is especially dependent on an analysis of data on housing transactions over the 50 years since the 1930s. Much of this is displayed in Appendices A, B and C, and these can be viewed together as virtually a separate paper summarising housing market changes and supporting the arguments of the text proper.

CHAPTER 2

Investment, Residential Differentiation and Class - Some Theoretical Issues

Theoretical considerations arising from the first chapter require some exposition. We begin with the question of investment (when and why is capital invested in the built environment, more specifically in housing?), linking it to the question of ground rent (how is a return on investment extracted, how is it related to the system of differentiated submarkets and their uneven development?), and so to the issue of social differentiation and formation (how are differentiated markets created and sustained?).

2.1. CIRCUITS OF CAPITAL, AND INVESTMENT IN HOUSING

In his 1978 paper on ‘The urban process under capitalism’, David Harvey has suggested a framework for analysing investment in urban development that seems especially fruitful in understanding the housing question. In summary his argument is that “the capitalists as a class must, if they are to reproduce themselves, continuously expand the basis for profit”; but in the industrial sector this is frustrated by the problem of ‘over-accumulation’, whereby “too much capital is produced in aggregate relative to the opportunities to employ that capital”; however this may be resolved temporarily through a switch of investment from the ‘primary circuit’ of capital (the industrial sector) to the ‘secondary circuit’ (capital assets to aid production, such as factories and office buildings, and capital assets to aid consumption, of which housing is the most notable case), or into the ‘tertiary circuit’ (science and technology, but also social expenditures designed to improve ‘the quality of labour power’, such as education, health, coercive arrangements, etc.) (Harvey, 1978: pp. 102-108). The crucial questions relate to how this switching of capital occurs, the conditions that might cause or otherwise accompany it, and the contradictions and conflicts to which it gives rise.

Certainly investment in the built environment assists production directly; however Harvey argues (in partial agreement with Lefebvre, 1970) that its key function is to stimulate new effective demand for the products of industrial capital - enhanced demand in the primary circuit. So, for example, post-1945 suburbanisation in Australia as in the U.S.A. led to effective demand in the automobile, white goods, power-related industries, etc. This however leads to two further problems. First, as Harvey (1978: p. 107) argues, “individual capitalists tend to over-accumulate in the

206

monopoly Rent 207

primary circuit and under-invest in the secondary circuit”. Hence financial and state institutions must mediate the relations between the primary and secondary circuits. The second problem is that the secondary circuit faces the same dilemma as the primary: over-accumulation, empty office blocks, demolitions before useful life has ended, land busts following land booms, etc. As an example Harvey quotes “the extraordinary property boom in many advanced capitalist countries from 1969-73, the collapse of which at the end of 1973 triggered . . . the onset of the current crisis” (Harvey, 1978: p. 120). (For Australian cities, Daly, 1982, has examined the over-investment and collapse in Sydney, and in following pages we observe aspects of it in Melbourne.)

Harvey’s theory holds that capitalists will switch investment from the primary circuit to the secondary when signs of over-accumulation emerge in the former. Saunders’ (1981: p. 230) suggested modification would add that investment will be switched to equalise the rate of profit between sectors. The theory does nor predict whether the switch will occur in the course of a crisis or be accomplished relatively smoothly; that question depends on the efficiency of mediating institutions, and will vary with the society and the time.

There is also the issue of ‘switching back’, from the secondary circuit to the primary. This is complicated by the relatively permanent nature of the built environment: as investment is withdrawn, prices (‘exchange values’) fall, but the usefulness of the buildings (‘use values’) persist. The physical resource can subsequently be used as ‘devalued capital - rents are low, and can help establish a basis for renewed accumulation by new enterprises. Harvey (1978: p. 116) agrees with Marx: periodic devaluation of fmed capital provide a means “to check the rate of fall of profit and hasten accumulation of capital-value through formation of new capital”. There is however a contradiction in this, for capitalist development must “negotiate a knife-edge path between preserving the exchange values of past investments in the built environment and destroying the value of these investments in order to open up fresh room for accumulation” (p. 123). Moreover, “people who live in the communities being ‘obsolesced’ resist and resent the process for the most part” (Harvey, 1977: p. 137). So do the owners of the buildings being devalued (including the owner occupiers of devalued houses unless, as we shall see, the process can be disguised by general inflation). Hence conflict!

There can also of course be geographical switching, both within and between sectors. Such shifts characterised the nineteenth century ‘Atlantic economy’ (and as Berry (1984) suggests, Australia’s booms and busts were largely effects of the same economy and its processes); indeed Harvey argues that the ‘global crises’ of the 1930s and 1970s - in contrast with the mere ‘switching crises’ of the nineteenth century (Australia’s 1890s Depression, for example) - can in part be explained by the breakdown of mechanisms for exploiting uneven development in that previous way (Harvey, 1978: p. 120). Each of the global crises was preceded by massive movement of capital into long-term investment in the built environment as a kind of last-ditch hope for finding productive uses for rapidly over-accumulating capital.

It is more difftcult to theorise the switching of investment (via taxes, charges, and especially loans) to public-sector urban development (the transport network, ports etc.)

208 Progress in Phning

or to the tertiary circuit. State investments in the built environment for production, in the built environment for consumption, and in the tertiary circuit are rival for resources; the outcome of the rivalry will vary with the state of class struggle, as well as with the state of accumulation in the primary circuit and in the private sector of the secondary circuit.

2.2. HOUSING INVESTMENT, GROUND RENT AND RESIDENTIAL DIFFERENTIATION

So much for the functional reasons, indeed the necessity, underlying the switching of capital into and out of investment in the built environment!

Also to be addressed however is the question of mechanisms - how are opportunities created whereby appropriate levels of return on that capital are possible, and how are the returns extracted? An answer to this question is suggested in an earlier paper by David Harvey: the fragmentation of the city into relatively finite submarkets establishes conditions for owners of land and of its incorporated improvements to create and maintain - at least in the short term - the requisite scarcity to enable them to receive the ‘required’ rate of return on their investment. So attention focuses on the institutional and other means for fra~enting and limiting real property markets (Harvey, 1974). The ar~ment rests on an application of the theory of ground rent.

In neo-classical economic theory, land rent is understood to relate to the surplus to be won from the land’s ‘best’ use; land value derives from land use, with vendor or landlord characterised - clearly unrealistically - by passive acceptance of the outcome. This has been much criticised (for example by Harvey, 1973), on the grounds that it fails to account for the role of the landowner, and accordingly some better theory has been sought in Marx’s conception of rural ground rent. This holds that a ‘ground rent’ represents a deduction, by a non-productive landowner, of part of the surplus value from production that would otherwise flow to industrial capital or to labour. The institution of private property confers on landowners a monopoly power to extract a transfer payment. The argument holds that ground rent can have three components (Harvey, 1982: pp. 349-358; Saunders, 1981: p. 235; Badcock, 1984: pp. 81-82):

(i) DiffererzfiaZ rent derives from the greater profits flowing from lower production costs associated with more fertile and better located land (with lower transport costs), when compared with the most marginal land. It can take two forms. In the first (DR-l), equal applications of capital to land of different qualities are assumed, and excess profits from the better land can thereby be considered a permanent feature, to be converted into DR-1 without affecting market values. The concept is akin to that advanced by Ricardo. The second form (DR-2) arises from the differential application of capital to land of equal fertility.

(ii) Absolute rent arises from the ability of landowners as a class to extract rent for even the most marginal of land. It may be inflated through landowners

Monopoly Rent 209

colluding to withhold some of the more fertile land from use; all rents in a particular region or submarket can thereby be jacked up.

(iii) Monopoly rent is extracted when a producer holds some monopoly position that enables excessive profits; the excess is creamed off by the landlord as a monopoly rent, and excessive profits reduced to average profits.

The theory can be translated to the context of the urban land market. Early entrepreneurs in the city may gain control of the most advantageous sites for their factories, offices and residences; this space they come to monopolise; the erratic growth of the city further differentiates the relative advantages of urban space, and yet further monopoly power arises; the continuation of monopoly rights tends to be guaranteed by planning, and by the actions of state and financial institutions (Harvey, 1977). Clearly differential rent can be extracted, reflecting the differential ‘fertility’ of land in production (with different transport costs for inputs or to markets, different levels of local taxes and charges, etc., leading to DR-1, or with new or refurbished improvements leading to DR-2). Urban land can also possess differential ‘fertility’ in consumption or re-production (where travel costs are low and residual income correspondingly high, schools are better and life chances also accordingly better, etc., leading to DR-1). Even more clearly, monopoly rent will be extracted, first where especially desirable land is in short supply (the most prestigious office sites, or the highest status suburbs), and secondly where relative scarcity is more deliberately created. Urban ‘space’ rent will take on various guises - the land or property investor will see it as a return on capital, it will be capitalised into a land or house price, etc. - nevertheless the various aspects of its extraction will persist, and it will be the task of good analysis to identify them.

In searching for a basis of the returns on capital switched into investment in the built environment, Harvey (1974) introduces the concept of a ‘class-monopoly rent’. This arises “because there exists a class of owners of ‘resource units’ - the land and the relatively permanent improvements incorporated in it - who are willing to release the units under their command only if they receive a positive return above some arbitrary level” - crucially, there is the exercise of class power to achieve some minimum rate of return (p. 241). The concept is developed in a study of the inner city and inner suburban housing market of Baltimore City in 1970, wherein are identified some 13 geographically distinct market segments which are socially produced principally from the workings of the American finance system: by channelling and m-getting funds into these submarkets (and those of the surrounding Baltimore County), the finance institutions have a significant role in restructuring urban neighbourhoods and creating the conditions for extraction of class-monopoly rents. Indeed, the institutions of finance capital have increasingly assumed a central function of coordination and organisation of investment in the built environment as in other sectors of the economy.

Residential differentiation, it is argued, is a key to the geographical structure of submarkets; it is a product of history and, in the long run, “is continuously being transformed by conflicts and struggles generated by the ebb and flow of market forces, the operations of speculators, landlords and developers, the changing policies of


governmental and financial institutions, changing tastes, and the like” (p. 249). In the short term the structure is relatively fixed however, “and it is the rigidity which permits class-monopoly rents to be realized within submarkets (as classes of providers face classes of consumers) and between submarkets as a variety of processes seek to erode the boundaries of the submarkets themselves (every submarket has its speculator-developer fringe)“. So differentiation is necessary to the realisation of class-monopoly rent; class-monopoly rent provides the necessary incentive structure for the urbanisation process to proceed; and many aspects of community conflict in an urban society are to be interpreted as a manifestation of class struggle - between classes of providers and classes of consumers - around the realisation of class-monopoly rent.

Whether class-monopoly rent should be treated as a form of absolute rent or as one of monopoly rent, Harvey is unsure, though tends to the former (see especially Harvey, 1973: p. 181). His choice has been criticised, largely on the grounds that characteristics of absolute rent are not identified in the class-monopoly rent concept (the criticisms are summarised in Bassett and Short, 1980: p. 201; and Badcock, 1984: p. 84). It seems more satisfactory to see class-monopoly rent simply as monopoly rent, and such an approach is adopted in the pages that follow. His Baltimore work has also been criticised for its concentration on the maintenance of the structure of submarkets rather than on its production (see Badcock, 1984: p. 84). Certainly the empirical study was static, being limited to the situation of 1970, and so yielded little basis for insight into the processes of such production. The longer time span of the present study may provide more of a basis.

2.3. CLASS STRUCTURATION AND RESIDENTIAL DIFFERENTIATION

As well as having providers, a housing market must have consumers; and accordingly the production and maintenance of a differentiated structure of submarkets is as much dependent on the social differentiation of the population as on the actions of speculator-developers, landlords, urban planners, and the coordinating role of finance capital. In turn, the (changing) allocation of households to different forms of tenure with their different material costs and benefits, and the (changing) spatial differentiation of the population with its effects on life chances, will alter social structure materially. The process may also reinforce existing cleavages in society or add new, cross-cutting ones. This interaction between social structure and the differentiated structure of housing submarkets must now be addressed.

An approach to such an enterprise has been sketched in Harvey (1975), based on a reading of Marx and, secondarily, on material in Giddens (1973) and Poulantzas (1973). The starting point is an observation that for Marx (and for Harvey) the concept of ‘class’ takes on a meaning only in relation to a specific historical context; so class theory is not a question of identifying fixed categories that apply immutably, but rather of explaining forces of class structuration which shape actual class configurations.

The primary force of class structuration in a capitalist society is the power relation

Monopoly Rent 211

between capital and labour, understandable only in terms of its historical evolution. It does not, however, necessarily generate a dichotomous class structure: rather, ‘class interests’ can crystallise around forces other than the fundamental power relation between capital and labour.

These other forces Harvey designates as secondary forces of class structuration, and divides into two groups. The first he terms residual, “for they stem either from some historically prior mode of production, or from the geographical contact between a dominant and a subordinate mode of production” (p. 357). Such patterns of differentiation have arisen with the geographical expansion of capitalism, with the dominance and subservience associated with colonialism and neo-colonialism, with ethnic ‘underclasses’ in the U.S.A., Britain and Australia, etc. Harvey suggests that landlordism, preserved in a capitalist form, also needs to be explained in terms of residual forces of class structuration.

The other group of secondary forces of class structuration are termed derivative forces, as they derive from the need to preserve the processes of capital accumulation through technological innovation, social mobility, shifts in social organisation, consumption, etc. Following Giddens (1973), Harvey identifies five such forces.

(i) lYhe division of labour and specialisation offunction increase with the complexity of industrial organisation, communication, exchange and distribution.

(ii) Consumption classes or distributive groupings arise from the necessary creation of new modes of consumption and new social wants - with classes of trendsetters, conspicuous consumers, etc. - to ensure requisite levels of effective demand for the output from expanding production, on which capitalist accumulation is ultimately dependent.

(iii) Authority relations arise from the institutional, legal, coercive and ideological supports necessary to maintain a relatively stable power relation between capital and labour, and they account for the expanding ‘middle classes’ of administrators, managers, etc.

(iv) Class consciousness and ideology are manipulated by the state and by capitalist interests directly, to reinforce - perhaps even to create - social differentiations and consciousness along lines other than between capital and labour, and so to stabilise the antagonisms inherent in that relation. Significantly, ‘trade union consciousness* fragments working-class consciousness, but also fosters actions for the protection of existing jobs rather than job-sharing in periods of under-employment of labour; and ‘middle-class awareness’ among the intermediate groups in the authority structure as well as among the aristocracy of labour and the petite bourgeoisie, blurs the distinction between capital and labour.

(v) Mobility chunces must expand to permit the requisite division and distribution of labour; yet they must also be limited, as a completely ‘open’ society in terms of chances would be fundamentally unstable. The barriers (necessarily changing) to mobility chances are structured by the differential distribution - both socially and geographically - of the opportunities to acquire ‘market

JPP 28:3-B


capacity’ within certain occupational categories or to operate in certain functional roles.

Two essential points emerge from this argument. The first is that all the forces underlying class structure may be seen to derive from imperatives of the prevailing mode (or in the case of residual forces from previously prevailing modes) of production. And secondly, these shifts in class structure occur in space; they will be constrained by, and will in turn constrain, the structure of the housing market, and yield shifting levels of effective demand for different submarkets.

2.4. A DISCUSSION - THE QUESTION OF HOUSING CRISES RECONSIDERED

Armed with these theoretical insights, we can reconsider the three questions raised in Chapter 1 as the focus of the present paper.

The first relates to whether housing conditions in Melbourne in the late 1970s and early 1980s represent a fundamental shift from those of earlier decades - how is the seeming crisis significantly different from earlier ones? From the arguments preceding, we can reasonably assume that housing production and consumption in a capitalist society have three over-riding functions: (1) to ensure demand for expanding production of industrial capital, and thereby a continuing basis for capital accumulation; (2) to ensure reproduction of the capital-labour relationship, specifically by aiding the reproduction of a population with requisite skills and levels of social and geographical mobility (and under this function is generally subsumed the provision of shelter); and (3) to stabilise the conflicts inherent in the capital-labour relationship by shifting the focus of working-class concerns from issues of production to those of consumption - from the workplace to the home! It may also serve the ‘false’ function of providing a temporary outlet - in speculation as distinct from productive investment - for capital over-accumulated in the primary circuit or in other sectors of the secondary circuit, although this is probably best seen as an aberration of (1) above. So an answer to this first question seems dependent on showing (1) that further investment in housing is being blocked (e.g. by community opposition) or, if occurring, is failing to trigger requisite demand for industrial output and hence accumulation in the primary circuit of capital, or (2) that the housing system is inextricably related to a crisis at the level of reproduction, or (3) that the housing sphere is no longer a stabiliser of social conflict, either because it is failing to re-focus concerns from production to consumption, or because conflicts arising in the area of housing consumption are themselves becoming fundamentally destabilising (through rent revolts, or squatting, or inter-neighbourhood conflicts over public-sector investments, etc.), or because conflicts between local neighbourhoods or other consumer groupings and industrial capital (over unwanted factories, pollution, traffic etc.) are becoming destabilising to investment in the primary circuit.

The second question has to do with the causes of the changed conditions in the urban housing market of the late 1970s and early 1980s. Can these be related to the apparent broader crisis in the national and international economy - to the ‘second

Monopoly Rent 213

global crisis of capitalism’? To answer this, it would seem necessary to show (1) that shifts in investment behaviour internationally have had significant effects on housing investment in Melbourne, or on the division of labour and social formation generally (through such processes as ‘de-industrialisation’) and hence on the structure of demand and consumption, or on competition in the sphere of reproduction, and (2) that these shifts in investment, consumption and reproduction account for substantial failures identified in response to the first question.

The third question relates to the effects of the urban crisis - in so far as it is manifested in the urban housing market - on the national and ~timately the international economy. Exploration of the first question may indeed reveal crises in the proper function of housing in a capitalist economy - specifically, there may be failure in the capacity of the housing market to provide requisite opportunities for investment (as transformations in the structure of submarkets significantly alter the conditions enabling extraction of ground rents at levels necessary for the fruitful investment of capital over-accumulated elsewhere); or housing investment may no longer be triggering requisite demand for the output of capitalist production (as previous multiplier effects are inhibited by shifts in patterns of consumption, consequent for example on the greed of speculator-developers, leaving households with inadequate spare income for this other ‘necessary’ consumption, or on uncertainty on the part of consumers, saving rather than co~uming). To answer the third question, it is necessary to show that the consequent effects on investment opportunities and consumer demand are sign~cantly affecting the national and ultimately the international economy. It should be noted that the transformations in submarket structure and in consumption may themselves be consequences of changes in the global structure of capitalism (the new international division of labour, de-industrialisation, etc). So this third question is finally concerned with how contradictions inherent in the capitalist mode of production are magnified in the city of the late 1970s and early 1980s - with how the city makes things worse!

We now proceed to address these questions empirically. We begin with an overview of some aspects of investment in housing (in Chapter 3) and of class structuration (Chapter 4); we then proceed to explore the interaction of investment and class st~ctu~tion in the changing structure of submarke~ and residential d~erentiation in the city (Chapters 5 and 6). We conclude, in Chapter 7, with a final consideration of the questions posed above, and with issues of appropriate public policy and the role of urban planning.

CHAPTER 3

Cjrcu;ts of Capital and tnvest~ent in ~~usjn~ - Metbourne, 1920s to 1980s

We are concerned to explore the nature of shifts in housing investment in an urban economy, and to elucidate the conditions that accompany such shifts. The ideas reviewed in Section 2.1 above, to do with circuits of capital, switching between circuits, and forms of crisis, seem to offer theoretical insights into the factors and relationships involved, and they are applied following to the specific, concrete situation of Melbourne in the decades since the 1920s.

3.1. A STATISTICAL OVERVIEW

To measure the progress of capital accumulation and investment in the sectors of an economy - whether urban, regional, national or global - is somewhat diffkult, as is any direct measurement of the switching of investment between sectors (or regions or nations). Something of the fluctuating progress of the Australian domestic economy emerges from data on changes in Gross National Product (GNP) - redefined in 1973 as Gross Domestic Product (GDP) - at constant prices (i.e. corrected for inflation) (Fig. 1). Of special significance to the urban economy has been the increasing contribution of manufactu~ng industry to GDP and then, since 1970, its relative decline (also Fig. I). l The dist~bution of production includes a component to accumulation and a component to wages; the general progress of the former from the 1950s until 1984 reflects the increasing switching of investment into fixed capital (for both production and consumption) in the long boom of that era,2 while shifts in the latter explain the demand enabling the various booms in housing investment (again Fig. 1).

The switching of investment into and out of the built environment is most dramatically revealed in shifts in shares of GDP going to fixed capital in various sectors - dwellings, manufacturing, mining and fmance (Fig. 2). Sometimes investment in dwellings has been in tandem with that in other sectors - both apparently being affected similarly by shifts in the supply of investment capital and in enabling demand - but more often there has been apparent competition and switching between sectors (revealed in changes in private gross fixed capital expenditures at constant prices, in Fig. 2).

214

Monopoly Rent 215

t t lw& 1950 lM0 W60 0 mm mm w66

9

t 1 lmo WW 1010 mm w66

PIG. 1. Ecoaomk progress -(a) percent chaage in Gross National Product (GNP) aad Gross Domestk Product (GDP) at constaat prices; (b) percent coatributioa to GNP/GDP of manufacturing production; (c) percent distribation of GNP/GDP to (1) wages&arks aad supplements aad (2) gross accamalatioa. Aastraiia. Sources: (a) BatHa (1%2); Nortoa et al. (1982); Australia Bareau of Statistks (aaaual) Aastraha NaUaaal Accomtts, National Income a& Expenditure (Catalogue No. S204.0), Caaberra. (b) Ibid; Commonwealth Bareau of Census aad Statistka (aaaaal to 1%7/6g) Fmduetfoa BaUeth Part I - Secohry hd&ries, Caaberra. (c) Norton et al.

(19g2h Aastraha Bareau of StatMa (ammat) op. dt.

216 Progress in P/8nnj~g

04

+ i W50 w5e (910 loB0 m25

FIG. 2. Investment in fixed capital-(a) percent ~~~t~n of GNP/GDP to timed capital expenditure by sector; (b) percent cban8e in private gross fied capital expenditure, on (1) dwellings and (2) other, at constant prices. Australia. Notes and sources: (a) Dwellings to 1946: valw of permits, capital cities, from Comm~weaith Bureau of Census and Statistics (CSCS) (Annual) Produ&on &f/&n. PJW I - Secondary Indttstries, Canberra. Dwellings 1946-1950: value of completions, Australia, from CBCS (quarterly) Quarterly Zhdfetn of &d/ding Sfatistim, Canberra. All from 1958: Norton etal. (1982); ABS (quarterly) guarding Activity AustrPlia(Catalogue No. 8705.0), Canberra. (b) Norton et al. (1982); ABS (quarterly) New Fixed Capital Expenditure by Private Enterprism in

Se/e&d Industries (Catalogue No. 5626.0). Canberra.

Far more information on investment in the built environment is derivable directly from the building statistics, and for housing activity we observe the numbers of new dwellings in the Melbourne metropolitan area (Fig. 3).3

Finally, movements in prices of assets are useful indicators of investment chasing or fleeing from them. Shifts in real house prices ( i.e. corrected for inflation) reveal both short-term cycles and longer-term dis~ptions; and when contrasted with shifts in capital value of city-centre office blocks during the long crisis since 1972, they yield further evidence of apparent switching of investment between sectors (Fig. 4).4 Derivation of these house price changes is discussed in Appendix A.

From considerations of the interest rate and other conditions of the housing finance lenders, one can estimate the house price that would have been affordable to a household on a single income equal to average male earnings. The main lenders of owner-occupier housing capital in Australia throughout the period have been the savings banks, and so it is on the basis of their conditions that we estimate (1) ‘affordable’ price for each year, and (2) the proportion of dwellings sold in each year

Monopoly Rent 217

FIG. 3. Housing activity - dwelling permits (to 1949) and commencements (from 1949). Melbouroe. Sources: CommonweaItb Bnreau of Census and Statistics (CBCS) (annual) Production Bulletin. Port I- tkondary Industries, Canberra; CBCS (subsequently ABS) (quarterly) Quarterly BuMetin of Buihfing Statistics

(subsequently &d/&g Activity Australia, Catalogue No. 8705.0), Canberra.

that would have been affordable under those conditions. The derivation of these measures is given in Appendix B; and the latter measure - the proportion of dwellings affordable - is traced here (in Fig. 4).

Prima facie there is support for the Harvey thesis of the switching of capital between circuits and between sectors within circuits, in the process of resolving crises in the capitalist economy. So we can observe the boom of the 192Os, the ‘global crisis’ of the Great Depression of 1929 to 1932, the long boom thereafter to around 1968 (scarcely interrupted by such events as the violent switching necessitated by World War II and the crisis of 1949 to 1952), the extraordinarily complex switching crisis - or is it indeed the ‘second global crisis’? - of 1969 to 1973, and the continuing crisis and reorganisation following 1973, manifested especially in unprecedented disruptions to housing investment, market behaviour and affordability. Crises and their resolution are however profoundly political, and so this picture is only useful as a broad backdrop to the history of the events that it reflects.

3.2. HOUSING INVESTMENT IN THE FIRST GLOBAL CRISIS - 1920s TO 1932

The 1920s boom was largely fuelled by good export markets. However a considerable component of the newly-won wealth went to labour in the form of rapidly rising money wages due, as Butlin (1983: p. 92) observes, to cost-of-living adjustments and the proliferation of margins (though wages did not generally rise at the same rate as surplus value in production - in the manufacturing sector they were 57.0 percent of production in 1921, but only 54.6 percent in 1928 - and


- hwrr ---- MS tic . . . . city cmtn

dfiibuildimgs

(b)

FIG. 4. House prices and affordability - (a) estimated changes in real prices (i.e. corrected for inflation) of (1) separate houses, (2) flats and other dwellings and (3) city-centre ofllce buildings; (b) percent of dwell&s normaRy affordable by household on male average earnings. Melbourne. Source: (a) Dwelling price changes: see Appendix A,

office capital values from Richard Ellis Pty Ltd (1985). @) See Appendix B.

unemployment remained high); and accordingly higher wages enabled expanding domestic markets, included those for housing.

The boom had been largely underpinned by overseas borrowings; additionally, the response’ to unemployment and aspects of recession from 1925126 was state deficit spending and government overseas borrowing. By 1928/29, the demands of overseas interest payments were consuming some 28 percent of export earnings, and that at a time when imports were exceeding exports anyway (Daly, 1982: p. 169; see also Schedvin, 1970). The international collapse of 1929 seriously hit export earnings, repayments could no longer be maintained, and Federal and state governments were compelled - directly by finance capital - to rein in their own activities as well as those of other fractions of capital.

Employment was cut (by 25 percent in manufacturing between 1929 and 1932), as were money wages (with the basic wage falling from $4.6s.Od. in 1929 to E3.2sSd. in

1932); accordingly wage bills were cut (more severely than were returns to capital, it

Monopoly Rent 219

would seem - they were 54.3 percent of production in manufacuring industry in 1929, but an all-time low of 49.9 percent in 1933). With high unemployment (around 26.5 percent of the Victorian workforce by 1932): reduced wages for those still in work, and historically high interest rates on housing finance, many of the 1920s house purchasers failed to maintain repayments and the lenders foreclosed. Many renters were unable to pay rent and they too abandoned their dwellings; their erstwhile landlords would then have difficulty finding new paying tenants, and they in turn might also fail. The enforced sales depressed prices and the result was a massive slump in market prices (Fig. 4).

A result of this process was the paradox of substantial sharing and overcrowding of housing, and simultaneously a high incidence of vacancies. The crisis yielded a new basis for housing consumption, just as the collapse in the sphere of production provided a new basis for accumulation and for the emerging force of monopolisation to counter competition.

3.3. THE SWITCHING CRISES - 1932 TO 1952

3.3.1. World War II and Switching Crisis I

From 1932, with manufacturing production down 33 percent from the level of only three years previously, the improvement began immediately, and it was sustained. It was assisted by the devalued state of fixed capital (to which very little was added in real terms until the 194Os), by relatively low wage rises until 1941 (suppressed in part by continuing high levels of unemployment), and by cautious, conservative governments both Federally and in the Australian states. By the late 1930s the value of manufacturing production once again reached the level of 1929, housing approvals were similarly back to pre-Depression levels, and unemployment was down, though still an historically high 10 percent in 1939.

World War II compelled a sudden, almost total switching from the consumption fund to the primary circuit of capital: by 1943, manufacturing production had risen by 51 percent in real terms over its level of 1939, while dwelling approvals had fallen by 97 percent. It also ended unemployment, replacing it instead with labour shortages and thereby the conditions for significantly rising real wages (by some 17 percent over inflation between 1939 and 1943) and a rising wage bill for manufacturing industry (from 52 percent of production in 1940 to 59 percent in 1943). Despite the enhanced position of labour - aided in part by a Labor Federal Government from 1941 to 1949 - accumulation was considerable, and new investment in fmed capital also increased in real terms.

3.3.2. The Faihre of Plan&g

A major effect of the war was to focus working-class concerns on the war’s objectives - what sort of society were people fighting for? The debates were especially

220 Pfogfess in ~fanning

worked out in the counsels and committees of the Federal Government, and the response duly articulated: the vision was utopian socialist, the objective ‘full employment’ and material well-being for all (after Depression and war), and the means Keynesian economic planning. Crucial to the plan was private capital expenditure (principally in the consumption fund of the secondary circuit): it could help take up the slack in manufacturing at the end of the war; it would eventually provide the environment for enhanced private consumption expenditure (better goods in better homes!); and it had the immense advantage of being relatively controllable, principally by monetary policy (of which housing policy was largely seen as a subset) and by the provision of infrastructure and subsidised services and inputs (like cheaper electricity or water). In phys&~~Z terms, the vision was of suburbia, ‘the modern home’, labour-saving devices, and well-planned neighbourhoods.

In the event, the Australian Constitution needed to be altered to give the Federal Government the powers for centralised economic planning; but the 1944 referendum to do this failed, and with it the Government’s morale and much of its sense of direction. And subsequently (perhaps consequently), the post-war economy behaved decidedly differently from the anticipations of the pre-1945 planners. First, private consumption expenditure boomed as wartime restrictions were progressively removed (and sometimes, in the black markets, before their removal): previously enforced savings were released on under-supplied markets and, by 1948 and for the next five years, the result was runaway inflation. Secondly, overseas markets, especially for agricultural products, also boomed, thereby adding to private consumption expenditure and inflation. So thirdly, the demand for consumer goods meant that manufactu~ng for ‘final’ consumption did nor fall from its wartime level (except very slightly in 1945 and 1946), and hence the switching to the consumption fund - the promised housing program - was constrained. Simply, material inputs and skilled labour were not available. Fourthly, the preoccupation with full employment was soon replaced by one with labour shortages, and the immobility of labour became a problem. The solution was sought in the immigration program initiated with the end of the war, and which brought some half-million settlers to Australia by 1950, and three-and-a-quarter million by 1980.

3.3.3. Switching Crises II and II1

Much of the post-war dissat~faction and conflict related to housing conditions and shortages. Based on explicit (and ideological) assumptions about what constituted ‘satisfactory housing’, and on extrapolations from the 1933 census and guesses about prevailing conditions, the Commonwealth Housing Commission in 1944 had estimated a short-fall of some 150,000 dwellings nationally, in contrast to an estimated current stock of 1,824,OOO private dwellings.6

The principal factors accounting for the failure of the housing program in the late 1940s would seem to have been shortages of skilled labour, of appropriate building materials and of capital in the industry to enable economies of scale. The first was slowly alleviated through the immigration program; the other two tended to reduce to

Monopoly Rent 221

a problem of the rate of profit in the industry, and in Melbourne this began to change dramatically in 1949. In that year the estimated mean rate of increase in house prices was 28 percent, or some 18 percent over the inflation rate measured in the Retail Price Index; in 1950 the increase was a further 48 percent, or 39 percent over inflation (Fig. 4). The rate of profit on newly produced dwellings would have risen commensurately. In the year ending June 1949, some 9,600 dwellings had been completed in Melbourne; in 1949/50 the output was just under 10,600, but in 1950/51 it increased to 13,400, a 27 percent rise on the previous year (Fig. 3).

Whether the increased output was coincidental with the rise in prices (and by implication in profits), or consequential upon it, is difficult to determine. Prima facie, house prices and the profit rates they imply are to be seen as triggers for the switching of investment into housing in 1949 and 1950, and then, allied with the eroding effects of general inflation, for the switching back out again in 1951 and 1952 (Figs 3 and 4). There was however another factor besides the profit rate involved in the decline: 1952 was the year of the conservative Liberal-Country Party Government’s so called ‘Horror Budget’, designed to dampen the extraordinary inflation of the era by indirect taxes and a squeeze on credit, and especially affecting housing.

Whether or not house prices were central in the switching into the housing sector in 1950151 and then back out of it in the following two years, they were certainly one of the factors involved. So there arises the question of why they behaved so erratically, apparently leading the general inflation of the era. At least part of the answer may relate to interest rates: the principal lenders of housing finance to owner occupiers at that time were the Commonwealth and state savings banks, and the commonly charged interest rate on housing loans was 3.88 percent per annum; but in 1948 the inflation rate rose to 10 percent, from 4 percent the year before, and 2 percent the year before that; so the real rate of interest was some -6 percent. It was the same in 1949, -5 percent in 1960, -15 percent in 195 1, -13 percent in 1952! The banks were paying borrowers to borrow, the latter apparently obliged, and bid house prices up accordingly.

How were such extraordinary interest rates possible? Simply, because the interest rates paid to depositors with the banks were even lower, commonly around 2 percent per annum. The small savers of the late 194Os, so it seems, retained scarred memories of the Depression, valued security, scarcely perceived the effects of inflation on their savings and, in any case, believed the politicians’ promises that inflation would not last. The extraordinary transfer of wealth involved in these events, and its relevance to rent theory, are issues to which we shall return.

3.4. THE LONG PROGRESS - 1950s AND 1960s

3.4.1. Tow& a Home&w&g Llemocracy

By 1953 interest rates were once again higher than the inflation rate, and they remained so for the next twenty years. The rather chaotic events and adjustments of 1949-52 had apparently yielded a new set of relationships between housing production


costs, rates of profit in production, market prices, wage levels, consumer satisfaction, the price of mortgage finance and returns to savers, that were reasonably acceptable to (or imposed on) finance capital, speculatordevelopers and consumers. Certainly there were disequilibrating forces - periodically too-high rates of profit enticing over-investment in particular submarkets, Federal Government use of the housing industry for economic fine-tuning (the Keynesian ‘countercyclical regulator’ described by Harvey, 1978: p. 126, and reflected in Fig. 2), etc. - and there were short-lived slumps reflecting minor switching crises in 1956 and 1957, in 1962 and in 1966. Generally however there was the appearance of unprecedented progress - in levels of output, in the space and technical standards of the dwellings being produced, but especially in the diffusion of their ownership. In Melbourne, owner occupancy increased from 45.9 percent of households in 1947 to 72.9 percent in 1966, before stabilising at around 70 percent by 197 1.

Underpinning the progress in housing demand and consumption was a rapidly rising level of real wages: in 1973 they were 1.74 times their level of 1953.’ Despite steady importing of labour through the immigration program, an ‘adequate* component of national product had gone to wages to enable sustained levels of demand.* Additionally there was a series of crucially important conditions serving to channel that demand into owner-occupier rather than renter submarkets.

(i) Interest rates were generally low until the mid-1950s; however, when they began to rise in 1956, rates for owner-occupier housing loans tended to be suppressed relative to those prevailing elsewhere in the economy (including those available to investors in rental housing), partly compensating for the absence of tax deductibility of owner-occupiers’ interest payments. Further, the margins increased during the 1960s.

(ii) There were tax-related benefits to owner occupiers, but not to renters. The most significant was the non-taxing of imputed rent on owner-occupier housing capital: whereas renters pay for their housing from post-tax income, owner-occupiers pay from pre-tax income for that component represented by their equity in the dwelling (it is paid, of course, in the form of foregone interest on invested capital). For the component represented by borrowed capital, they pay mortgage interest, and this certainly does come from post-tax income. This advantage to owner-occupiers, which had applied since 1923, was relatively unimportant while marginal tax rates were low; however these also changed in the 1950s and 60s. So, in 1949/50 the marginal tax rate for male average earnings was 15.0 percent; by 1959/60 it was 20.6 percent, and by 1969/70,32.9 percent.

(iii) Capital gains, benefiting owner-occupiers (and of course landlords) but not renters, became significant in the 1950s and 60s whereas they had been less so in the 1930s and ~OS.~ Such gains were not taxed.

As the second and third of these conditions became more significant in the 1950s and 60s than previously, it is instructive to observe changes in their net effect over time. If a householder had purchased a median-priced house at the end of 1932, with a savings bank housing loan to cover 80 percent of its value, and sold it at the end of

Monopoly Rent 223

1937 after its price had changed commensurately with house prices generally in Melbourne (losing, indeed, some 7 percent of its 1932 price), then the total cost (in 1937 currency) can be estimated as $315 ($630). (The basis of these and following estimates, and a summary of their computation, is described in Appendix C.) If, on the other hand, the householder had rented, paying the mean advertised rent, total costs would have been a marginally higher $360 ($720). lo Comparisons in the late 1930s and 40s are more difficult, as the shortage of rental accommodation led to virtually none being advertised and so to a dearth of information on rent levels for available accommodation. Certainly owner-occupiers’ costs were little changed between the late 1930s and the late 194Os, and it is likely that renters’ costs would also have remained of the same order of magnitude.

The extraordinary leap in house prices in 1949-50, and the reappearance of uncontrolled rental housing around 1950, ended any approximate correspondence between the costs of purchasers and those of renters.” The equivalent estimated total costs over the five years from the end of 1952 to 1957 were -E229.1Os.Od. (ie. a net benefit of E229.1Os.Od. or %459, rather than a cost) for purchasers, but a cost of f2,730.10s.Od. ($5,461) for renters (both in 1957 prices). Although both sets of net costs fluctuated over the era, this order of extreme difference nevertheless persisted through the 1950s and 60s.

Three further points should be made about this incentive. First, many renters paid much lower rents than those commonly advertised (and forming the basis of these estimates), as their rents were protected by unremoved wartime controls. In no case however was the difference likely to become insignificant. Secondly, if we subtract the owner-occupier’s costs from an assumed level of rental benefit (and we adopt the renter’s estimated costs as such a measure), then we have an estimate of net benefit, which can be expressed relative to his total outlays over the five years, to yield a rate of return on total outlays or investment. And from that exercise (also summarised in Appendix C), we find that the rate of return to owner-occupiers declined over the 1950s and 60s - from 173 percent over infIation in the 1953-57 period (or 22.2 percent compounded), to 98 percent (14.6 percent compounded) in 1958-62,93 percent (14.0 percent compounded) in 1963-67, and 77 percent (or 12.1 percent compounded) in 1968-72. Though always vastly ahead of inflation - and indeed of virtually all other investment rates - the incentive was nevertheless a declining one. Thirdly, the incentive to purchase was ideologically strongly reinforced.

3.4.2. Rental Housing - Devaluation, Disiavestnmt, Reinvestment

There had been some boost to the public rental stock in the late 1940s and early 1950s through the 1945 Commonwealth State Housing Agreement (CSHA). In 1955 however the CSHA was amended to facilitate the selling of the public rental housing and redirection of federal assistance to the promotion of homeownership; and in 1956, a new CSHA confirmed the changed orientation.‘2

The private rental sector declined absolutely as well as relatively throughout the 1950s and early 60s. A crucial factor in the decline was the retention of wartime rent

224 Progress in PIanning

controls on ‘protected’ tenancies, Suppression of rents and the inability to remove tenants had the effect of seriously devaluing the capital tied up in rental housing; use values also declined as maintenance of the stock was neglected; many landlords responded by selling their properties - at very depressed prices - to their protected tenants who additionally enjoyed the benefits of suppressed interest rates; and in other cases landlords simply waited until delapidation drove their tenants away, and the emptied, devalued buildings became opportunities for reinvestment and redevelopment - principally in the 1960s flats boom.

By the early 1950s dual rental markets were diseerniblele. The controlled market, of old tenancies, was declining in size and generally devaluing; the uncontrolled market, mainly dwellings that had more recently become available for renting, had much higher rent levels and was slowly expanding Cjudging from the increasing incidence of advertisements). In 1960 in Melbourne there began a major switching of investment into the (uncontrolled) rental market; and despite slumps in the minor crises of 1962 and 1966, this expanded throughout the 1960s. The most visible and controversial component of the expansion arose with the 1960s flats boom - indeed, by 1965 some 40 percent of new dwelling commencements in Melbourne were flats, a proportion that was maintained until 1971 when it fell to 33 percent and eventually, from 1978, to less than 20 percent. The flats were concentrated in inner suburbs, frequently in areas blighted by the devaluation consequent on rent control, and in large measure catered for quite new groups of renters - young, affluent products of the post-1945 baby boom, renting temporarily until they ‘settled down’, and new migrants also renting temporarily while saving for owner-occupancy. There was also a substantial increase in numbers of private-sector rental hoatses, especially in the late 196Os, reflecting no doubt the extraordinary rates of return available to landlords investing in such assets (Appendix C, Tables 16 and 17)

3.5. THE COMING OF THE SECOND GLOBAL CRISIS - X969 TO 1973

The over-accumulation in the primary circuit was ‘globaP in that it affected all the advanced capitalist economies (Harvey, 1978,1982). By the mid-196Os, it was manifested in the growth of the eurodollars market, the increasing role of the international banks in deploying capital in search of profitable investment, and the growing dependence of both corporations and governments on the bankers (Daly, 1982: p. 4). Australian resources developments were attractive to the eurodollars market, as well as to domestic capital, and so the 1960s minerals boom was under way - between June 1967 and June 1968, the Australian All Ordinaries share price index rose 69 percent; thence, as the boom ended, it declined until 1971/72.

In Melbourne there was a boom of investment in commercial office buildings (though certainly less than that of Sydney), beginning in f970. The index of office property capital values, estimated by property consultants Richard Ellis and displayed in Fig. 4, shows values increasing at nearly &ree tirrrs the rate of the Consumer Price

Monopoly Rent 225

Index in 1971 and 1972. Thereafter they stagnated until 1979, rising at little more than a third of the CPI rate; they leapt briefly in 1980, then stagnated again in 1981 and 1982; then in 1983 and 1984 they once more rose marginally relative to the CPI (Richard Ellis Pty Ltd, 1985). It would seem that the boom of speculative investment in housing, in both Sydney and Melbourne, lagged that in office property: it began in 1972 - more dramatically in Sydney than in Melbourne - and continued until 1976.

3.5.2. Housing Investment aad Houshg Speculation

Just as one cannot simply explain the commercial property boom in terms of a switching of speculative money from the minerals boom (Daly, 1982: pp. 4-8), so it would also be mistaken to see the housing boom as a result of such money switching, in turn, to housing. Rather, a number of factors were involved:

(i) From 1967 there was a burgeoning of demand for new houses in new suburbs, attributable partly to the post-war baby boom and partly to suburbanisation of the immigrants of the 1950s and 60s. By 1972-73 there were 25,200 house commencements in Melbourne - twice the number of eight years previously - and additionally some 10,600 new flats. Growth in demand for new land seemed limitless, as did opportunities for speculation in urban fringe land; banks, insurance companies and finance companies lent generously for land speculation, and many also engaged in it directly. The ensuing story of land dealing, withholding from sale to inflate prices, windfall profits, then over-supply and high holding charges (when nominal interest rates began to rise in 1969, then to boom in 1974), has been partly documented for Sydney in Daly (1982) and for Melbourne in Sandercock (1979).

(ii) From 1973 until 1977, speculation was fuelled and profits underpinned by state investment, ostensibly to create a land bank with which to suppress prices, but in fact mismanaged and corrupted, especially by the Housing Commission Victoria (Troy, 1978; Sandercock, 1979 and 1983).

(iii) Land prices were further increased by a progressive transfer of development costs (for water, sewerage, road construction, etc.) from municipalities and State agencies (that is, from the general community) to the land developers (thereby to the purchaser), and by a progressive raising of standards, therefore of costs.

The consequence of these processes was for the median price of residential allotments in Melbourne to rise from $3,850 in January 1968 to $13,008 in January 1974, an increase of 238 percent (Australia. Department of Urban and Regional Development, 1974); consumer prices generally rose 5 1 percent over that period. I3 After allowing for inflation, land prices rose two-and-a-quarter times!

(iv) With the persistence of high interest rates and therefore high holding charges, many speculators and developers began to falter during 1973; prospects looked better in the fust half of 1974, but then began the collapses and

226 Progress in Pfanning

receiverships. From around 1973, borrowing conditions for households were increasingly liberalised to enable them to buy the over-supplied land and houses: the financial institutions, especially the banks, attempted a series of rapid rescues by shifting debts from shaky firms (often their own subsidiaries) to insureable households. The main liberalisations were acceptance of a household’s second income, or even promise offuture income, in determining ability to repay a housing loan.

(v) The ultimate enticement to purchase was the onset of negative real interest rates from 1973. In that year inflation, measured by the CPI, was 9.4 percent while savings bank interest on first mortgage housing loans was 7.75 percent; so the real interest rate was -1.7 percent. In 1974 it was -4.6 percent, then -6.1 percent in 1975, -5.0 in 1976, and -1.8 in 1977. Thereafter it was positive again.

Melbourne house prices rose an estimated 26 percent in 1973 and 31 percent in 1974. They continued to rise ahead of the inflation rate until 1977 (Fig. 4). It is significant that the housing speculation boom persisted so long after the booms of investment (and speculation) in manufacturing, mining and commercial property (Fig. 2), and that rates of increase in house prices in Melbourne were generally greater than those of Sydney in the period. Clearly it remained in the interests of finance capital to keep feeding the speculators - owner occupiers, landlords, developers and landholders - presumably because other avenues for investment were less promising, in Melbourne more so than in Sydney.

3.6. GLOBAL CRISIS AND HOUSING CRISIS - 1970s AND 1980s

3.6.1.l?rom Recession to Jobless Growth

One of the responses to the global crisis of over-accumulation in the primary circuit, at the end of the 196Os, was to accelerate the intematio~isation of manufacturing. The consumer goods purchased from Australians’ apparently ever-rising real wages, to go into their ever-improving dwellings, were increasingly manufactured in Asia rather than Australia. The 1969-74 property boom provided an outlet for capital that might otherwise have gone into Australian manufacturing; more significantly, it disguised the loss of employment in manufacturing.

The decline in manufacturing, falls in commodity prices, declining world trade, increasing debt burdens (as governments and firms in Australia, as well as home-seeking households, had borrowed heavily in the regime of negative real interest rates beginning in 1973), rising deficits in the balance of payments, rapidly rising wage bills, and over-investment (hence falling profit rates) in commercial property, coincided to bring the Australian economy into recession. The annual rate of economic growth (i.e. of GDP), which had been around 5 percent throughout the 1960s and was still 4.9 percent in 1973/74, fell to 1.5 percent in 1974/75. It was 2.6 percent in 1975/76,3-O percent in 1976/77 and 0.4 percent in 1977/78 (all in 1974/75

Monopoly Rent 227

prices). Industrial employment, no longer bolstered by the property and construction boom, fell substantially from 1975 to 1978 (Norton et al ., 1982: p. 198); in 1975 the overaN rate of unemployment doubled, to 4.6 percent of the Australian labour force, and by 1978 it was 6.2 percent.

The late 1970s were marked by the curious event of the non-existent Resources Boom. The over-accumulation crisis of the late 1960s and early 70s - underpinning, as we have seen, both the 1968 minerals boom and the 1972 property boom in Australia - was vastly augmented following the OPEC oil price rises that began in 1974. Much of the consequent investment was directed into new resource projects and supportive infrastructure, frequently in Third World countries, and the result was the next crisis, partly manifested in the ‘Third World debt’ of the 1980s. Australian resource projects were again attractive, as in 1968; additionally, state governments borrowed heavily for ports, roads etc., but especially for new electricity generating projects - to attract hoped-for aluminium smelters and other resource-processing industries.

In 1980/81, capital inflow to Australia was a massive $6,033 million; the balance of payments surplus of $1,142 million was the highest since 1971/72; international reserves were high, and the Australian dollar appreciating (Daly, 1982: p. 33). New capital raisings by Australian listed companies were $2,535 million in 1979/80 (double the previous year’s), then an all-time high of $3,117 million in 1980181. Share prices reflected the scramble: the Australian All Ordinaries index rose 57 percent in 1979/80 (only beaten by the 69 percent of 1967/68), and 16 percent in 1980181. But then the bubble burst, the projects began to be delayed or mothballed in the aftermath of the broader debt crisis, and the All Ordinaries index fell 32 percent in 1981/82. The related property boom lasted a year longer, then it too ended in 1982/83.

This next phase of the recession persisted through 1982 and 1983. In 1984 there was something of a recovery, apparently triggered by improved world trade consequent on recovery in the U.S. economy and by domestic public-sector spending, especially in housing investment. In the 1981-83 recession, reported unemployment in Australia hit 11 percent of the labour force; despite the recovery in other aspects of economic performance, it remained above 8 percent in 1984 and 1985.

3.6.2. Housing Devahation

In this context of recession, to Resources Boom, to recession again, and then to apparently jobless growth, housing market behaviour was decidedly erratic. In Sydney it boomed in 1978,79 and 80, despite the return in 1978 to positive real interest rates, and effectively ended only with the move to historically very high interest rates - both nominal and real - in late 1981. Daly (1982: p. 29-33) argues that the reasons for the Sydney house price boom were pent-up demand, a lowering of interest rates in 1978 and 1979 (mainly at the behest of the Federal Government), and the greater volume of money flowing through the Australian financial system. The same conditions tended to occur in Melbourne, however there the housing market declined rather than boomed: house prices fell relative to prices generally in 1978,79 and 80, they rose

JPP 28:3-C

228 Progress in Phning

temporarily in 1981 (just as the boom in Sydney was ending), and fell again in 1982. Over the period of 1978 to 1982, house prices rose 29 percent; but consumer prices generally rose 55 percent over the period.

In the broader context of the Melbourne housing market over the 50-year period observed here, this fall in real prices is indeed remarkable, as was the preceding escalation in 1973 and 1974. Together the two events significantly altered housing costs confronting households, returns to landlords and the social distribution of housing opportunities, and thereby determined characteristics of the local housing crisis of the late 1970s and 1980s. We turn now to those effects, and subsequently (in Section 3.7) to possible explanations for such extraordinary market behaviour,

3.6.3. Houshg Crisis - (1) ARordabiily

On the basis of an ‘affordable’ price as defined previously - i.e. based on male average earnings covering a savings bank loan on 80 percent of price - we estimate that, historically, around 70 percent of Melbourne’s houses sold in each year (and a somewhat higher proportion of flats) have been affordable (Appendix B). There were disruptions but they were usually short-lived and the previous ‘equilibrium’ restored: after the 1930s depression, by rising wages, lower interest rates and stagnating house prices; after the extraordinary house price boom of 1949 and 1950 (when the proportion of affordable houses fell to an estimated 56 percent}, by wage inflation in 1951 and 1952; after the monetary policy restrictions of 1961, by a drop in house prices in 1962. In that context, the price rises of 1973 and 1974, coinciding with high nominal interest rates (though apparently triggered by negative real rates), would be deemed catastrophic - in 1973, affordability fell to 41 percent, and in 1974 to 14 percent. Further, the effect seems to have been permanent (Fig. 4).

If we alter the above assumption of ‘affordability’ however, to consider the situation of a two-income household (specifically by augmenting the borrowed capital with an assumed second-mortgage loan over five years, serviced by a spouse’s income with repayments equal to 50 percent of average earnings), then we find that the proportions of dwellings affordable after 1974 are closer to the longer-term ‘equilibrium’ levels - in 1980 they were 70 percent of houses sold in that year and 80 percent of flats, for example, against the 34 percent and 51 percent of Fig. 4. It is significant that, between the 1976 and 1981 censuses, owner occupancy in Melbourne actually increased (from 69.6 percent at both the 1971 and 1976 censuses, to 70.9 percent in 1981); so, presumably, did the dependence on two incomes.14

The conclusion to be drawn from this is (1) that house prices in 1973 and 1974 simply rose to soak up the additional capital suddenly switched into home purchase, through the device of lenders redefining the borrowing capacity of households, apparently with the objective of resolving a problem of over-investment by firms in new land and housing, but (2) that the lenders did not thereafter return to the previous definition of borrowing capacity. The paradox is that after 1977 house prices fell relative to inflation, but affordability did not return to the old equ~ib~um position. The reason was the persistence of high nominal interest rates.

Relative to male average earnings, advertised rents of both houses and flats in Melbournefell throughout most of the 195Os, 60s and 70s. For houses, mean rent relative to earnings fell from 52 percent in 1952 to 43 percent in 1962, to 39 percent in 1972, to 36 percent in 1982; for flats the ratio was 35 percent in 1962, down to 25 percent in 1972, and 21 percent in 1982.1s The extraordinarily high rents of the 1950s were largely attributable to the ‘dual market’ phenomenon and to the shortage of available rental dwellings (certainly in the controlled market rents were lower, but rent-controlled dwellings rarely changed hands, and would not be advertised!). That rents should fall from those levels during the 1950s and 60s is therefore scarcely surprising. That they should continue to fall relative to wages in the 1970s is, prima

facie, surprising indeed - contrast the decline in rents relative to earnings between 1972 and 1977 (from 39 percent to 32 percent for houses, and from 25 percent to 20 percent for flats) with the leap in sale prices relative to earnings over that period! The explanation would seem to lie in a taxation system that taxed a landlord’s rental income but not his capital gains (so rents did not need to rise, precisely because house prices did rise), and in over-investment in rental housing, in anticipation of such tax-free gains (so that rent rises could not be extracted, whether ‘needed’ or not).

In the Melbourne market overall (though not, as we shall see in Chapter 5, in some specific submarkets), capital gains were replaced by capital losses after 1977, and the previous incentive to invest by something of an incentive to disinvest. If a speculator-landlord had invested in a median-priced house at the end of 1972, received the mean advertised rent for it, arranged his investment to have only 10 percent equity with the remainder borrowed at the weighted average trading bank overdraft rate, had a total income equal to twice male average earnings (and hence the corresponding marginal tax rate), and sold the property at the end of 1977, receiving the mean rate of house price increase, then he would have enjoyed a real return of 642 percent over the 1973-77 period (or 49.3 percent compounded). If, instead, he had invested similarly over the 1978-82 period, the effect of capital losses would have been to reduce his return to 43 percent (or 7.4 percent annually). The real return on a similar investment in a flat, rather than a house, would have declined from 446 percent (40.4 percent compounded) over 1973-77, to 52 percent (8.7 percent compounded) over 1978-82. In the quite likely event of the investor having to pay a higher interest rate on borrowed capital, rate of return would have been less still; it would also have been less if equity in the property had been more than 10 percent; and finally, it would have been either more or less depending on (mainly regional) submarket in the city - in some submarkets capital losses were extreme, in others the previous levels of capital gains persisted (Appendix C). (Indeed it will be argued in Chapter 5 that whereas loss of affordability was the first distinguishing characteristic of the post-1977 housing crisis in Melbourne, and disinvestment its second, its third was differential shifts in house prices and consequent market-related segregation, and its fourth a similarly consequent and extreme redistribution of wealth.)

Disinvestment was manifested in a number of ways. New production, which had peaked in Melbourne at 35,800 commencements in 1972/73 and was still 24,800 in

230 Pr~grwts in ~t~~~i~g

f%%T7, slumped to 18,500 in 1977f78 and subsequently, by I979~~~ to 15,600. Roth new and existing blocks of flats were increasingly subdivided in ownership by the device of ‘strata titling’, to facilitate their sale for owner occupancy, or for more ‘portable’, short-term investment. (Rental investment was increasingly affected by the volatility developing in capital markets both globally and locally in the late 197Os, with growing demand for short-term, often speculative investments. Certainly strata titling facilitated the desired portability, though uncertainty of capital gains after 1977 seriously reduced the attraction of housing as even a medium-term investment.) The private rental sector tightened, with the vacancy rate (i.e. the proportion of dwellings vacant) virtually vanishing, and rents finally rising relative to average earnings after 1977.r6 And in the small public rental sector, waiting lists lengthened dramatically, and ‘public housing’ increasingly became ‘welfare housing’.

3.7. A DISCUSSION - HOUSING REVALUATION AND DEVALUATION

3.7.1. The Role of Consumer Behatiour

If housing market behaviour in the period following 1972 has been so catastrophic in its effects, then to understand the causes of that behaviour assumes some importance. Specifically, why did prices rise to erode affordability in 1973 and 1974, then fall sufficiently to reduce the incentive for rental housing investment, but rtor sufticiently to significantly improve affordability?

We have already observed the apparent association of changes in house prices with the real rate of interest (La the interest rate less the rate of inflation); especially interesting is the coincidence of extreme price rises - those of 1949-50 and again 19’73-74 - with the beginning of periods of negativcl real interest rates. A series of equations linking increase in house price with the real interest rate on first mortgage savings bank housing loans as independent variable and with various transformations of that variable, and estimated by means of least-squares regression analysis of data from the 51 years of 1932 to 1982, were able to account for around 20 percent of variance in house price changes. r7 A further substantial component of this variance would seem attributable to random error in the estimates of annual price rises; and yet a further component will relate to ‘other factors’ not represented in such very simple models. A plot of residuals from the regression equations shows the extent to which individual cases (i,e. price changes in individual years) deviate from the values predicted for them by the equations; it can thereby yield clues to these ‘other factors’. Changes were higher than predicted in 1949 (by around 1.4 standard errors), and vastly higher in 1950 (by some 3.5 standard errors); they were once more higher than predicted in 1973 and 1974 (by around one standard error in each year); and they were lower than predicted in 1978 and 1982, by around 1,6 and 1.4 standard errors respectively.

It seems that shifts in house prices do reflect shifts in the real price of housing capital, as classical consumer theory would suggest. In the most extraordinary booms and busts however, the relationship is simply not linear.

Monopoly Rent 231

3.7.2. lk Qastion of Absolute Rent

This account of house price changes has some value in providing a theoretical link to a signiticant aspect of consumer behaviour; indeed it suggests that consumer behaviour over this SO-year period may not be especially problematic (despite that non-linearity!). Hence it shifts the real question from market behaviour as classically theorised, to the function of finance capital and monetary policy - why were interest rates and monetary policy used the way they were at different times?

The house price booms of 1949-50 and 1973-74 represent increases in ground rent that were general across the urban housing market and not restricted to specific submarkets (Appendix A). It seems therefore that they must be conceptualised as shifts in absolute rent (they are certainly not to be seen as changes in monopoly or differential rent). So as a tentative conclusion we establish a link between monetary policy and shifts in absolute rent.

There were, however, significant differences between these two events. The 1949-50 boom had the effect of increasing speculator-developers’ profits from investment in housing and hence the incentive to invest in new housing production, and thereby created the conditions for enhanced consumption of other production from industrial capital. The shift in absolute rent was integral to the mechanism for triggering a switching of investment to resolve a crisis immediately located in the area of exchange (where prices had to be raised in order to increase profit margins for speculator-developers), and ultimately in the area of under-consumption (where it was necessary to trigger new consumption to enable continuing accumulation and economic expansion). It is difficult to see how a resolution to the situation of the late 1940s - hence the growth of the 1950s and 60s - could have occurred without an increase in absolute rent (though a more managed, less traumatic increase may have been preferable). In 1973-74, on the other hand, the shift in absolute rent was somewhat incidental to the resolution of a crisis immediately located in under-consumption (excess housing output had to be exchanged and consumed) and ultimately in over-accumulation in the global economy (with consequent speculative over-investment in the Australian urban housing market). The price rises were more an outcome of a mechanism - for transferring debts from speculator-developers to consumers and for soaking up excess capital - than an integral part of the mechanism. In 1949-50, they were integral to the mechanism. Also, in some contrast to the earlier case, the effects of the rises were catastrophic. The first of these was to postpone the inevitable - but ultimately slow - devaluation of the consumption fund until after 1977, and to transpose the consequent losses from some firms to most households - from speculator-developers to ‘speculator-consumers’! Secondly they triggered a new local crisis in distribution and consumption of housing. Thirdly, because prices had to be pushed to an apparent affordability barrier, the opportunity to use absolute rent to reward future investments of over-accumulated capital had been significantly impaired, if not destroyed. And fourthly, higher current housing costs eroded households’ discretionary incomes, and hence demand for other goods and services, including manufacturing output. The institutions of finance capital had significantly redistributed consumer demand.


The post-1977 devaluation, in reducing absolute rent, may have restored something cf the previous flexibility; however the affordability barrier persisted into the 1980s (largely due to the persistence of high nominal interest rates, themselves partly an effect of the increasing deregulation of the Australian financial system), and so the restoration of flexibility was very slight indeed. Nevertheless, as we shall see following, the post-1977 devaluation in Melbourne was far from uniform: in some submarkets there were significant real price rises, and substantial opportunities for the extraction of enhanced ground rent. The consumption fund’s flexibility in providing profitable outlets for investment was indeed maintained, but through the device of monopoly rent consequent on uneven investment and development rather than through absolute rent.

NOTES: CHAPTER 3

1. Substantially uniform statistics exist for Value of Production from 1901 to 1967/68. From 1968169 the measure Value Added replaced the previous Value of Production.

2. Gross Accumulation covers both private and public gross fixed capital expenditure, increase in stocks, and net lending to overseas.

3. Generally since 1946/47, data have been published by the Australian Bureau of Statistics (ABS) on new dwellings approved, commenced and completed; of these the commencements series is preferred as an indicator of actual investment. Prior to 1946/47, the most complete data relate to ‘permits’, generally equivalent to dwellings approved. Accordingly Fig. 3 uses both series.

4. The Consumer Price Index (CPI) will generally be used as a behaviourally realistic measure of inflation, in preference to the GDP implicit price deflator. For most purposes the two are closely related. The CPI has been derived by linking the ‘C’ series Retail Price Index for 1931/32 to 1946/47, with a composite of Consumer Price Index Housing Group (partly estimated) and the ‘C’ series Index excluding Rent for 1946/47 to 1948/49, with the Consumer Price Index from 1948/49. Data are from ABS.

5. Commonwealth Bureau of Census and Statistics (CBCS) estimate, from trade union returns. Comparison of the 1933 estimate with 1933 census data suggests that trade union figures for Victoria may have been high by 2 percent.

6. The 1947 census total of 1,873,600 has been reduced by 50,000 to correct over-enumeration due to the 106,000 households occupying ‘shares of private houses’.

7. Between 1953 and 1973, the rise in the CPI was 88.0 percent (ie. an index of 1.88 to a 1953 base); the rise in male average earnings was 227.4 percent.

8. The price paid for this high wage structure, relative to that of other economies, was an unfavourable balance of trade, virtually throughout the era. Balance of puyntents was favourable however, mainly because Australia was a net importer of capital.

9. Over the twenty years 1953-1972, increase in house prices is estimated as 232 percent (ie. an index of 3.32 to a 1952 base, from Appendix A); the rise in consumer prices was 79 percent. More significantly, this increase in house prices was higher than the savings bank home loan interest rate compounded over the period (202 percent) and higher than the increase in male average earnings (215 percent). (On the basis of median prices, however, the house price increase would be 183 percent, thereby less than the price of housing finance or increase in earnings.)

10. Information on available rental housing is derived from the classified ‘to-let’ columns of The Age newspaper. Rental advertisements are mainly run on Wednesdays and Saturdays; mean rents used here and following relate to dwellings on Weakesdays and Saturdays in March and September in the years discussed. The listings appear to cover the great majority of dwellings publicly advertised for rental in Melbourne; and they have been published with apparent consistency over many decades. However they have some disadvantages: they provide no information on dwellings not publicly advertised (and in a ‘tight’ rental market, a considerable proportion of tenancies appears to change hands through ‘insider’ information or through subletting, so that the dwellings are never advertised); and they tell us nothing about actual rents being different from those advertised.

Monopoly Rent 233

11. Rental control dated from the beginning of the war, and was strengthened by the Federal Government Rent Control Regulations during and after 1941.

12. For a review of the CSHAs, see Pugh (1976). 13. Although prices were higher in Sydney throughout that period - $5,810 in 1968, $18,500 in 1974 -

the rate of increase was a marginally lower 218 percent. 14. A March 1980 survey of housing finance applications in Victoria revealed that 50 percent of known

first buyers (and 47 percent of all applicants) were double-income households. Average weekly earnings of such double-income purchasers were $516, in contrast to male average earning of $248.80 in that year (Institute of Applied Economic and Social Research, 1981).

15. See note 10 above. 16. Whereas the Real Estate Institute of Australia reported a Melbourne vacancy rate of a relatively

‘normal’ 3 percent in January 1980, by January 1981 it had fallen to 1.4 percent. 17. Typically, the equation with real interest rate untransformed accounted for 17.1 percent of variance,

with F = 10.12 (49 d.f.). Constant term was 8.59 (f = 5.68), and coefficient on real interest rate was -1.04 (t = -3.18). Nominal interest rate determines loan size according to the equation:

loan = repayment X 1 + z (1 +#-I

(1 +Jl"

where j is nominal interest rate and n is number of repayment periods. A transformation analogous with the relationship yielded no significant improvement in explained variance.

CHAPTER 4

Class Structuration - Melbourne, 1920s to 1980s

Shifts in class structure are intimately interwoven with these processes of capital restructuring just described. First, the restructuring of capital necessarily transforms the capital-labour relationship, and is itself inevitably constrained by the prevailing state of class struggle. Secondly, capitalist economic expansion in the primary circuit is dependent on efficient markets and expanding demand, and so on a (changing) class structure that guarantees a requisite supply of willing consumers with adequate incomes or access to credit. There is no production without consumption. Thirdly, the consequent changing differentiation of the population will interact with the structure of housing submarkets, thereby altering the opportunities for capital investment in the secondary circuit and ultimately the triggering of yet further demand in the primary circuit. And fourthly, if restructuring leads to heightened expectations (for education, environmental amenity, etc.) from an expanding middle class, or to increasing welfare recipients from an expansion of the unemployed, demand for public expenditure in the tertiary circuit will increase, drawing-off capital from other sectors of the economy.

Aspects of this social transformation especially relevant to the production and maintenance of housing submarkets in Melbourne - the focus of the present paper - are addressed following: specifically, we explore shifts in the division of labour, in the ethnic composition of the population (as migration has both augmented and fragmented the working class), and in the structure of households (which is to be seen largely as a consequence of changing class structure and prospects).

4.1. SOCIAL CLASS AND THE DIVISION OF LABOUR

4.1.1. Indnstri~lisation and De-IndustriaHsation

The long processes of mechanisation in Australian agriculture and mining (the primary sector), growth in import-substituting manufacturing (the secondary sector), and expansion of administration, professional, business and other community services (the tertiary sector), have underlain major shifts in the industrial division of labour: the long decline in primary sector employment (from 32.9 percent of the national workforce in 1901 to 7.8 percent in 1981) was, until around the mid-196Os, largely compensated-for by growth in manufacturing and the tertiary sector. Subsequently

234

Monopoly Rent 236

however, manufacturing employment has declined, from 28.0 percent in 1966 to 17.7 percent in 198 1. Improvements in technology and the consequent productivity of labour have been one factor in the decline; another has been the ‘new international division of labour’ (Froebel et al., 1980); and the consequence has been increasing de-industrialisation: imported manufactured goods substituted for local production, and declining domestic manufacturing (Stilwell, 1980: Chapter 3; Badcock 1984: pp. 150-158).

Melbourne especially benefited from the growth in manufacturing; it has in turn suffered from the decline - among males, from 39.1 percent of the employed workforce in 1966, to 28.4 percent in 1981. The gap, both nationally and in the major cities, has been tilled mainly by expansion in the tertiary sector - in Melbourne, by community services (from 7.5 percent of male employment in 1966 to 9.0 percent in 198 l), public administration (4.6 percent to 5.9 percent), and most dramatically finance, property and business services (3.8 percent to 8.4 percent). This is not to say that the newly redundant factory workers became property consultants or lawyers; rather, they were likely to go into early retirement, or unemployment, which had been 1.1 percent of the male workforce in 1966, but was 4.9 percent by 1981. Tertiary sector growth represented new opportunities, though its effects were decidedly uneven. There were also shifts in the distribution of domestic income (see for example Alexander, 1983: p.70) with important consequences both for the structure of the bourgeoisie - they have structured opportunities for profit - and for labour.

The picture of shifts in the industrial division of labour is complemented by that of shifts in its occuptionaZ division (Table 1): occupations in decline have been

TABLE 1. Employed males by ~~~patioa. Melbourne 1966-1981

Occupation 1966 1971 1976 1981

Professional 9.4 10.3 11.7 13.7 Administrative 9.3 9.7 9.9 7.5 ClCliCal 10.7 10.2 9.9 10.2 Sales workers 6.6 7.0 6.5 7.7 Farmers, etc. 1.3 1.9 1.6 1.7 Miners 0.1 0.1 0.1 Transport workers 6.9 6.4 6.3 LO Tradesmen, etc. 49.2 43.6 43.4 41.7 Service 4.6 4.3 4.8 5.6 Armed services

:3 1.4 1.3 1.2

Others, n.s. 5.2 4.4 4.5

Total employed 100.0 100.0 100.0 100.0

blue-collar (though their wage levels have generally been well maintained), while the expanding areas have been tlte professions (with generally rising income levels) and of course, unemployment (with real falls in benefits). We shall observe following that the shifts have underlain significant changes in the structure of housing submarkets.


4.1.2. Bourgeois Ed+, Professional Hegemony?

It would seem that the normal processes of capitalist competition will guarantee the continuing concentration of the ownership of capital (as bigger fish swallow smaller fish!). The concentration is reflected in the declining incidence of people describing themselves as employers: at the 1954 census it was 6.6 percent of Melbourne’s male workforce, 5.8 percent in 1961,4.8 percent by 1971, and 4.5 percent by 1981. It is significant that the greatest decline was during the manufacturing and building boom and the reorganisation of retailing of the 1950s and 1960s.

By contrast, technological change, specialisation of function, and increasing sophistication in production, distribution and exchange, allied with the concentration of capital and the need for its skilled management, have resulted in the proliferation in Australia - as in other capitalist economies - of significant ‘middle-class’ groups. The first is what Carchedi (1975) has termed the ‘new’ middle class: people in the role of both worker and capitalist and paid out of both variable capital and surplus value. The second are the ‘aristocracies of labour’ - engineers, research scientists, economists, but also some teachers, academics, lawyers and the like - who could also be expected, in part, to identify their interests with those of the capitalist class. A third group has also had its numbers proliferate: the professionals in the community services and public administration areas. Especially significant in this context has been the growth in professional workers - doctors, dentists, lawyers, teachers etc. (Table 1).

This augmentation seems to have been complemented by a shift in class consciousness. Increasingly since the 1960~3, school teachers, nurses, real estate agents, property valuers, journalists and similar groups have been insisting, sometimes stridently, that they are ‘professionals’, with certain interests akin to those of doctors, lawyers, university professors and the like. The self-redefinition has also redefined the task of reproduction: the ‘new’ professional class, together with the old, is likely to seek the neighbourhoods and schools that seem best to guarantee their children’s entry to the professions - old professions for preference, new otherwise. There are however constraints. In Melbourne the education system has historically been strongly differentiated, with the path to the higher professions generally best ensured in the private schools, rather than in the government or Catholic parochial systems. It is significant, in this context of the growth of the middle class and of ‘professional class consciousness’, that Victoria has the greatest dependence of all the Australian states on private schools, and that since 1970 the dependence has progressively increased.* It has been assisted by a relative switching of public-sector investment from the government education sector to both the private and the also-expanding Catholic parochial systems - an ‘inter-sectoral switching within the tertiary circuit of capital’, in response to an apparent reproduction crisis.

Melbourne’s private schools have traditionally been spatially concentrated however, in the suburbs of the inner and middle-ring east and bayside (Fig. 5). It shall be observed following that the concentration appears to have substantially structured the expanding housing submarkets catering for the expanding middle-class clientele of the private schools.

Monopoly Rent 237

FIG. 5. Major private and sehctive schools. Melbourne.


4.2. ETHNICITY AND SOCIAL MOBILITY

4.2.1. The Material Progress of the Migrants

Although the British Isles were the major source of immigrants in the post-war period, Southern Europe was increasingly tapped and there were successive waves from Italy, Greece and Yugoslavia, subsequently Malta, Turkey and Lebanon, and most recently Indo-China. By 1981 some 29 percent of Melburnia~ were overseas born - 7.7 percent in the British Isles, 3.8 percent in Italy, 2.6 percent in Greece and 1.9 percent in Yugoslavia. Post-1945 migration to Australia was initially justified on grounds of defence (Populate or perish!) and compassion, though its real effect was to provide labour power (reproduced cheaply, elsewhere), generally in occupations unattractive to the native-born. Castles and Kosak (1973) show the remarkable extent to which the post-war capitalist boom in the European Economic Community was built on the creation of a disposable underclass of immigrant workers; cheap immigrant labour was apparently also significant to Australian economic expansion. However disposability was scarcely exercised, the working-class fragmentation was limited - indeed, Connell and Irving (1980: p. 300) note that, in Melbourne in the 1960s and 7Os, Southern European immigrants were in the forefront of working-class militancy - and the migrants increasingly enjoyed the rising wage levels of manual labour during the 1950s and 60s. In consequence, they contributed increasingly to the domestic market for manufactures and so to indust~alisation and economic growth.

From the position of capital, the situation of the immigrants was contradictory - their role as cheap labour demanded low wages, but their complementary role as potential consumers would thereby be jeopardised. The dilemma was largely resolved in the sphere of housing. As the old working class left the inner suburbs after 1945 (generally for the new, lower-density suburbs), their place was increasingly taken by the migrants, seeking the cheap, devalued housing resulting from decades of dis-investment, reducing housing costs even further by sharing and crowding, and also enjoying low travel costs to abundant unskilled work. Assisted by housing finance, many sought and achieved owner occupancy of their rundown housing, then contributed their own labour to its renovation and improvement - the reciprocity of peasant economies translated to an urban, ~o~orate-capitalist context! The re-investment brought its own reward in higher property values, the migrants sold (to yet further migrants or, as we shall see, increasingly to the expanding middle class) and traded-up to the suburbs. The inner suburbs can therefore be seen as a milieu for converting dutiful migrant labour into equally dutiful (New) Australian consumers/reproducers.

The suburbanisation of ethnic minorities was an event of fundamental importance. For one thing, it reduced their spatial segregation, and Melbourne’s economic underclass was distinguished more by being newiy arrived than by ethnicity as such. The carefully nurtured myth of Australian egalitarianism was reinforced. Further, the process of reinv~tment in the inner suburbs generally avoided the blight of similar areas of North American cities.

Monopoly Rent 239

4.2.2. Repmdudh, MabiB@ am+ Gids

Yet a further contradiction arose with the material progress of the migrants for it inevitably fed rising expectations and aspirations: the Southern Europeans in particular sought small businesses (in retailing, service industries, construction etc.), thereby to join the petite bourgeoisie; they also tended to seek better education for their children, to get them into small businesses and sometimes the professions. Their labour and that of their offspring was progressively lost to the more menial occupations, and had continually to be replaced by yet further migrants from increasingly diverse sources.

The characteristics of Australian economic expansion both accommodated the aspirations and limited them; in general though, the opportunities of the 1950s and 60s may have been seized more successfully by the Southern Europeans than by other segments of the working class (Taft, 1975; King, 1984). If there was an economic and aspirational underclass in Australia in the 195Os, 60s and 70s - slipping backwards by standing still - then it was not distinguished by Southern European ethnicity; it would more likely have been found among the working-class Australian-born and workingclass immigrants from the British Isles, and among the Australian Aborigines.

From the mid-197Os, the situation began to change markedly. Increasingly the new immigrants were Asian rather than Southern European, most notably from Turkey, Lebanon and Indochina; they lacked the supports of a longer-established ethnic community that had been available to the Italians and Greeks, in particular, before them. They arrived titer the crisis of housing affordability that broke in 1973 and 1974, and accordingly were deprived of the earlier ease of access to housing owner occupancy. And they arrived as jobs in manufacturing and construction declined.

Two indicants of the new differentiations are worth noting. First, by 1984 it could be observed that whereas unemployment generally was 8.9 percent of the workforce, among Lebanese-born workers it was 30 percent; among recently arrived Asian migrants generally, it was 42 percent. Secondly, whereas newly arrived migrants from Italy, Yugoslavia, Greece, Britain and other traditional sources were still tending to achieve owner occupancy of housing despite the new constraints, those from the newer sources were not. At the 1981 census, some 73 percent of households whose heads were Italian-born and resident in Australia for 5-9 years were owning or purchasing their dwellings; the proportion for Yugoslav-born was 67 percent, for Greeks 64 percent and for immigrants from the British Isles 63 percent. Among the Vietnamese however it was 40 percent, among the Turks 41 percent, and the Lebanese 53 percent.

4.3. HOUSEHOLD STRUCTURE AND THE DISTRIBUTION OF INCOME

Household formation must be seen partly as a function of prevailing economic conditions, more specifically of the income distribution and hence of the current state of class struggle and class structuration. Two decisions taken by individuals are involved: whether or not to change marital status (if one’s economic position is precarious, one


may delay marriage, or delay or even decide against divorce),2 and whether or not to form a separate household (again, if income is low, or housing costs relatively high, sharing or similar arrangements may be chosen). The second is the more elastic and, accordingly, shifts in household headship ratios in Australia clearly reflect some of the shifts in economic fortunes of households and in investment in housing: for all marital status groups, household headship rose rapidly in the 1920s boom, fell during the crisis of the 193Os, and rose again during the long boom following World War II (Di Iulio, 1981); however it appears not to have fallen with the post-1977 housing crisis.3

The young especially benefited from the distribution of income in the long period of prosperity of the 195Os, 60s and early 70s. Improvements in youth wages, coinciding improbably with the entry into the work force of the population bulge resulting from the ‘post-war baby boom’, largely accounted for an unprecedented increase in household formation among the young during the 1960s and early 70s. In the decade 1961-71, the number of households with heads aged under 25 years increased by around 10 percent per annum (Hugo, 1979: p. 11); in the major cities the increase was even greater, and largely sustained the 1960s investment boom in rental flats in inner suburbs. Additionally, the very large category of households with heads aged 25-34 increased numbers by nearly 6 percent per annum between 1966-71, and by around 4.5 percent annually between 1971-76; hence the requisite demand to support the land and house building boom of the late 1960s and 7Os!

In turn, to compound the effect of rising household headship among the divorced, there came the Australian Family Law Act in 1975, liberalising divorce and indeed catalysing a divorce boom.4 Whereas divorced persons were only 1.6 percent of Melbourne’s over-twenty population in 1971, by 1976 they were 2.4 percent, and by 198 1,4.1 percent.5 Increased household formation among the divorced especially supported demand for flats at a time (post-1975) when the rate of new demand from the young was declining (Fig. 3).

A consequence of these processes of household formation has been an increasing diversity in household types - hence in potential housing submarkets.

4.4. A DISCUSSION - STRUCTURING HOUSING SUBMARKETS AND OPPORTUNITIES FOR INVESTMENT

The growth of the population, and its changing structure in terms of class, ethnicity and household composition, have significantly structured the opportunities for speculator-developers to invest in the various, differentially expanding housing submarkets and, as we shall see following, to extract monopoly rents. Indeed, shifts in the population structure greatly augment the opportunities that would arise from the normal expansion of the population without such shifts. The effect is also reciprocal: the presence of specific submarkets can catalyse change in population structure. As an example, devalued, low-rent flats in some inner suburban areas of Australian cities in the late 1970s enabled continuing high rates of household formation among newly-arrived migrants, the young, lone-parent families and other groups.

Monopoly Rent 241

It is useful to observe the main features of the differential expansion of population groups, and thus the potential for differential growth of submarkets.

(9

(ii)

(iii)

(iv)

(v)

The 1930s Depression suppressed demand generally; however the late 1930s recovery, though uneven in its benefits, with unemployment in particular remaining high, released part of that demand, creating opportunities for the continuing suburbanisation of the working class and so for investment in new working-class suburbs. Significant opportunities for investment in rental housing were also created by the devaluation of dwellings in existing working-class suburbs during the Depression. In the 1940s there were virtually no clear opportunities for the realisation of monopoly rents, although a form of absolute rent was extracted through the practice of ‘key money’ for the exchange of rent-controlled dwellings. Rapid family formation and immigration in the late 1940s augmented the suppressed demand residual from the 193Os, and ultimately to be released in the 1950s. After the 1949-50 resolution to the crisis of the 1940s - by augmented absolute rent - opportunities for speculator-developer investment were presented in virtually all new suburbs. Initially there was some restriction to areas close to the radial public transport system, but with increasing penetration of car ownership to the working class during the 195Os, the investment opportunities were spectacularly shifted to working-class submarkets distani from the transport system

The increasing departure of the working class from the inner suburbs, together with lending policies that favoured new houses over existing, tended to suppress prices in the inner submarkets. The arrival of the Southern European migrants in turn created new opportunities in those inner areas. In the 196Os, the processes of the 1950s generally persisted; additionally, increasing migrant affluence enabled their suburbanisation, and created yet further submarkets, notably though ‘invasions’ into established suburbs.

Also in the 196Os, expansion of the professional and managerial (middle-)class groups created opportunities in four types of submarket: (1) demand increased in existing middle-class areas; (2) it additionally spilled over into new estates of middle-class housing; (3) beyond the city were exurban colonies of the middle class in small towns, on hobby farms etc., within commuting distance of the city; and (4) gentrification became significant as middle-class households occupied dwellings in previously working-class submarkets, usually close to traditionally middle-class areas or else in originally middle-class areas of the inner city. In all of these cases, conditions were created for the realisation of monopoly rents.

Finally, the 1960s saw the extraordinary growth in household formation among the young, establishing opportunities for monopoly rent and hence the investment boom in rental flats (Fig. 3). Investment opportunities in the late 1960s and early 1970s were dominated by (1) demand from the expanding categories of households with heads aged 25- 34, underpinning extraordinary growth in the urban fringe submarkets, (2)

242

(vi)

Progress in Planning

persisting demand from the still expanding younger group (with heads less than 25), supporting the continuing flats boom, and (3) increasing gentrification. Other opportunities of the 1960s tended to persist into the 1970s. The housing crisis beginning in 1973 was partly triggered by the end of the growth in household formation by children of the post-war baby boom - expansion of demand in specific submarkets (principally at the urban fringe) was inadequate to yield a requisite return on the speculative capital over-invested in the submarkets. The resolution of that crisis - and its consequent re-emergence in an altered form through the medium of higher absolute rent - effectively ended the boom.

Conditions for realising monopoly rents arose principally with (1) the continuing expansion of the professional and managerial middle-class groups (underlying, in particular, continuing gentrification), and (2) household formation by singles and lone-parent families, apparently catalysed in part by the 1975 Family Law Act.

Finally during the latter 1970s and the 198Os, devaluation in some submarkets was accompanied by the expansion of specific groups - newly arrived migrants during the recession, the young unemployed, a substantial component of lone-parent families - who might ‘accept’ overcrowded or otherwise unsatisfactory housing arrangements because of limited options open to them.

Two final points need to be drawn from this picture. The first relates to the apparently increasing complexity of class structuration since the 1960s. In terms of the Giddens/Harvey model introduced in Section 2.3, a variety of ‘forces of class structuration’ have been involved, most of them ‘derivative’ from the need to preserve processes of capital accumulation: the division of labour and specialisation of function (de-industrialisation, de-skilling, the rise of the ‘middle’ classes, etc.), consumption classes or distributive groupings (transformation of the migrants from inner city to suburban life styles, diffusion of owner occupancy, increased household formation among singles, lone-parent families and other smaller households, expansion of the ‘new poor’, etc.), class consciousness and ideology (the diffusion of ‘professional class consciousness’ as an example), and mobility chances (fragmenting the groups with Southern European ethnicity, for example). One might reasonably expect this increasing social differentiation to accompany an increasing differentiation of housing submarkets in the city.

The second point is to re-emphasise that class structuration as discussed above, and the processes of production, accumulation and investment explored in Chapter 3, are inextricably interdependent. Indeed, the two chapters have merely described different aspects of a single social formation.

Monopoly Rent 243

NOTES: CHAPTER 4

1. The non-Catholic private schools in Victoria increased their ‘market share’ from 5.2 percent in 1970 to 7.9 percent in 1983; Catholic schools were 19.4 percent in 1970. declining to 18.4 percent by 1976, after which they too expanded at the expense of the government sector, reaching 20.8 percent in 1983. Government schools have had a declining market share since 1972, and absolute declines since 1977.

2. For example, the median age at marriage for males in Victoria was 26.0 in 1950, gradually dropping to 23.8 by 1974; subsequently it rose slowly to 26.0 again by 1982. Median age for females also fell during the boom and rose in the post-1974 crisis.

3. Between 1976 and 1981, family hcadship among married persons rose from 97.6 percent to 98.2 percent. It is probable that household headship also rose. Family headship among never-married males aged 15 and over rose from 17.5 percent to 20.3 percent between 1976 and 1981; for females the rise was from 16.4 percent to 20. I percent.

4. Between 1971-75, there were on average 4.028 divorces annually in Victoria; the 1975 figure was 5,663. In 1976 however there were 16,625, falling to 9,207 by 1980, before beginning to rise again.

5. The proportion of the permanently separated also increased. If the divorced and the permanently separated arc combined, their proportion of Melbourne’s over-twenty population rose from 4.2 percent in 1971, to 5.6 percent in 1976, to 7.0 percent in 1981.

JO? 28:3-D

CHAPTER 5

Residential Differentiation and the Production of Submarkets

Just as patterns of investment (explored in Chapter 3) and those of class structuration (in Chapter 4) are inextricable, so are both interdependent with locale. The submarkets that are the locus of investment occur in physical spaces, and those same spaces are the milieus of social reproduction, household sector production, and community struggle against intrusions - including the intrusions represented by unwanted investments or by one submarket invading another. It is to this question of locale that we now turn. As we are concerned with the formation of differentiated submarkets and the underlying structure of residential differentiation us processes, they must be explored over time; accordingly we begin with their relatively ancient history.

5.1. RESIDENTIAL DIFFERENTIATION TO 1947

Davison (1978: pp. 147-52) has described the patern of residential differentiation of Melbourne in 1891, and summarised the concerns and processes that had underlain its production. By that time, he observed, “the city was clearly split into two broad social areas. The Yarra [River] had become the boundary - almost a cordon sunituire - between middle-class and working-class Melbourne” (1978: p. 147). Popular myth, though, held that there was a felicitous diversity, even a spatial egalitarianism, modifying the split: “a poor house stands side by side with a good house, a cottage, one might almost say a hovel, in close proximity to a palace”; and Melbourne’s slums were relatively few and “easily rectifiable” compared with the “gigantic evils of overcrowding and impecuniosity in London and other large English towns” (contemporary views, quoted in Davison, 1978: pp. 146-147). Certainly the myth reflected an element of reality. Small houses with working-class occupants were indeed to be found in relative abundance even in grand bourgeois Toorak and South Yarra, and in some areas of the affluent east there were whole neighbourhoods of them; and in the predominantly working-class north and west there were enclaves of the affluent, but more significantly resident doctors, lawyers, school teachers, factory managers and even factory owners.

The pattern of differentiation was little changed thirty years later, at the time of the 1921 census. The 1920s housing boom however saw a significant shift away from the previous local diversity: new building controls, covenants on development, and more

244

Monopoly Rent 246

rapid completion of development in new estates and neighbourhoods (apparently consequent on shifts in financing arrangements) led to more uniform subdivisions with a greater likelihood of houses dating from the one era.’ The trend to uniformity was further confiied in the recovery of the late 1930s.

In contrast with the new low-density suburbs of the 1920s and 193Os, the inner suburbs were mainly of medium-density rows of terrace houses, generally dating from the 19th century and, by the 193Os, deteriorating; worse, shacks and sheds had commonly been erected in the yards of houses, opening off their service lanes so that a ‘second city’ - effectively a shanty town - had developed behind the publicly visible 19th century city. Physical standards were usually appalling, dwellings over-crowded, occupants’ incomes (and rents) low, and unemployment high.2 In 1937 the Housing Commission Victoria (HCV) was set up to build new houses for the lower-income, thence to decant slum dwellers into them, demolish the emptied slums and replace them with new houses, decant yet further slum dwellers into the newly reclaimed slums, reclaim yet further slums, and so on. It began its program in 1938 with zeal, high expectations, and a working budget of $1 million.

Ultimately, however, the HCV failed. New housing was built, slums were decanted, but they immediately filled again. Especially after 1939, no arguments could be advanced for demolishing scarce dwellings, regardless of standard. When the HCV began to build again under the Commonwealth-State Housing Agreement program following World War II, it was almost exclusively estates of separate houses in new suburbs.

Desite the relegation of the poor to inner suburban renting, in the owner-occupier submarkets spatial segregation was far from inexorable. Even in the middle-ring south, which included top-of-the-market St Kilda, Toorak and South Yarra, there were working-class owner-occupier submarkets where dwellings were ‘affordable’ by households on a single average income.

5.2. RESIDENTIAL DIFFERENTIATION IN THE LONG BOOM

5.2.1. l7ie Bouqgeoisie, tiie Prof~ionah and t#e Working Class

Both the bourgeoisie and the working class expanded their ranks during the 1950s and 6Os, and both were increasingly attracted to new subdivisions in newer suburbs. Segregation and differentiation increased marginally, partly due to internal migration (those who could afford it moving to a ‘better suburb’), and partly no doubt as a consequence of the concentration of capital and slow eclipse of smaller businesses, whose owners were more likely to have lived in the working-class suburbs, near their factories and shops, than their bigger and more successful competitors.

Some aspects of the shifts are especially noteworthy.

(i) The old, predominantly working-class, inner suburbs were progressively losing the relatively few employers resident in them. (We shall see shortly that they were also losing their Australian-born populations.)

246 Progress in Plenning

(ii) Also, in the 196Os, was the quite dramatic bourgeois abandonment of previously high-status, bayside St Kilda. The slide was extraordinary - between 1961 and 1971, from 8th to 34th in a ranking of Melbourne’s municipalities in terms of employers in their male workforces - and it was accompanied by an equally extraordinary investment boom in residential flats, the area’s partial transformation into a ‘zone in transition’ in the Burgess mould (catering especially for the expanding ranks of the newly aftluent and independent youth), and it acquired a rapidly growing ‘red light’ district (monopoly rent, mafia-ensured).

(iii) New housing demand from the bourgeoisie, whether attributable to its expanding numbers or to its internal migration, together with that from the more rapidly multiplying professional workers, was largely accommodated by new development in their traditional domain of the middle-ring east and bayside. There was also however some outward expansion - from Kew and Camber-well in the east to Doncaster-Templestowe, and from bayside Brighton into Sandringham.

FIG. 6. Key map - Melbourne lacal government areas.

Monopoly Rent 247

(iv) Since the late 19th century there had been smui/ communities of the grondc bourgeoisie and professionals - merchants, industrialists, property developers, successful lawyers, etc. - in the ‘hill stations’ of the Dandenong and Macedon ranges (to the east and northwest respectively), and on the outer bayside. By the 196Os, better roads and cheap petrol were making the environmental attractions of the ‘exurbs’ attainable for increasing numbers of households; and with the new concerns of the ‘environmental movement’, there were also increasing numbers prepared to trade-off travel time for ‘the bush’. So the 1960s saw the ernbo~~ge~is~e~t of the prefihe4 environs of the city - most notably Eitham, but also Berwick and Sherbroolce.

(v) A small proportion of the professional workers in the 1960s moved to the inner suburbs, most notably in the area surrounding the campus of the University of Melbourne (in the City of Melbourne).

(vi) The working class - increasing their numbers more rapidly than the bourgeosie, and of course from a far larger base, and enjoying rising real incomes and readily available housing capital at generally suppressed interest rates - accounted for the demand underlying the greater part of suburban expansion of the 1950s and 60s.

At the 1947 census, 10.2 percent of Melbourne’s population had been born overseas. Of these, some two-thirds were from the British Isles, and were fairly evenly distributed over the metropolitan area. The remainder however were more segregated, generally in the old inner suburbs. The early years of the post-war immigration boom saw this pattern replicated: the migrants were predominantly from the British Isles, and generally dispersed through the city, while those from Southern and Central Europe tended to concentrate in the same inner suburbs as their precursors. in the 1950s however, the sources became more commonly Southern Europe; and as the old Australian-born residents of the inner suburbs increasingly departed for new homes in newer suburbs (or else the hereafter}, the migrants took their place in the devalti inner suburbs. So, for example, Fitzroy’s population was 12.2 percent ItaIian born by 1954; by 1961 it was 18.6 percent Italian, and 10.9 percent Greek.

The 1961 census, however, also revealed an increasing dispersal of the Southern European migrants through secondary settlement to the lower-density suburbs. Among the Italians there were now concentrations in middle-ring Brunswick and Northcote (16.5 percent and 9.6 percent respectively) and in the outer west; the Yugoslavs were especially to be found in the west, as were the Maltese. The Italian-born increasingly departed the inner suburbs after 1961; their place was partly taken by the Greeks, but they too were moving out by the 197Os, to be replaced in turn by yet further groups - the Vietnamese, for example (to comprise 6.2 percent of Richmond’s population by 1981).

A number of factors converged to produce the ~fo~ation of the immigrants from dutiful labour to dutiful consumers of suburbia. First was the overwhelming


example of the host culture, with its detached houses on 0.1 hectare allotments in suburbia, the car, the modern kitchen, all enjoyed by a society of seeming affluence, that had presumably rejected other alternatives as inferior. Indeed the inner suburbs where they - the migrants - so often found themselves were, until the 197Os, generally labelled ‘slums’ by their hosts. Second were the examples of their longer-established and successful fellow countrymen, demonstrating a suburban

lifestyle of success. Thirdly, they were subject to the same blandishments of the admen as were other potential consumers. And fourthly, as observed earlier, they enjoyed the increases in real wages characterising the 195Os, 60s and 70s simultaneously with the low housing costs of the inner suburbs; and when the inner suburbs began to be revalued in the 1970s - partly indeed due to the efforts of migrant owner-occupiers in renovating and improving the stock and partly to the ethnic restaurants and other services that had accompanied them - they increasingly enjoyed the capital gains that facilitated subsequent moves to the suburbs.

The inner suburbs of Melbourne, and of the other Australian cities, can be viewed partly as a milieu for this crucially important transformation - effectively for the operation of the second and fifth ‘derivative forces of class structuration’ of Section 2.3.

5.2.3. l%e Flats Boom

The outward expansion of the city in the 1950s and 1960s was relatively non-controversial - the provision of services at community expense was able to confer substantial benefits (mainly as monopoly rent) on some speculator-developers rather than others and to structure outer urban submarkets in quite specific ways, and there were numerous debates on the inadequacies of services in many areas and consequent calls for greater social expenditures in one submarket rather than another; but generally ‘problems’ were perceived as temporary failures, delays or disequilibria in the broad progress of Australian urban society. With the coming of the flats boom such illusions were less sustainable.

Prior to the boom there were already significant flats submarkets resulting from 1920s and 30s development in a number of inner areas. With the major switching of investment into rental flats that began in 1960, these submarkets expanded by the redevelopment of the (generally devalued) separate house stock in those same areas. However the expansion was far more extensive than this, and into relatively new territories: in inner-city Fitzroy for example, the proportion of flats in the dwelling stock increased from 2.2 percent in 1954 to 26.4 percent in 1971; in middle-ring (but adjoining) Northcote, the increase was from 0.5 percent to 20.9 percent. Not surprisingly, the invasions tended to be into the inner suburbs, into other areas with good public transport accessibility (particularly in the east and southeast), and along the bayside.

The micro-scale effects of this submarket invasion were decidedly uneven, and describable as a series of typical stages.

Monopoly Rent 249

(i) A dwelling on a larger allotment in an inner or middle-ring suburb, or else two or more adjoining dwellings on smaller allotments, devalued through the declining amenity of the inner suburbs and by lending policies directed to new construction rather than existing dwellings, are purchased by a speculator-developer. The houses are demolished, and flats built.

(ii) The new investment has deleterious external effects on neighbouring properties; use values decline, and residents may wish to sell and move out; exchange values will tend to fall relative to those in the submarket generally, especially as s~culatorde~lo~~ tend to locate their next flats projects at sufficient distance from existing blocks to avoid r!teir externalities.

(iii) Existing house dwellers not wishing to move and concerned over the deleterious effects of redevelopment (including the influx of new consumption or ‘life style’ groups), campaign for tighter development controls. Local government responds with higher standards, imposing lower dwelling densities on future projects; production declines, rents rise - and with them the return on investment - and so production resumes.

(iv) The higher standards isolate many existing houses jammed between flat blocks or on sites otherwise unable to be redeveloped; in other cases, ‘prime redevelopment sites’ sell at especially inflated prices. Similarly the flats submarket is incr~singly fragmented, as new developments are to appreciably higher standards than earlier ones.

The devaluation of existing dwellings, either through the Iong-term decline in amenity [in (i) above] or through the effects of neighbouring investments [in (ii)], may be conceptualised partly as shifts in d@%rrenfiul rent. The price rises, on the other hand, are best seen as changes in monopoly rent - there are no changes in use values, but only in exchange values due to some monopoly control over better sites [in (iv)], over limited supply in an established market with expanding demand [e.g. during an investment downturn as in (iii)], or over limited supply in a newly created submarket [as in the newer and higher-standard devetopment of (iv)].

There was also uneven development at the broader scale of the neighbourhood due to zoning within the local government area (LGA), and to differences between development controls and zoning practices of adjoining LGAs. These conditions gave rise to yet further submarket fragmentation, and yet further opportunities for realising monopoly rent. And underlying both micro- and broader-scale processes were the expanding population groups (notably newly-forming younger households and newly-arrived migrants) accounting for expanding demand and monopoly rents, and an increasing valuation by some groups of the time savings achievable in the inner or middle-ring suburbs, accounting for increases in differential rent.

5.2.4. IBe Rok of the Housing CommAsion Victoris

With its program of extensive new suburban estates well under way, in 1952 the HCV again turned its attention to the inner suburbs and the goal of ‘slum reclamation’. Its Fitzroy Reclamation Area initiated a new program of compulsory


acquisition of private property, demolition, and construction of three- and four-storey walk-up flats, generally using a system of factory-produced, heavy pre-cast concrete panels. The system was more suited to high-rise construction however, and when allied with an architectural, physical determinist ideology based on Le Corbusian and Scandinavian models, it yielded a rationale for much larger-scale estates, of high-rise blocks set in ‘parklands’. The program was especially supported by the Melbourne City Council on the grounds that it would ‘revitalise’ the run-down inner city and inner suburbs, and enhance demand for CBD shopping (the Melbourne City Council was dominated by CBD business and property interests). The inner suburban councils tended to vary in their support.

The high-rise program was extraordinarily visible, draconian and increasingly resisted, especially by the small numbers of professionals - both renters and owner-occupiers - moving into a few of the inner suburbs in the late 1950s and early 196Os, at the beginning of the long process of gentrification of the areas. The objections particularly related to the idea of threats to (1) long-established, closely-knit, working-class communities in the areas (though these were already fast disintegrating) or (2) allegedly well-established ethnic communities in the same areas, with their ‘cosmopolitan flavour’ and culture enriching the inner suburbs. The ostensible issue was community struggle, not class struggle, though all the evidence pointed to a middle-class group defending territories (in the name of the working class, against the working class) that they were themselves already colonising. So the HCV provided the external enemy to redirect a persisting inter-community and inter-class struggle, traced in some detail in Logan (1985), and to legitimise the victory in the eyes of the eventual, middle-class victors. The professionals ‘won’ the inner suburbs, though in the name of the working class - who promptly upped and left!

By late 1971 the HCV was in full retreat. Its legacy was substantial. First, it had left a virtually intractable social problem, as it had produced a submarket of dwellings quite unsuited to their intended occupants (lower-income families with children), given the socially created attitudes and expectations of Australians in the 1950s and 1960s; they progressively became a dumping ground, degenerating both physically and socially, and stigmatised. Secondly, the sheer bulk of the high-rise estates blighted neighbourhoods physically, the prejudices against their occupants soured neighbourhood relations, and property values fell relative to those more distant from the estates. So inner urban submarkets were fragmented yet further. And thirdly, in focusing community struggle (and indeed class struggle) over issues of amenity in favoured neighbourhoods, the anti-high-rise battle catalysed local community opposition to both public-sector and private-sector investments throughout Melbourne. By the early 197Os, electorally enforced changes in local government development controls were significantly inhibiting private-sector flats investments in many areas, and the flats boom was increasingly shifting to new submarkets in new areas.

5.2.5. Market Changes in the 1950s and 1960s

The outward expansion and reproduction of the submarket structure during the

Monopoly Rent 261

boom of the 1950s and 60s saw the price of new houses in each year tending to be marginally higher than those of the previous year in the same or equivalent outer-urban submarket, even after allowing for the effects of house price inflation on the latter (Appendix A, Tables 11 and 12). So the association between median house prices in LGAs and accessibility to employment declined over the period (the correlation was 0.09 in 1962,0.04 in 1967 and -0.04 in 1972).’ However, the elasticity of supply at the fringe ensured that price rises realisable on those newer dwellings would be less than in the more contained, inelastic submarkets of more established areas; and so the association between estimated price increase rates and accessibility to employment was positive through most of the 1950s and 60s (with correlations of 0.38 in 1953-57,0.05 in 1958~62,0.23 in 1963-67 and -0.05 in 1968-72). Increasing car availability and falling petrol prices would lead one to expect differential rents to full in the more accessible suburbs; however, as ground rents actually rose there relative to rents elsewhere, it is clear that the shifts are to be seen as monopoly rent, favouring owner-occupiers and speculator-landlords in convenient areas.

These shifts in prices and thereby in capital gains underlay enhanced returns to landlords in inner and middle-ring rental markets vi+&vis those in other areas (note in particular the consistently high returns in submarkets for houses in the middle-ring north and south and for flats in the middle-ring east, south and bayside, in Tables 16 and 17, Appendix C). Especially in the investment boom in rental housing of the 196Os, investment in middle-ring submarkets vis-h-vis other submarkets closely reflected differential rates of return, which in turn reflected the (monopoly rent- related) capital gains realisable in those more contained, inelastic submarkets at a time of rapidly increasing demand from the newly household-forming young. The relationships involved were mutually reinforcing: the presence of speculatordevelopers and speculator-landlords in the submarkets enhanced demand and hence opportunities for monopoly rent; the consequently higher returns on investment and the seeming promise of expanding rental demand triggered yet further investment; and the increasing supply and accompanying hype helped form the attitudes and consumer preferences (for particular life styles in particular milieus and submarkets) necessary to realise that promise of expanding rental demand.

5.3. RESIDENTIAL DIFFERENTIATION IN THE SECOND GLOBAL CRISIS

13.1. IIie Profbssionah - Colonisation and Concentrati~

The state of apparently endemic crisis following the property boom of 1968-72 was characterised by falling rates of economic growth, increasing unemployment, and seriously declining affordability of housing. As only the professional workers seem to have both improved their economic positions and significantly expanded their proportion of the workforce over this period, it is instructive to begin a discussion of the population’s changing differentiation with some consideration of their residential behaviour (Fig. 7).


(4 1966

h

h if v

FIG. 7. Tbe progress of the professionals - (a) percent of male workforce in professional and technical occupations, 1966 and 1981; (b) rate of increase in proportion of male workforce in professional and technical occupations 1%6-71,1971-76 and 1976-81. Melbourne local government areas. Note: (b) Computed as standard deviatioi above or below estimated proportion if each LGA had attracted professional workers in proportion to its percentage

at the beginning of the period, and to its population change over the period.

Monopoly Rent 253

During the 196Os, professionals ten&d to accompany those of the bourgeoisie moving out to the ‘bushland settings’ of the exurbs; they contributed to the embourgeoisement of the preferred environs of the city, referred to previously. The other migration was in the opposite direction, to the inner city and inner suburbs, and was rather more significant.

Whereas the main focus of invasion in the early 1960s had been the area around the campus of the University of Melbourne (in the City of Melbourne LGA), by the late 196Os, professionals were also significantly increasing their share of the housing stock in nearby Fitzroy, in South Melbourne and in working-class pockets of many other suburbs, including those of the socially heterogeneous inner and middle-ring east; in the early 1970s - between the 1971 and 1976 census - Collingwood joined its neighbours Fitzroy and the City of Melbourne as a target; and between the 1976 and 198 1 censuses, the professional invasion became virtually ubiquitous through the inner suburbs (City of Melbourne, Fitzroy, Collingwood, Richmond, South Melbourne, Port Melbourne), and even the next band of middle-ring suburbs (Essendon, Brunswick, Northcote) and remaining working-class enclaves in the already largely bourgeois and professional Hawthorn and Caulfield. Fitzroy illustrates the transformation: whereas 3.0 percent of its male workforce were in professional occupations in 1966, by 1971 this proportion was 5.3 percent; by 1976 it was 13.2 percent; and by 1981,22.3 percent. It had advanced from 52nd ‘most professional’ of Melbourne’s LGAs in 1966, to eighth in 1981 (out of 56 total). In South Melbourne, Fitzroy and to a lesser extent other inner LGAs, the proportions of employers in the male workforces also increased during the 1970s - a time when that proportionfell in Melbourne as a whole! (Of course, many of the professionals were also employers.)

The effect of the relative growth and concentration of the professional workers was threefold.

(i) A number of inner suburbs, once overwhelmingly old working-class, became new domains of the middle class: in City of Melbourne, Fitzroy, Collingwood, Richmond, South Melbourne and most recently Port Melbourne. However the transformation was always uneven, being especially concentrated in some areas (generally characterised by more substantial dwellings from the 19th century, wider streets, local parks, and perhaps elevated ground), and scarcely apparent, or at least delayed, in others (usually with smaller dwellings, on smaller allotments, sometimes poorly built, and with intrusions of industry, high-rise public housing or heavy traffic). Indeed, as we shall see, these same municipalities were simultaneously the focus of middle-class, owner-occupier gentrification, new investment in middle-class rearer submarkets, and of ‘new poor’ relegation.

(ii) Less spectacular was the middle-class capture of enclaves of working-class housing in mainly affluent (and mainly middle-ring) suburbs: in Kew, Hawthorn, Camberwell, Malvem, Prahran and Brighton municipalities. Much of this stock, devalued in the working-class suburbanisation of the 1950s and 6Os, had also been occupied and improved by the Southern European migrants, although their role as catalyst for the subsequent middle-class

254 Progress in Plenning

(iii)

succession had less significance than in the inner suburbs. The diversity of the middle-ring east and bayside, which had persisted for over a century, was ending by the late 1970s as working-class shares of the housing opportunities of those suburbs were progressively lost. Scarcely revealed in the data on intercensal change was the increasing demand for the more substantial dwellings of the middle-ring east and bayside. Turnover of that stock was rapid from the early 1970s onwards, dwellings were renovated and extended, and the old middle-class suburbs virtually renewed and transformed.

What caused this new, middle-class concentration? Part of the likely explanation has already been suggested (in Section 4.1.2): the apparent rise of ‘professional class consciousness’ in the expanding ranks of the professional workers, and the consequently redefined task of reproduction, focused attention on those milieus where the ‘old’ professional groups - doctors, lawyers and the like - seemed most successfully to maintain envied lifestyles and to reproduce their kind. And those milieus were, pre-eminently, the suburbs of the middle-ring east and bayside, with their concentrations of private schools, larger dwellings, well-maintained municipal services, abundant and varied local job opportunities (Fig. 5 previously). So the invasions [(i) and (ii) above] may be seen partly as a spillover effect of the increasing demand for the traditionally middle-class east and bayside [that is, (iii)]: the gentrifying areas at least offered accessibility to the preferred services, and they offered stepping stones to the ultimately preferred residential locations. Additionally, the owner-occupier gentrifiers and the new rental investors were, after 1974, increasingly fed by finance capital in search of profitable investment - the new high wages had to be creamed-off as monopoly rent (e.g. see Smith, 1984). The other part of the explanation relates to the uncertainties and seeming loss of confidence, in the new era of ‘global crisis’: from the mid-1970s onwards, the task of ensuring the prospects of one’s children may have seemed more hazardous than previously, and the search for the ‘right milieu’ accordingly more urgent.

Some support for these explanations of shifting residential differentiation as response to a reproduction crisis arises in statistics associating the changing concentration of professional workers with measures of accessibility to (1) employment and (2) private and selective schools.4 The associations have significantly increased over time, as Table 2 demonstrates; the professionals are indeed

TABLE 2. Correlation coefficients: employed males in professional occopatioos, with (1) accessibility to employment, and (2) accessibility to private and selective schools. Melbourne

LGAs, 1966-1981

Males in professional occupations/employed males, in year:

1966 1971 1976 1981

Accessibility to employment 0.00 0.01 0.06 0.23 Accessibility to private and selective schools 0.44 0.47 0.50 0.64

Monopoly Rent 266

concentrating in the areas of best access to variety in education opportunities and to jobs.

This exploration can be taken further by assuming that each LGA’s proportion of employed males in professional occupations ‘should’ increase in each inter-censal period proportionally to the increase in the MSD overall (that is, that each LGA will attract new professional workers in proportion to its percentage at the beginning of that period, and to its population change over the period). We subtract that expected rate of change from the actual rate, and then observe, in Table 3, how the difference has increasingly correlated with accessibility to jobs and to variety in educational opportunities.

TABLE 3. Correlatiaa coef8ckets: dmge im proportion of wployed males in profesdoaal occnprti~ with (1) accesibitity to employment, ad (2) aecesslbiUty to private ad sektive

&kook Melbolrrw LGAS, 19664981

Change in proportion of employed males in professional occupations, less expected increase if proportional to overall MSD increase, in period:

1966-71 1971-76 197681

Accessibility to employment 0.07 0.20 0.58 Accessibility to private and selective schools 0.22 0.11 0.46

The middle-class concentration has principally occurred relative to accessibility to variety in educational opportunities (or else to some other services with which that accessibility is highly correlated), and secondarily relative to accessibility to jobs. And it was especially dramatic in the 1976-81 period of crisis.

5.3.2. lBe Wohing Class, the hmigrants and Sabudmthation

Enabling the middle-class take-over of the preferred inner and middle-ring submarkets was the continuing suburbanisation of the working class, and especially of the m&runt working class. It is worth noting that by the 197Os, close to a seventh of Melbourne households were moving in each year;5 the moves were generally short, outwards and sectoral. This Hoytian pattern of intra-urban migration has had three significant consequences. First, it has reduced the effect of ethnicity as a major dimension of spatial differentiation of the population, but specifically for those groups also experiencing decreasing discrimination in the workplace - the Italians, the Greeks and the Yugoslavs. Secondly, the process of outward movement - of ‘invasion’ of existing milieus - has provided a source of community conflict for schools, community services, etc. Indeed there is ample anecdotal evidence that such competition has been a significant catalyst in the shift from government to private and Catholic parochial schools since the early 1970s (Section 4.1.2 previously); it has also catalysed yet further movement, by existing residents of the invaded areas. Thirdly, as


submarkets have tended to be somewhat elastic, they have also tended not to confer any significant monopoly power on existing owners nor, consequently, opportunities for realising monopoly rents. Rather, such opportunities have arisen more in speculation-development at the urban fringe or in areas of new flats.

5.3.3. Th Specid Case of the New ikEgrants

As observed in Section 4.2.2, since the late 1970s the situation of the newly arrived migrants has been in sharpest contrast with that of migrants arriving in the 195Os, 60s or early 70s. The dilemmas are well exemplified in the situation of the Vietnamese. They are among the most recent of the migrant groups (in 1981, only 3.6 percent of the 12,500 in Melbourne had been resident in Australia for five years or more), they suffer high levels of unemployment, and have the highest dependence of all ethnic groups on rental housing. With further Indo-Chinese and other Asian migration - e.g. from Hong Kong - there is likely to arise a new under-class, with high aspirations, severely constrained, surviving (possibly quite adequately) on unemployment benefits and low wages, resentful of their status, and identifiable and in turn resented (as competitors by other groups at the periphery of the formal economy, as a drain on the public purse by tax-paying participants in that economy). Their housing is likely to continue to be the cheapest to be found - Housing Commission flats in the inner suburbs, shared flats in the least favoured outer ring and outer suburbs.

Also prominent among the more recent immigrants have been the Turks and the Lebanese. More established than the Vietnamese (70 percent of Lebanese and 80 percent of Turks, in 1981, had been resident in Australia for five or more years), they tend to have marginally better organisation and access to capital and (like the Southern Europeans) a greater likelihood of viable family businesses able to absorb (exploit?) the newer arrivals. Nevertheless they have had extraordinarily high unemployment (30 percent in 1984), and poorer levels of education. They too have concentrated in the inner - and gentrifying - suburbs.

The most numerous of the new migrants - those from the British Isles -join an already large British and Irish communi~ (in 1981, of the 210,000 Melburnians born in the British Isles, 90 percent had been in Australia for five or more years); but it is a immunity with relatively little involvement in small businesses, a poorer record of owner occupancy of housing than that of any other major ethnic group (65.4 percent for those resident 15-21 years in Australia in 198 1, against 71.9 percent for the overseas born generally) and apparently poor educational aspirations and achievements (Taft, 1975). Further, they are most heavily concentrated in the outer suburbs - 15.9 percent of Frankston’s population in 1981 had been born in the British Isles, 14.2 percent of Mornington’s, 13.9 percent of Croydon’s, 13.2 percent of Berwick’s - and it is to these same outermost suburbs that newly arriving migrants are gravitating. They are generally areas of high unemployment, limited job opportunities, and high travel costs.

Monopoly Rent 257

5.3.4. Xhe Pas&g of the Hats Boom

Flats commencements in Melbourne had peaked at some 13,600 units in 1967/68, from where they declined to 8,900 in 1971/72; with the investment boom in housing that began in 1972, the decline was temporarily arrested, and commencements were 10,600 and 9,800 in 1972/73 and 1973/74; it was arrested again by the ‘divorce boom’ in 1975 and 1976, but again only temporarily. By 1979/80 there were 2,400 commencements (Fig. 3).

The more stringent development standards and controls of inner and middle-ring councils - especially those with middle-class, more articulate constituencies (whether long-established or more the result of gentrification) - increasingly displaced this development to more distant and compliant municipalities. Lower land prices, higher permissible densities and more rapid development approvals (hence lower holding charges) enabled lower development costs. Investment in flats thus proceeded on an ever-widening frontier, and in increasingly lower-income and less accessible suburbs.

The widening frontier and the declining underlying demand - largely the result of lower rates of household formation among the young (Section 4.4 above) - tended to reduce opportunities for realising monopoly rent. Apparently in consequence, the estimated rate of price increase for flats in the north, west and outer suburbs, in the 1978-82 period, was 26 percent; by contrast, in the inner suburbs the rate was 54 percent, and in the middle-ring east, south and bayside, 57 percent (Appendix A, Table 12); and consumer prices generally rose 55 percent over the period. Rents moved similarly: in the north, west and outer suburbs they fell relative to average earnings, and elsewhere they generally rose. Under any realistic conditions of financing, rent levels and taxing arrangements, investment in these submarkets (of the north, west and outer suburbs) after 1977 would have resulted in real losses (Appendix C, Table 17).

5.3.5. The Land Boom

The conditions supporting the extraordinary boom in land speculation and new housing in the early 1970s - demographic factors, over-accumulation and the decline of other investment opportunities, state investment, negative real interest rates triggering enhanced demand - have been described in Section 3.5.2. previously. The peak year was 1972/73, with 25,200 commencements; and the most rapidly expanding submarkets were in the outer-ring east and northeast, and the outer regions generally. By 1979/80 commencements had roughly halved, to 13,200, and the frontier for new development had advanced outwards in virtually all sectors; further, middle-priced new submarkets seem to have shrunk relative to the lower-priced.

As with the flats submarkets, opportunities for realising monopoly rent were reduced by both the widening frontier and the decline in underlying demand - again largely attributable to lower levels of immigration and of household formation among the young. The boom however had imposed severe infrastructure costs on State Government agencies, especially the Melbourne and Metropolitan Board of Works (MMBW) as water supply, sewerage and drainage authority; but the MMBW was

258 Progress in P~8nning

also the metropolitan planning authority and, not surprisingly, from the late 1960s the planning system was increasingly invoked to curtail both the rate of outward expansion and those tactics used by speculator-developers to extract monopoly rents - leap-frogging outwards to cheaply acquired rural land, withholding land from sale to create artificial shortages, etc. - which had the side-effect of spreading development yet further afield. Preferred Development Areas (PDAs) were designated from 1975 onwards, with very little effect (the great majority of new land subdivisions were outside PDAs) (Beed, 1981: p. 194); urban consolidation or ‘containment’ was discussed by the MMBW throughout the 197Os, then stressed in its new planning strategy in 1981 (MMBW, 1981); and various changes in both building and planning regulations were designed to facilitate increased density of housing in established suburbs - in conflict with the anti-flats movement and local councils. These devices had the effect of ‘altering the rules’ for speculator-developers - PDAs fragmented existing outer-urban markets, the consolidation strategy created opportunities for new submarkets (e.g. around district centres designated in the strategy), and new housing standards could facilitate both higher rentals (in subdivided houses) and the devaluation of fixed capital in submarkets where houses were being subdivided and standards ‘lowered’. Hence new opportunities were created for the skilled entrepeneur to shift investment and extract new forms of monopoly rent.

5.4. SUBMARKETS AND MARKET CHANGE IN THE SECOND GLOBAL CRISIS

54.1. Differential House Price Changes

The five years from the end of 1972 to the end of 1977 saw the housing market boom of 1973-74 and its immediate repercussions, and the following five years saw the slow decline of the market and the devaluation of fixed capital in housing that it implied. Given the processes of residential differentiation and submarket segmen~tion described above, one could reasonably expect these revaluations and devaluations to differ between submarkets.

An impression of differential shifts in market prices can be derived from the aggregative statistics published annually since 1972 by the Victorian Valuer-General’s Office, summarising all property transactions for each Victorian LGA. These would suggest that, in the 1973-77 period, the leap in mean house price was ubiquitous, affecting all LGAs; nevertheless the greatest rises were (1) in the areas subject to middle-class colonisation, reflecting no doubt the height of the environmental movement and of the escape from the city (207 percent increase over the five years in ‘hill station’ Sherbrooke, 199 percent in Eltham), and (2) in the gentrifying inner suburbs (212 percent in Fitzroy, 187 percent in Hawthorn). The lowest rate of increase was a ‘mere’ 129 percent in skid-row St Kilda; and the rise in consumer prices was 89 percent6 In the 1977-82 age of uncertainty, by contrast, o&y rlre areas o~~i~~e~lass

Monopoly Rent 259

concentration registered rises relative to inflation in consumer prices: e.g. whereas the rise in consumer prices was 55%, mean prices rose 125 percent in the Toorak-South Yarra area of Prahran municipality (on median prices the rise was 121 percent); the rise was 72 percent in Brighton (71 percent on median prices).

Change in mean or median price can reflect changing market evaluation of the dwellings in a submarket; it can also, however, reflect shifts in the composition of the stock of dwellings being traded (Fleming and Nellis, 1981). Certainly in the earlier, 1972-77 period one would expect both factors to be present in the extraordinary price rises at the urban fringe: existing dwellings were being re-evaluated upwards as they changed hands but, additionally, the middloclass colonisers were probably tending to purchase - or have built for them - new dwellings that would on average have been higher-priced than the average pre-existing dwellings in an area. Both factors may also have been present in price changes elsewhere. Their relative effects can be partly gauged by comparing price rises estimated from successive transactions of individual dwellings in a LGA,’ with rates of change in median price in the LGA. Data to enable such a comparison are listed in Tables 11 and 12 of Appendix A; these generally confirm the pattern of overall rises between 1973 and 1977 and falls between 1978 and 1982 (i.e. rises and falls in ubsolure rent), and of differential shifts (in monopoly rent) especially between 1978 and 1982.

The data also suggest two further lessons. First, despite some apparent uniformity in their characteristics, some regions are decidedly diverse in market behaviour (their F-statistics are relatively low for the number of paired transactions used in the estimation of price rises). Secondly, there are some significant inconsistencies between price rises estimated from median prices and those estimated from individual dwelling data. Certainly the differences are attributable in part to random error, but they are also clearly reflecting shifts between submarkets within regions.

There have also been longer-term shifts in prices. If we disregard the extraordinary differential changes of 1978-82, and consider instead the period 1963-77, we find that the increase for the metropolitan area generally was 461 percent over those 15 years (i.e. the price index was 5.61), and that regions with price increases above that mean were the gentrifying inner urban, the consistently favoured middle-ring east, and outer-ring northeast (at the boom of the middle-class escape from the city), the outer bayside (making its fall from favour after 1977 all the more significant), and the middle-ring north (possibly reflecting the role of Southern European migrants regenerating the stock). Therefore, in this context of longer-term market effects, the quite dramatic shifts of 1978-82 would seem to represent (1) a general devaluation of housing capital (i.e. lower absolute rent), as observed earlier, (2) a re-focusing of attention away from the previously favoured outskirts of the city, especially in the northeast and outer bayside, with (3) a re-focusing towarcis the higher status middle-ring east, middle-ring south and middle-ring bayside.

It has already been suggested that the reasons for this post-1977 shift reside in the processes of class structuration and the tasks of reproduction increasingly confronting the expanding professional group. Such an explanation must now be explored more systematically. Before that however, it is useful to look at shifts in the prices of dwellings other than separate houses.

JPP 26:3-C


5.4.2. DiHerential Flat Price Chaages

Flat prices rose less dramatically in the years to 1977 than did house prices; nor did they decline as dramatically relative to inflation afrer 1977. Within this context of more moderate gains and losses, the regional differences have paralleled those for houses, however: rises were greater in the middle-ring east, south and bayside in the earlier period, and values there actually rose relative to inflation rather than fell in the latter period (Table 12). Three factors may have been especially instrumental in this relative valorisation. First new construction was limited by popular opposition and consequent local government restriction. Secondly, the renovation and upgrading of existing blocks of flats, and their conversion to strata title from the more restrictive common or company forms of title, increased their market value. The process also facilitated their passage from rental to owner-occupier submarkets. Thirdly, in the face of this apparent switching of investment from new construction to renovation and improvement, demand was well sustained by the expanding ranks both of the ‘new poor’, seeking the diminishing supply of cheaper flats, and of the younger professionals and other middle-class groups seeking flats in the inner and preferred middle-ring suburbs.

5.4.3. Explaiiniag Ditrereatiai Price Changes - (I) the Shifts in Consumer Preferences

It would be grossly simplistic to see these differential shifts in house and flat prices as merely an outcome of a more complex competition between diverse groups of both producers and consumers for the benefits realisable through the exchange of housing. Certainly preferences are involved (though preferences are themselves produced - they scarcely arise spontaneously); but so are the various conditions that facilitate enhancement of use values (through land use planning, infrastructure provision, etc.), exchange, and the extraction of the various forms of ground rent, whether manifested in the rents of tenants or the prices of purchasers. It is with caution then that we turn to the issue of changes in consumer preferences implicit in the price shifts during and before the 1970s crises. (Subsequently, other factors involved in the question of house prices will be explored.)

Since the early 197Os, Melbourne house prices have increasingly associated statistically with (1) accessibility to employment and (2) accessibility to private and selective schools. Far more significant however has been the association of price with the proportion of employed males in professional occupations, and this has been increasing over a somewhat longer period (Table 4). There would seem to be three ways to interpret these associations.

First, house prices may have increasingly reflected - at least since 1972 - a re-evalution of accessibility to employment (and of variety in that employment, of variety in transport options for getting to jobs, and of the potential time savings associated with more convenient locations), and a re-evaluation of accessibility to private and selective schools (therefore of a variety in educational opportunities and in transport options for getting to them). The global energy crises since 1974, and real

Monopoly Rent 261

TABLE 4. Corralatiaa coaflidcataz median boge price, WftL (1) accesdbUity to empbymemt, (2) m to private aad aektive a&ools, and (3) empbyal males III profdod occnpathms. Mehwne LG& 1962-1982

Mediin house price, in year: 1962 1%7 1972 1977 1982

Accessibility to employment Accessibility to private and selective schools Proportion of employed males in professional occupations

0.09 0.04 -0.04 0.13 0.28 0.29 0.26 0.20 0.42 0.68

0.53 0.60 0.69 0.74 0.84

increases in prices of domestic petrol supplies since 1977, may have sharpened the re-evaluation. The comparative recency of this re-evaluation is even more clearly indicated if the two measures of accessibility are considered together as subjects of consumer preferences, and whose evaluation - along with that of other, unobserved services delivered by dwellings and by their locations - can account for some non-random component of median house price.* We find that the multiple correlation coefficient of the two measures with median house price was 0.31,0.30,0.28,0.44 and 0.69 in 1962, 1967, 1972, 1977 and 1982 respectively.9 On this evidence, there has indeed been a major shift in consumer preferences reflected in median house prices; and the shift is consistent with the hypothesis of increased concern, since the mid-1970s, for milieus appropriate to social reproduction in the new era of uncertainties.

Alternatively, one can argue that it is the association of median price with proportion of employed males in professional occupations that is of greatest significance to explanation as well as statistically, that the presence of an educated, professionally employed population reflects the ‘social status’ of an area, and that it is social status that has most clearly been re-evaluated in the market place. Further, the process has been somewhat longer-term - at least since 1962. And the multiple correlation coefficient of median price with this status measure and the two measures of accessibility increased over the period more consistently than in the previous explanation: it was 0.29,0.36,0.49,0.55 and 0.74 in 1962, 1967, 1972, 1977 and 1982 respectively.

Further support for this second explanation arises from a consideration of rates of price increase: their correlation with accessibility to employment and to private and selective schools, with proportion of employed males in professional occupations (as an indicator of social status) and with rate of change in proportion of such professionals (as defined in Section 5.3.1 previously) are displayed in Table 5. Certainly movements in median prices will not exactly parallel rates of price increase; and as those rates are estimates, they equally certainly incorporate random error. Despite the consequent difficulties in comparing Tables 4 and 5, they clearly suggest that, in the short terms represented in these five-year intervals, the reevaluations of the housing market have been erratic, with different services increasingly valued at different times. Nevertheless, the longer-term effect is for prices to become increasingly differentiated relative to accessibility to employment, accessibility to variety in educational opportunities, and especially social status as reflected in the concentration


TABLE 5. Correlati co&kimts: ktuse price krease. wltb (1) -tY to ~ploplcat, (2) - to private and~ktiveschools, (3) employed mdesinprofemhndoccapatloar, aod(I)cbgeia pmporthof

employed males to professbad occapatbas. Melbopnv LGAs, 1953-1982

Accessibility to employment Accessibility to private and selective schools Proportion of employed males in professional occupations Change in proportion of employed males in professional occupations

Price increase estimated from disaggrcgated data, in period: 1953-57 1958-62 I%3-67 1968-72 1973-77 1978-82

0.38 0.05 0.23 -0.05 -0.08 0.25

0.37 0.17 0.00 0.25 0.02 0.42

0.19 -0.06 -0.09 0.35 -0.03 0.53

-0.01 0.32 0.13

of the ‘middle class’. In this perspective of more gradual, longer-term re-evaluation of housing opportunities, the quite extraordinary differential price shifts after 1977 - and the altered consumer preferences that they might imply - are especially problematic.

The increasing association of price with the presence of the professionals, and with increase in their presence, suggests a third explanation for increasing price differentiation. The shifts in prices reflect not so much the changing preferences of purchasers generally, but rather the changing behaviour of the professional ‘class’ - the only significant group that has, in recent years, increased both its proportion of the population and its market power. Such an explanation has the attraction of linking market behaviour to processes of structural economic change and class structuration. Changing preferences are significant, but mainly those of the group whose expansion can account for significantly increasing demand. And the post- 1977 price shifts must be related to the increased competition, among the aspiring middle class, for the milieus that they perceive to best guarantee the reproduction of their class, in the era of crisis that followed the mid-1970s (and of course it is in those perceptions that preferences arise). From this perspective, the shift in prices reflects in part a shift in differential rent - in the expected ‘fertility’ of different milieus.

54.4. Explaining DifTerential Price Changes - (2) the Production of DilXerences

This explanation of the role of preferences compels a broader discussion of the conditions that could, feasibly, account for increasing price differentiation. Four sets of such conditions come most readily to mind.

(i) Demand may exceed supply in specific submarkets as a consequence of class structuration and changing distribution of income.

This is the process described above. In Melbourne since the 196Os, the key ‘class’ has been the professional workers, and it seems that the process of price differentiation has largely been sustained by their expansion and changing perceptions of milieus in the face of an increasing reproduction crisis. Such differences will tend to be reduced by submarket invasion - the submarket

Monopoly Rent 263

under pressure will expand into adjoining areas, and levels of ground rent (prices and rentals) will tend to equalise, though new differentials will arise in the invaded area.

(ii) Supply in a particular submarket may be constrained, or even reduced. In the case of the increasing concentration of the professional workers and

other middle-class groups, the preferred dwellings have mainly been the larger, detached houses in established suburbs of the middle-ring east and bayside, but their supply has been limited by the rate at which existing occupants departed. Opportunities for such departures have, however, been constrained since the mid 1970s by limitations on new construction of flats in the areas (imposed by local councils largely dominated by existing resident interests, anxious to maintain local amenity and thereby property values). The supply has been augmented by gentrification of working-class housing - i.e. by submarket invasion - both in those same areas and in adjoining inner suburbs. Under such conditions of constrained supply, price rises in these inner and middle-ring submarkets must be seen to incorporate a significant element of monopoly rent.

(iii) Demand may be augmented or constrained in a particular submarket by means of housing finance conditions.

The classic example was the policy, mainly during the 1950s and 6Os, to direct housing finance to purchasers of new dwellings, thereby bestowing monopoly rent on speculator-developers (and devaluation on existing owners). The progressive removal of that bias must partly account for both the increase in turnover of existing dwellings and their relative price rises from around the mid-1960s. Similarly the relative revalorisation of the middle-ring east and bayside after 1977 must be seen as partly consequent on the targetting of housing finance to the ‘safe’ middle class and to rental investors in those regions. In these cases, monopoly rents are being extracted, and the processes are akin to those described in Harvey (1974) as accounting for price differentiation in Baltimore in 1970.

(iv) Demand may be evoked through the creation of a new submarket or radical transformation of an existing one.

An example in the 1970s was the use of new Strata Titles legislation to facilitate ownership and exchange of flats and of dwellings with common open space; strata titling carved a new submarket out of the existing flats market, whose subsequent invasion of the rental flats submarkets conferred extraordinary rates of return on both existing landlords and speculator-developers. As a further example, Amendment 224 to the Melbourne and Metropolitan Planning Scheme, in 1983, introduced a system of urban conservation areas fragmenting the old, historic inner suburbs into (1) designated areas where conservation control could ensure protection from deleterious intrusions, enhance amenity, stimulate further gentrification, and hence enable monopoly rent to be realised, and (2) a reduced range of areas where commercial and higher-density residential development could be channelled, again facilitating monopoly rent. Urban conservation areas were


effectively a new form of submarket, again carved out of (and fragmenting) existing submarkets. Crucial in this process can be shifting preferences for architectural style, and the appropriation of style.

As the realisation of absolute rent seems dependent on the support of finance capital and of the monetary and fiscal policies that comprise ‘housing’ policy in Australia, so is the extraction of monopoly rent apparently dependent on the residential differentiation of the city and the urban planning practice that supports it. Indeed it could be argued that to support the creation and maintenance of a differentiated structure of housing and other property submarkets is the essential role of urban planning practice in a market economy, and that in a crisis of housing affordability and disinvestment (with consequent barriers to the extraction of new levels of absolute rent), that role becomes crucial to the requisite switching of investment between the primary and the secondary circuits of capital, and so to capitalist expansion.

NOTES: CHAPTER 5

1. By contrast, Barrett (1971) has shown that, in the 19th century development of Fitzroy and Collingwood, small scale operators had predominated in both land speculation and development. See also Badcock (1984: p. 117).

2. Although there is some debate over the levels of unemployment prevailing in the 193Os, the 1933 census clearly reveals far higher levels of unemployment in inner city Fitzroy (33.0 percent of the male workforce), Melbourne (29.5 percent), Richmond (28.9 percent) etc., than in working-class suburban areas such as Oakleigh (21.2 percent), Coburg (20.2 percent) or Preston (19.7 percent).

3. Accessibility to employment was computed as:

T Aj exp (a Cg),

here Aj was a measure of total jobs in a destination zonej, (Y a calibration parameter, and Cu a measure of travel time from origin zone i to destination zone j based on Victorian Ministry of Transport data. The natural logarithm of the index was used. The variable was devised and computed by Dr. Hugh Brown, Department of Civil Engineering, The University of Melbourne.

4. Accessibility to employment is as defined previously. Schools are those indicated in Fig. 5. Various indices of accessibility to them were computed and tested, the one finally selected was of exponential form, similar to that for accessibility to employment except that Aj was the number of private schools in destination zone j, and C, a measure of travel time by pubhc transport from residence zone i to destination zone j.

5. At the time of the 1976 census, 15.8 percent of Melburnians over one year old were reported to have been living elsewhere twelve months earlier. In 1981 the figure was 14.9 percent.

6. The median is preferred as measure of central tendency, as it tends not to be affected by the presence of extreme cases. The 1972-77 analysis had to be based on means, as published statistics did not include median until 1977.

7. Method of estimation is as outlined in Appendix A. Because estimation is based on regression analysis of the transactions affecting a sample of dwellings, it is subject to random error, and the comparisons are similarly conditional.

8. There is a substantial tradition of studies attempting to account for house prices in this way. A useful review is Ball (1973), and a critique of their assumptions and theoretical limitations is in MacLennan (1977).

9. The two measures of accessibility are themselves strongly correlated, with R = 0.57, and significant at the 0.001 level. In consequence, relative contributions from the independent variables could not be determined from the regression coefftcients.

CHAPTER 6

Residential Differentiation, Submarkets and Cumulative Change

Differential shifts in dwelling prices have two crucially important social effects: they alter the constraints on households seeking housing (except for the relatively few whose incomes or wealth are such that there are no constraints); and they redistribute wealth. The effects are mutually - and cumulatively - reinforcing.

6.1. MARKET SEGREGATION IN THE SECOND GLOBAL CRISIS

6.1.1. Shifts in the AlTordability of Housing

Shifts in market constraints on households are essentially the obverse of the heightening middle-class competition observed above. If we adopt the definition of housing affordability of Section 3.1 previously (i.e. based on male average earnings covering a savings bank loan on 80 percent of dwelling price), we can observe the changing proportions of dwellings affordable, in different regions and different years, by a household on a single, ‘average’ income. Although there have been constraints over the whole period from the 193Os, nevertheless for separate houses these only became exclusionary of ‘average’ households after the crisis of 1973-74 - by the early 198Os, the exclusion from the inner suburbs, the east, and the middle-ring south and bayside was virtually complete. Of the shrinking stock of affordable houses (only 18 percent of those sold in 1982), by the early 1980s most were to be found in the north (notable in Broadmeadows and Preston), the west (mainly Footscray and Sunshine), the Oakleigh-Dandenong corridor (especially Springvale and Dandenong), and most notably the outer bayside (Chelsea, Frankston and Flinders) (Table 6).

Not surprisingly, relegation was to the areas of greatest, and apparently increasing, disadvantage. They were areas of high unemployment, poor accessibility to jobs, high car dependence and travel cost (at a time of rising petrol prices), and generally inadequate and under-developed services.

As observed earlier, there is an element of unreality in this analysis, as owner occupancy has not declined with the onset of these constraints (it was 69.6 percent in Melbourne at both the 1971 and 1976 censuses, and 70.9 percent in 1981); households seem generally to have overcome the prima facie income constraints, principally by

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Monopoly Rent 267

dependence on two incomes. If we alter the assumptions underlying Table 6, to consider the situation of a two-income household (as in Section 3.6.3 previously), then far higher proportions of houses were affordable in each year - 82 percent in 1972,45 percent in 1977 and 51 percent in 1982 (against 61 percent, 13 percent, and 18 percent respectively under the assumptions of a single income). The regional breakdown of this affordable stock certainly reveals a less severe process of exclusion; nevertheless there has still been a clear redistribution of opportunities away from the inner suburbs, the east, and the middle-ring south and bayside, and towards the north, the west, the outer southeast and outer bayside (Table 7).

6.1.2. Alternatives

There are three main alternatives to the purchase of a separate house: the purchase of a flat, the renting of a house, and the renting of a flat. (There are also, of course, alternative household arrangements to achieve lower current housing costs - sharing a dwelling, or delaying household formation, etc.) We have seen that median flat prices have historically been lower than median house prices in Melbourne, and that increases in flat prices have, until the late 197Os, generally been less than those in house prices. Even though flat prices have risen more rapidly than house prices since then, a higher proportion of flats than houses has been affordable in each year, and the decline in the proportion affordable has been less than for houses (Appendix B, Table 13). So there has been a shift in the composition of the (shrinking) affordable owner-occupier stock, from houses to flats.

In contrast with the costs of purchasing, advertised rents generally seem to have fulZen relative to average earnings over recent years (Section 3.6.4 previously). It is instructive to observe the effect of this decline on the affordability of rental houses, when we define an ‘affordable rent’ equivalent to the current housing expenditure of a household paying ‘affordable mortgage repayments’.’ Setting such a rent (at 28.75 percent of male average earnings), we find that in 1962 some 12 percent of advertised rental houses would have been affordable; by 1967 the proportion had risen to 25 percent, by 1972 to 28 percent, by 1977 to 41 percent, and by 1982 to 48 percent. (If we assume a higher affordable rent by taking account of the opportunity cost of owner occupiers’ invested capital - by equating rent with a measure of owner occupiers’ costs rather than their expenditures2 - then a far higher proportion of the advertised rental stock would have been affordable: in 1972 it would have been 54 percent; by 1977,71 percent; and by 1982,69 percent.)

Since the flat building boom of the 1960s in Melbourne, flats have tended to dominate the rental stock; because of a more rapid turnover of flat dwellers vis-bvis house dwellers, they have certainly dominated the advertised vacancies. Flat rents have also tended to fall relative to average earnings over recent decades. Affordability had improved accordingly: again assuming an affordable rent to be 28.75 percent of average male earnings - equating it thereby with current expenditures of purchasers - we find that in 1962 some 24 percent of advertised rental flats would have been affordable, that the proportion rose to 61 percent in 1967,84 percent in 1972,92

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-198

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1972

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100

Monopoly Rent 269

percent in 1977, but by 1982 had fallen marginally to 87 percent. (Alternatively, equating an affordable rent with the current costs of purchasers, including the opportunity cost of invested capital, the affordable proportions of the stock were a very high 95 percent in 1972,97 percent in 1977 and 94 percent in 1982.)

If we view the consumer behaviour of financially constrained households as a function of market constraints - choosing from only limited ranges of opportunities - then there is interest in observing not only the shifts in affordable opportunities between tenure types and dwelling types, but also between regional groupings of submarkets. Table 8 summarises such an attempt.3 Despite somewhat heroic assumptions and limited data, the redistributions and relegations of the 1972-1982 decade are clear; three aspects especially need comment.

(i) Overwhelmingly, there has been a redistribution of affordable opportunities, and by implication a relegation of lower-income households, from owner-occupancy to renting. The extraordinary loss was from the owner-occupier house submarkets, principally at the time of the 1973-74 leap in prices; and the relegation was to rental houses, compounded by some disinvestment from rental flats and reinvestment in rental houses.

(ii) The progressive exclusions from owner-occupier submarkets in the inner suburbs, the east and northeast, and the middle-ring south and bayside, clearly revealed in Table 6 and commented on previously, were compensated-for by new rental opportunities in most of those regions. Indeed the exclusions may have created new opportunities for rental investment: households more or less constrained to those regions - e.g. by work, or dependence on public transport, or family supports - but now excluded from owner-occupancy, accounted for new demand for rental housing. As these were generally the submarkets where price increases were greatest over the decade (Appendix A, Tables 11 and 12), the effect of relegation was to shift opportunities for realising monopoly rents (through capital gains) from owner-occupiers to speculator-landlords.

(iii) The substitution of affordable rental for affordable owner-occupier dwellings in the more preferred regions has not however been total. In the rental market, disinvestment and rent rises (both associated with strata titling) were most notable in the middle-ring south, and the net effect was something of a relegation out of that region and into the inner suburbs - simultaneously the principal focus of gentrification.

6.1.3. The Housing Commission Victoria as Fhal Solution

The analysis of Table 8 ignores the public rental sector. With 2.6 percent of households in 1981, Melbourne had the smallest public rental sector of all the major cities - by contrast, its private rental stock held 20.0 percent. Public housing is not insignificant to its occupants however: it has traditionally been the only rental housing in Australia with public subsidy available, and has thereby always been affordable, virtually regardless of income.

TA

BL

E 8

. D

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of a

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ellin

g op

port

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to t

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wel

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type

and

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kets

. M

elbo

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197

2-19

82

(Per

cent

ages

)

Reg

ion

1 2

3 4

5 6

7 8

9 10

11

12

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15

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w

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---

$ In

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ring

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i5

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(est

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n =

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f I

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2 I

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1 1

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4 3

1 1

2 1

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2 1

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1 4

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1

I 69

loo

(est

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n =

161

,100

)

I 1

6 4 1

1 I

;: loo

(est

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n =

116

,400

)

Monopoly Rent 271

Melbourne’s public rental housing has had limitations besides those of its extent. As a consequence of the 1950s and 60s concentration on higher-density - usually high-rise - public housing construction, and of a 1970s policy to sell-off the public rental iroure stock at artificially low prices and interest rates, the public rental stock was, by 198 1.63 percent flats. Indeed, by 1981, some 35 percent of public tenant households were in high-rise flats, against only 1.5 percent of private-sector renters, and 0.2 percent of owner-occupiers. The flats estates are highly visible, stigmatised, and resented by neighbouring property owners who perceived - correctly, on the evidence of the present study’s data - that their own property values were suppressed by the presence of the public estates. They remain thereby a locus of community conflict. The flats are almost entirely to be found in the inner suburbs, and the relatively few rental houses in the outer suburbs.

Since the late 197Os, the waiting lists of the Housing Commission Victoria have grown dramatically. More significantly, they have become dominated by lone-parent families for whom the options have been a very long wait (usually in the private rental sector) for a subsidised rental house, or a shorter wait for a poorly designed flat in a rundown, stigmatised, possibly violence-ridden high-rise estate.

6.1.4. Housing C. - (3) Segmgatiovl

Given the concentration of the new poor - whether consequent on the segregating effect of the urban housing market or more directly on the vulnerability of specific groups in specific areas - and given the tendency for the long-term under-employed and other chronically poor groups to reproduce their kind, it seems inevitable that the new underclass will be largely spatially contained. Segregation and containment would seem to constitute a third characteristic of the post-1973 housing crisis (where the fast related to affordability and the second to disinvestment, as observed in Chapter 3). Each likely milieu for that containment highlights conflicts and contradictions in the nature of urban property relations underlying changing residential differentiation.

(i) In the inner suburbs, unemployment levels are partly attributable to the dependence of blue-collar residents on local, declining (and suburbanising) industries, and the pressures have helped to ‘free’ their housing for gentrification, and so the realisation of monopoly rent. However the concentration also seems a consequence of the unemployed gravitating to the low-rent flats to be found there. Much of this housing is so unappealing that there is likely to be little inter-class competition for it (indeed, its presence is likely to suppress the exchange values of better, neighbouring housing), and so the extraction of monopoly rent will be dependent on its relative over-crowding. This over-crowding and the consequent demand on local services is already a focus of conflict with the new middle-class residents, which is only likely to increase with the increasing polarisation of local populations.

(ii) In the middle-ring north and west, the competition is more between the employed working class and the unemployed underclass. Again there is likely

272

(iii)

Progress in Planning

to be conflict between landlords and tenants over the latter’s inability to pay ‘reasonable’ levels of rent without sharing and overcrowding; and any suppression of rents will be reflected in further devaluation of housing capital, to the disadvantage especially of working-class owner-occupiers relative to owner-occupiers in other submarkets. Unknown is the point where this devaluation might be arrested, as new groups perceive cheap housing, good asccessibility to jobs suitable to their skills, and opportunities for dwelling improvement and reinvestment. In such an event, the underclass may begin to be displaced. In the outer suburbs - most notably the outer west and bayside - it seems more likely that the underclass will increase their presence rather than be displaced. If the professional ‘class’ continues to expand its share of the workforce and to see interests best served in areas with variety in educational and job opportunities, and if their consequent housing market behaviours continue to determine the most significant shifts in prices, then the city’s relatively cheaper housing will increasingly be found in the outer suburbs. (Stated otherwise, the long-term trend in price differentiation revealed in Tables 4 and 5 will continue.) Increasing relegation of the underclass is therefore likely to be towards areas with the highest access costs to job opportunities and the greatest constraints on breaking the nexus between poverty and its reproduction. The increasing presence of the under-employed will exacerbate the devaluation of outer suburban submarkets.

Regardless of milieu, the under-employed will act to supplement statutory incomes by undeclared (and untaxed) paid services, bartered goods and services, home-produced food, clothing and other commodities, recycling of commodities whether for immediate use or for sale, etc. These activities can however be constrained by housing tenure (home-based work or vegetable gardens are a gamble without some security of tenure), by building regulations (limiting bartered or do-it-yourself dwelling improvement, for example), by town planning and other local government administration (see, for example, Huxley, 1985), and by consumer protection law (to limit recycling, self-help repair, etc.). The activities threaten the tax base; they also threaten both profits and jobs in the corporate sector (re-cycled or repaired commodities inevitably reduce the demand for new commodities) and thereby accelerate the transfer of activity from the corporate, formal economy to the informal and unrecorded economy. This transfer and its effects can be especially manifested at the local level and hence be a locus of increasing conflict and contradiction in the local community; aggregated, they lead to accelerated structural change at the metropolitan and societal scales.

6.2. HOUSING SUBMARKETS AND THE REDISTRIBUTION OF WEALTH

6.2.1. Tenure, Tax and Capital Gains

The second major effect of differential price shifts is redistribution of wealth. The costs and returns involved in the exchange and use of housing have been introduced

Monopoly Rent 273

previously; it was argued in Section 3.4.1 that their distribution is crucially dependent on three factors: (1) the interest rate on available capital (and, correspondingly, foregone interest on equity capital), which by the 1970s was historically high; (2) the non-taxing of imputed rent on owner-occupier equity capital, which also became especially significant by the 1970s due to historically high marginal tax rates, and which favoured owner-occupiers; and (3) the rate of capital gains, which were exceptionally divergent in the post-1977 period, benefiting different submarkets differentially. Prior to 1985 there was effectively no capital gains tax in Australia.

The distribution of material benefits between tenure groups to 1972 has been explored in Section 3.4.1, where it was observed that those accruing to owner-occupiers had moved far ahead of any to renters. And the regional differences between submarkets have been discussed in Section 52.5.

In the speculative boom of 1973-77, the net costs of renters generally rose slightly ahead of inflation, but slightly behind increases in average earnings; for owner occupiers however, capital gains ensured that net costs became net benefits, and real return (on initial outlay and net expenditure) soared to an average 158 percent above inflation over the live years (or 20.9 percent per annum compounded) (Appendix C, Table 16). Although rates of capital gain were only slightly differentiated between regions (Appendix A, Tables 11 and 12), the differences were magnified in net benefits and rates of return - not surprisingly they were highest in the gentrifying inner suburbs, and in the middle-ring east, south and bayside (Tables 16 and 17).

The differential price shifts after 1977 meant that, in most regions, capital gains (relative to inflation) were replaced by capital losses. Overall, average net costs of renters and of owner-occupiers were nearly equal (an estimated $26,856 and $22,200 respectively in 1982 dollars, over the 1978-82 period), and mean net return to an owner occupier was only 11 percent (2.1 percent per annum compounded). However in the middle-ring bayside the return was 84 percent (13.0 percent annually), in the middle-ring east 53 percent (8.9 percent annually), in the middle-ring south 31 percent (5.5 percent annually), and in the inner suburbs 24 percent (4.4 percent annually). By contrast, in the outer east and northeast, in the north and in the outer west, renters’ net costs were less than those of owner-occupiers, apparently for the first time in fifty years in Melbourne. Accordingly, owner-occupiers’ rates of return were negative in those areas; and a speculator-landlord’s returns would have been negative in the same areas.

Something of the scale of this redistribution can be gauged from an example. Devaluation in the separate house submarkets of the established outer bayside suburbs (in Mordialloc, Chelsea, Frankston and Mornington), in the 1978-82 period, imposed total capital losses estimated at $895 million (in 1982 dollars), or around $21,300 per dwelling. On the other hand, revaluation in the separate house submarkets of the middle-ring bayside over that period bestowed estimated capital gains of $443 million, or some $23,100 per dwelling.

6.2.2. Housing Crisis - (4) Redistribution

It is clear that the locus of speculative investment has shifted from time to time between submarkets - to new construction principally in outer suburbs in the 194Os,


50s and early 60s; thence to flats in the inner and middle-ring suburbs in the 196Os, and in more distant suburbs in the 1970s; also in the early 1970s to urban fringe land and to new house construction in the house-and-land boom; and to the inner suburbs in the 1970s and early 80s. It is also fairly clear that this uneven, shifting development between submarkets, and the establishment of conditions for extracting monopoly rents (that is, requisite returns) in each, is crucially part of the mechanism that enables investment continually to be switched from the primary to the secondary circuits; and it is clear that the widespread devaluation of housing capital in Melbourne after 1977 is also useful (necessa~?) in providing new o~po~unities for investment, revaluation and consequent extraction of monopoly rents at some future time.

Therefore, prima facie, one might expect the continual process of spatially uneven, shifting investment and disinvestment (revaluation and devaluation) to even-out the redistributions of wealth referred to above. On the evidence of Tables 11, 12, 16 and 17, however, the redistribution favouring some Melbourne submarkets - notably in the affluent middle-ring east, south and bayside - has been quite long-term, over 20 years at least. Edel(1982) has argued that there are theoretical limits to housing related accumulation, principally to do with workers’ incomes (prices are ultimately limited by what workers can pay) and with the elasticity of housing markets {monopolies cannot be indefinitely sustained). Over the very long term of some 50 years, however, wages have moved far ahead of inflation generally; accordingly house prices have also been able to rise relative to inflation. Rises were facilitated even further by the lenders’ redefinition of borrowing capacity in 1973 and 1974. It is only in the period following 1977 that Edel’s first argument seems to have some point, and even then only in some submarkets. It is obvious that prices must ultimately be limited by capacity to pay, therefore by wage levels (and workforce participation), interest rates and availability of finance; however it is also clear that if wages improve in real terms and interest rates can be contained, then prices may continue to rise for a very long time indeed, and with them the material benefits to owner-occupiers and landlords.

Edel’s second argument also has force - ultimately, favoured submarkets will expand and invade less favoured ones. At the top of the Melbourne market however, it is clear that the expansion and invasion have not been at the same rate as the expansion of the professional class underlying growing demand. The barriers have been attitudinal as much as physical, and related to rising evaluation of old milieus, the private schools, and issues of class reproduction. Hence the redistributions favouring the middle-ring east, south and bayside submarkets!

Two points are to be drawn from these observations. First, despite the spatial switching of uneven investment and development - with resulting shorter-term extractions of monopoly rent by speculator-developers and speculator-landlords - there have indeed been quite long-term redistributions of wealth through the medium of housing. And these redistributions have been typically regressive favouring owner-occupiers over renters and, among owner-occupiers, those in more affluent areas over those in poorer. And secondly, as differential price shifts seem mainly to have reflected the relative expansion of the (generally more affluent) professional workers, one must surmise that any switching of investment - therefore any

Monopoly Rent 275

differential price shifts - will reflect the behaviours (and reward the previous investments) of groups that enjoy some hegemonic position in the social class structure.

NOTES: CHAPTER 6

1. Current housing ex~ndit~e of an owner-occupier in an affordable dwelling is assumed to comprise, in addition to 25 percent of average earnings to cover mortgage repayments, allowances for 1ocaI government taxes, utility charges (water, sewerage and drainage), insurance and maintenance. Assuming these to take an additional 3.75 percent of average earnings (Le. 15 percent of mortgage repayments, or 1.3 percent of purchase price during the 197Os), &hen total current expenditure will be 28.75 percent of male average earnings.

2. The deposit has previously been assumed to be 20 percent of price; if its opportunity cost is set at 1.25 times the savings bank mortgage rate, and invested capital is augmented from 20 percent to 24 percent to account for transaction costs, then current costs might be raised by around 9 percent of average earnings, to 37.8 percent. These extra costs associated with foregone interest are however ‘paid’ from pm-tax income, rather than from the post-tax income that covers rents, mortgage repayments, taxes and charges, insurance and house maintenance; accordingly they should be discounted by the householder’s marginal tax rate to yield their Veal’ value to hi. In 1972, the marginal tax rate on saIaries equal to male average earnings was 31.9 percent, so the extra cost of 9 percent should be discounted to some 6.15 percent, and affordable rent de&red as 34.9 percent of male average earnings; in 1977 the marginal rate was 35 percent, and affordable rent definable as 34.6 percent of male average earnings; and in 1982 the marginal rate was 32 percent and affordable rent again 34.9 percent of earnings.

3. AfTordabie dwellings for owner occupancy are as defined in Appendix B. They in&de dwellings purchased by landlords for renting; not ail of these would have been available as opportunities for owner-occupiers, and there may be some over-estimation in the table, especially of flats etc. for owner-occupancy. Affordable dwellings for rental are as defined in note 2 above, and numbers estimated from rentals advertised in The Age newspaper on the first Wednesday and Saturday of each of March and September of each listed year; numbers of afl’ordable advertised properties were multiplied by 30 to represent total opportunities for the year. (Tbe appropriate multiplier would seem to lie between 25 and 35.)

JPP Z&:3-1

CHAPTER 7

Conclusions, Assertions

We return to the questions that have been the focus of this study: do the conditions in the urban housing market of the 1980s differ materially from those of the 1960s and early 7Os? How are they to be related to the apparent broader crisis in the national and international economy? Do they represent some failure in the previous capacity of the city to provide requisite opportunities for capitalist investment or to ensure requisite levels of demand for the output of capitalist production?

7.1. THE 1980s AND THE QUESTION OF HOUSING CRISIS

In four significant ways the housing situation of Melbourne in the 1980s has been found to differ from that of the 1960s and 70s. Since the extraordinary price rises of 1973 and 1974, affordability of housing has been seriously eroded; the slowing of capital gains since 1977, and in some submarkets their replacement by capital losses, has eroded profitability of rental housing investment and triggered a disinvestment; housing related segregation has dramatically increased; and a long-term regressive redistribution of real wealth has equally dramatically accelerated. In the broader time frame of some 50 years (from the ‘first global crisis of capitalism’ to the second), only the lost profitability of rental housing loses uniqueness.

Ultimately, however, any fundamental crisis in the sphere of housing will relate to crisis in its functions in capitalist society. Are these symptoms trivial, perhaps a mere temporary crisis of disequilibrium (though painful to the victims), or do they reflect more fundamental failure? An answer to this question will re-address the functions of housing suggested earlier in Section 2.4.

(0 Housing production and consumption must ensure demand for the expanding production of industrial capital. The great expansion of the 195Os, 60s and early 70s was dependent on demographic changes (household formation by the products of the post-war baby boom, and high levels of net overseas migration) and on shifts in domestic incomes - on improving affordability. The collapse of the conditions ensuring affordability and supporting rental investment has coincided with an end to the previous demographic conditions, however. Accordingly, far from expanding, housing production since 1974 has been compelled to contract.

276

Monopoly Rent 277

(ii) The sphere of housing must ensure reproduction of the capital-labour relationship, specifically by aiding the reproduction of a population with requisite skills and levels of social and geographical mobility. Here, however, we can be less certain about the effects of present conditions. The increasing segregation of social classes would seem to guarantee the effective reproduction of those classes - most specifically, the professional ‘class’ in the established milieus of the middle-ring east, south and bayside, and the under-employed underclass in the ghettoes of both the inner suburbs and the outer. However previous heterogeneity seemed especially to support the social mobility that in turn under-pinned the myth of universal progress and Australian egalitarianism. A relatively permanent, spatially contained and reproducing underclass is comparatively novel in Australian society (other than the Aborigines!). Something similar existing in the 1930s (though its characteristics were quite different); its resolution required first a war, and then a boom in labour-intensive manufacturing.

(iii) The sphere of housing must stabilise the conflicts inherent in the capital- labour relationship by shifting the focus of working-class concerns from issues of production to those of consumption. This it does well when virtually all are achieving home ownership (and a consequent material interest in local and community struggle) or can look forward to it; when they cannot, and perceive ‘the capital-labour relationship’ as underlying their deprivation, and when segregation and propinquity heighten their shared ‘underclass consciousness’, then those conflicts arising in the capital-labour relationship are merely magnified.

7.2. GLOBAL CRISIS AND HOUSING CRISIS

The second question related to the causes of the changed conditions in the urban housing market of the late 1970s and early 1980s - to what extent do they relate to the apparent broader crisis in the national and international economy7 It was previously suggested that relationships might function at three levels: investment and disinvestment, the division of labour, and competition in the sphere of reproduction.

(0

(ii)

It would seem incontrovertible that increasing intemationalisation of capital must increase the exposure of Australian housing investment to both short-term vicissitudes and long-term changes in the global economy. Certainly the boom of speculative investment in the housing sector after 1967, and especially that of 1972 to 1974, is to be seen partly as an attempt to find fruitful avenues for investment of over-accumulated capital in the wake of the collapsed minerals boom and the teetering commercial property market. More recently the exposure has ensured historically high domestic interest rates - including those for housing finance - and so the persistence of the crisis of housing affordability. Technological change, the ‘new international division of labour’, and the de-industrialisation of Australian society have underlain shifts in class


(iii)

structuration that have in turn shifted demand between housing submarkets and in large measure established the conditions for the rising hegemony of the professional class and for the creation and social relegation of the underclass. Competition among the expanding professional workers for the favoured milieus of the inner and middle-ring suburbs seems to have been decisive in the differential shifts in house prices - especially after 1977 - that have underlain uneven development and the crisis of relegation and wealth redistribution. That this competition is to be seen as a reflection of crisis in the field of reproduction is less certain (though sustainable on present evidence); and the extent to which this is in turn a manifestation of concerns over the direction of national (and international) structural change is more problematic still.

7.3. HOUSING CRISIS AS BARRIER

The third and final question addressed the effects of changed conditions in the field of housing, in the late 1970s and early 198Os, on the broader national and ultimately the international economy. It is the complement to the second question - having established that the housing crisis is indeed to be seen as a local manifestation of the second global crisis, does it in turn aggravate the contradictions underlying the global crisis? It was argued in Section 2.4 that it could do this in two ways: by eroding the capacity of the housing market to provide requisite opportunities for investment of capital over-accumulating elsewhere; or by somehow eroding requisite levels of demand for the output of capitalist production (effectively an extension of the first function of housing production and consumption, in Section 7.1 above).

(i) There can be little doubt that the Australian commercial property market has provided a periodic outlet for over-accumulated capital - most notably since the 1969-73 switching crisis which marked the onset of the present more general crisis - and that investment in that market has increasingly been foreign rather than domestic (e.g. see Adrian, 1984). Likewise the extraordinary speculative investment in urban fringe land in the period to 1974 and the forced rescue of 1973-74, which underlay the 1973-74 boom in prices and erosion of affordability, helped to soak up mainly domestic capital (so it appears) at a time of severe over-accumulation globally. However it was argued in Section 3.7.2 that the effect of these events in the urban housing market was to raise prices generally, virtually across all submarkets; that the rises should accordingly be conceptualised as shifts in absolute rent; and that the consequent affordability crisis represented a serious barrier to further uses of shifts in absolute rent - triggered by monetary policy - to soak up speculative money. It was further argued, in Section 5.4.4, that differential price changes between submarkets after 1977 created new opportunities for profitable investment in appreciating submarkets (most notably in the inner and middle-ring east, south and bayside), while in devaluing submarkets

Monopoly Rent 279

opportunities were being created forfuture investment by speculatordevelopers. And it was argued that the profits in localised submarkets after 1977 are generally to be conceptualised as extraordinary shifts in monopoly rent; that the uneven development necessary for the extraction of monopoly rent is dependent on a differentiated structure of submarkets; and that the conditions for continually recreating, fragmenting, sustaining and on occasions eroding submarkets, are largely supported by urban planning practice.

So the tentative conclusion is that the previous ease in using housing investment to resolve (mainly local) problems of over-accumulation has been destroyed in the crisis; that it is still, however, necessary for finance capital to find outlets in the housing sector (other than in unprofitable lending for owner-occupancy); and that planning practice has been compelled to increasing innovation, and increasing contradiction to planning ideology. Significantly higher current housing costs consequent on the 1973-74 price rises - specifically, the increased dependence on two incomes for access to owner-occupancy - eroded households’ discretionary income, and hence demand for other goods and services, including manufacturing output. The institutions of finance capital, aided by monetary policy, had redistributed consumer demand. With an increasing proportion of all housholds having purchased dwellings since 1973, this effect is cumulative, and with it the erosion of domestic markets and viability of Australian manufacturing.

(ii)

Prima facie, the housing crisis heightens the more general crisis, at least in Australia. And the difficulty in resolving the housing crisis must clearly inhibit any resolution of the more general crisis.

7.4. RESOLUTIONS

This has been a somewhat ‘capital-logic* account of the housing crisis, with housing outcomes apparently ‘inevitable’ given the contradictions and imperatives confronting capital, and the state of monetary and fiscal policy and of planning practice. Certainly monetary and fscal policy and planning practice are constrained by the state’s perceptions of the needs of capital; however they can be freed by changes in the populations* perceptions of social states and relationships alternative to those presently prevailing. Any such informing of perceptions is likely to occur at three levels.

(i) It will be necessary to understand that present inequalities in both life prospects and housing-related redistributions of wealth are underlain by gross and naked inequalities in social investment (schools with more ‘academic’ goals in some areas but ‘skills’ emphases in others, good public transport in some areas but poorer in others, etc.). Residential differentiation is socially produced, and ultimately the process of its production cannot be ignored.


The process of increasing segregation has been proceeding for 50 years. To reverse it requires a redirection of educational resources - especially a clean-up of the government-schools system in Melbourne, and better schools in the west and north, more able to foster academic and career aspirations and political awareness, as examples. However, such policies would confront the perceived interests of groups strategically well placed in the political process, and likely to be able to block their implementation; and, if implemented, the policies would fundamentally alter the prevailing patterns of social mobility, and therefore be strongly de-stabilising. Similar paradoxes attach to a redist~bution of transport services, to decentralised government and administration, to increased local autonomy, etc.

(ii) Space is uneven, and there will always be mismatches between the distribution of (socially constructed) preferences and the distribution of spatial opportunities, regardless of equity in social investments. The effect of the taxation system in distorting the distribution of benefits attaching to housing investment and use is crucial - the extraordinary rises in absolute rent of 1973-74, underlying so many aspects of the present crisis, were made possible by the non-taxing of capital gains as much as by the onset of negative real interest rates and abundant credit.

No equity in housing provision and payments is ever possible until there is a system of indexed capital gains taxing that includes the faxing of owner-o~~pie~ dousing capital gains - and co~espondin~y the direct tax deductibility of housing capital losses, similarly indexed for inflation. Again such a reform would confront the most entrenched of attitudes and vested interests, namely those of the 70 percent of households who are owner-occupiers and look forward to presently tax-free capital gains (but in fact confront, for the most part, real capital losses as the ‘necessary’ devalution of housing capital proceeds, conveniently disguised by inflation!).

(iii) Planning practice, building control and consumer protection are all parts of a system of state supports for corporate capitalist production - they serve to constrain income-supplementing, home-based or community-based production (including such activities as re-use, re-cycling, bartering, self-help housing production and renovation, etc.). The dependence of the under-employed on welfare is thereby guaranteed, and any significant transformation of the capital-labour relationship is constrained.

Planning practice must reverse its present directions, to support rather than constrain the actions of individuals and cooperative groups.

7.5. FINALLY . . .

It scarcely seems possible to understand any local housing ‘problem’ outside the context of (1) global capitalist history, (2) the continual switching of capital between circuits, sectors within those circuits, and regions, (3) the significance of the different forms of ground rent in enabling profitable returns on capital invested in the built

Monopoly Rent 281

environment, (4) the crucial dependence of absolute rent on appropriate monetary policy, and (5) the equally crucial dependence of monopoly rent on a differentiated structure of submarkets and on appropriate planning practice to help create, fragment, sustain, and when necessary erode the structure of submarkets. These processes are long-term. Accordingly it is also necessary to study such a context over the long term.

APPENDIX A

Estimating Annual Changes in House Prices

Disaggregated data on housing transactions have been sought, for all sales and transfers of ownership associated with a representative sample of the Melbourne dwelling stock. For those data - and for various subsets that might correspond with housing submarkets in Melbourne - the aim has been to estimate (1) annual price indices (reflecting annual change in prices inferable from consecutive sales of individual dwellings, and reported here), and (2) annual change in the proportion of affordable dwellings, for various definitions of affordability (reported in Appendix B).

METHOD

Required data would be in the form:

where Pn,i is price paid for dwelling n in year i. and Pm4 that paid when the dwelling was sold next, in yearj. The two prices can be related thus:

where Z signifies the price index applicable to the dwelling in each year from j+Z to i. Generalising for all dwellings in a submarket and transforming the equation, we get:

In logarithmic form the equation is additive, and values for I can be estimated by multiple regression.

THE DATA

For a systematic 1: 70 sample of private-sector dwellings in Melbourne local government areas (LGAs) excluding semi-rural Healesville, Cranbourne and

282

Monopoly Rent 283

Pakenham, information was sought on transactions over time, extracted in 1983 from the detailed (and unpublished) records of the Victorian Valuer-General’s Office. These cover all private-sector property in all Victorian LGAs, generally from around 1930 although sometimes from earlier; they also cover private-sector property purchased or resumed for public purposes (including public-sector housing) to the date of its public acquisition, and public-sector dwellings sold to private owners. As most Melbourne dwellings were built after 1950, the records trace their entire history. There are, however, some gaps: (1) for some LGAs, earlier records from the 193Os, 1940s and in a few cases the 1950s have been somewhat inaccessibly archived; (2) where a dwelling has been constructed to the household’s requirements on land it already owned, there would be no transaction and therefore none recorded; and (3) in some instances, individual transactions have not been recorded. This third source of missing data presents little problem: the number of omissions is small and apparently random. The second simply reflects a normal aspect of the ‘supply side’ of the market, although it also accounts for an under-representation of the overall dwelling stock in the sample. The third source is more serious, as it is likely to bias results for the 1940s and particularly the 1930s.

Of the 8,556 cases constituting the data, a small proportion had no recorded transaction in the period under study, a larger proportion one sale only (so could not be used for estimating price indices), and the rest from two to a maximum of nine sales. A case with two sales in the period yields one price increment (Pi/P, in Equation

l), three sales yield two increments, and nine the relative bonanza of eight increments. The total number of increments in the sample - hence the number of observations for calibrating the model of price indices - was 8,842.

RESULTS

Rates of price change (i.e. Z - 1) are listed in Table 9 for separate houses, and in Table 10 for flats and ‘other dwellings’ (see also Fig. 4). Increases aggregated over five- year periods, for regional groupings of LGAs, are displayed in Tables 11 and 12.

JPP 28:3-G


TABLE 9. Increases in house prices. Melbourne 1942-1982

Year

No. of sales in sample

Median price

%

Price increase on median

price %

Price increase on disagg. data

Estimated t mean Statistic

%

1942 62 2 101 1943 63 2 003 1944 50 2 000 1945 63 1 899 1946 80 2 000 1947 98 2 131 1948 100 2 398 1949 215 2 800 1950 261 4903 1951 242 5 201 1952 258 5 305 1953 297 5 300 1954 386 6 125 1955 337 6 600 1956 319 7 100 1957 325 7 502 1958 358 7 898 1959 351 8 098 1960 414 9001 1961 307 9 198 1962 315 8 705 1963 322 9 990 1964 465 10 158 1965 420 10 200 1966 418 10 755 1967 472 11200 1968 531 11700 1969 528 12 299 1970 583 13 500 1971 607 13 751 1972 754 15 001 1973 965 19 999 1974 633 26 496 1975 799 29 001 1976 791 33 998 1977 663 38 497 1978 641 38 499 1979 615 39 502 1980 635 40 502 1981 563 46 507 1982 566 49 500

7 -5 0

-5 5 7

13 17 75 6 2 0

16 8 8 6 5 3

11 2

-5 15 2 0 5 4 4 5

10 2 9

33 32 9

17 13 0 3 3

15 6

20 2.80 -10 1.36

-4 -0.57 -8 -1.11

3 0.40 15 2.46 9 1.51

28 5.17 48 10.63 18 4.84 2 0.64 6 1.68

11 3.38 9 2.79 7 2.28 7 2.38 8 2.72 2 0.55

12 4.26 7 2.27

-7 -2.37 12 3.92 5 1.81 1 0.29 3 0.93

10 3.79 3 1.26 3 1.49

10 4.43 7 3.32

10 4.84 26 13.35 31 14.59 13 6.27 18 8.81 15 6.58 -5 -2.30

4 1.46 6 2.52

21 7.68 2 0.70

F statistic = 848.6

explained variance (F) = 82.8%

Monopoty Rent 285

TABLE 10. I- lm fht price!& Mabarnc 1%~1982

Year

No. of sales in sample

Median price

s

Price increase on median

price %

Price increase on disagg. data

Estimated t mean statistic

%

1962 1963 1964 1965 1966 I%7 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982

24

2 55 70 63 82 96

I09 100 122 I41 100 I71 I90 177 158 193 230 215 183

10ooo 7017 9800

II 040 II 200 IO 200 II 998 I3 913 II 946 I3 497 I3 525 I6 927 22 998 22 509 30 500 31 100 32 996 32 998 35 008 36 494 40519

-8

36

-30 40 I3

2

I -8 I8 I6

-14 I3 0

25 36 -2

6 0 6 4

II

23 -23

20

23

0 -2

9 3

7

-8 IO 5

J 30 9

2.41 -3.12

2.37

6.79

0.11 a.11

2.13

1.75 0.60

-0.84 2.28 1.26 I.71 5.17 6.83 2.43

-3 -0.95 I 0.28

I3 3.84 I5 4.64 II 3.00

Fstatistic = III.9

explained variance (R’) = 82.5%

TABLE 11. ha-eases iIl hoase p&es, over fire-year perlo&. Melbolum re&m 1%3-1982

Region (component local government areas) YearS

Statistics from Median Price increase regression analy8es price at to estimate end of on median on disagg. price indices period plicC data on disagg. data

s % %

her mrbaa 1963-67 (Melbourne, Fitzroy, 1968-72 Collingwood, Richmond, 1973-77 South Melb, Port Melb) 1978-82

MM&&g esst (Hawthorn, Kcw, Malvem, Camberwell)

1963-67 I2 825 32 1968-72 17960 40 1973-77 48 525 170 1978-82 88 OCQ 81

Ooter-rtng east (Box Hill, Nunawading, Waverley)

l%3-67 13900 26 I8 n = 747 1968-72 I8 735 35 38 F= 133.9 1973-77 42ooO 124 126 1978-82 58 I50 38 37

8300 II 492 38 Ooo 52 503

37 38

231 38

35 n = 719 22 F= 91.8

193 38

29 n = 1215 48 F = 275.6

159 82


TABLE 11. Continued

Region (component local government areas) Years

Median price at end of period

%

Statistics from Price increase regression analyses

to estimate on median on disagg. price indices

price data on disagg. data % %

4

5

6

I

8

9

10

11

12

13

Outer-ring northeast (Doncaster-Templestowe, Diamond Valley, Eltham)

1963-67 12 350 58 26 1968-72 18 850 53 54 1973-77 46 500 147 170 1978-82 63 025 36 23

Outer east 1963-67 9 500 36 15 (Ringwood, Croydon, 1968-72 14 953 57 49 Knox, Lillydale, Sherbrooke) 1973-77 38 000 154 145

1978-82 47 275 24 24

Middle-ring south (St Kilda, Prahran Caulfield)

Middle-ring bayside (Brighton, Sandringham)

Outer bayside 1963-67 11020 39 40 (Mordialloc, Chelsea, 1968-72 14 485 31 40 Frankston, Mornington, 1973-71 33 510 131 156 Flinders, Hastings) 1978-82 37 000 10 23

Outer-ring southeast (Oakleigh, Moorabbin)

1963-67 11950 26 27 1968-72 16 200 36 52 1973-77 33 563 107 123 1978-82 55 075 64 25

Outer southeast (Springvale, Dandenong, Berwick)

Middle-ring north (Essendon, Brunswick, Northcote)

Outer-ring north (Coburg, Preston, Heidelberg)

Outer southeast (Broadmeadows, Keilor, Bulla, Whittlesea)

1963-67 13600 36 46 1968-72 14 502 7 50 1973-77 51000 252 133 1978-82 79 000 55 57

1963-67 14000 8 48 1968-72 16 625 19 6 1973-77 41 200 148 144 1978-82 78 800 91 94

1963-67 9 993 10 2 1968-72 15 875 59 30 1973-77 35 550 124 161 1978-82 43 492 22 27

1963-67 10 650 35 33 1968-72 13 013 22 52 1973-77 32 050 146 156 1978-82 40000 25 21

1963-67 12 600 50 39 1968-72 13 992 11 19 1973-77 37 125 165 128 1978-82 49 000 32 38

1963-67 10 805 36 36 1968-72 13 997 30 32 1973-77 38 025 172 150 1978-82 46 100 21 19

n = 394 F = 54.5

n=600 F= 172.7

fI= 1149 F= 137.9

n = 502 F = 79.2

n=744 F = 84.5

n=647 F = 68.6

n = 221 F = 30.8

n = 639 F= 123.1

n = 619 F = 76.2

n=581 F= 186.8

TABLE 11. Continued

Monopoly Rent 287



t




14 Middle-ring west (Footscray, Williamstown)

1963-67 9 050 33 66 n = 328 1968-72 11050 22 32 F=64.6 1973-77 27 500 149 108 1978-82 30000 9 21

15 Outer west 1963-67 9 782 20 24 n = 323 (Sunshine, Altona, 1968-72 13 597 39 30 F = 59.2 Merton, Werribee) 1973-77 34 517 151 161

1978-82 42 125 22 16

Melbourne metropolitan area 1963-67 11200 29 1968-72 15 001 34 1973-77 38 497 157 1978-82 49 500 29

33 n = 9 414 37 F= 1

153 29

267.7

TABLE 12. Increases in flat prices, over five-year periods. Melbourne regions 1%~1982



8




Inner (Melbourne, Fitzroy, Collingwood, Richmond, South Melb, Port Melb, Prahran, St Kilda)

1968-72 12 025 16 16 n = 592 1973-77 28 450 137 114 F = 60.7 1978-82 40100 41 54

MiddIe-ring east, south aod bayside (Hawthorn, Kew, Malvern, Camberwell, Box Hill, Caulfield, Brighton, Sandringham)

1968-72 15 038 31 28 n = 324 1973-77 37 063 146 126 F=64.5 1978-82 56 000 51 57

North, west and outer (Remainder)

1968-72 13488 39 19 n = 326 1973-77 30 005 122 116 F= 85.3 1978-82 35 978 20 26

Melhoume metropolitan area 1968-72 13 525 33 23 n=l240 1973-77 31 100 130 124 F = 146.2 1978-82 40 519 30 41

APPENDIX B

Estimating the Affordability of the Dwelfing Stock

We observe changes over time in the dwelling opportunities affordable by some ‘average household’. That ‘average household’ is assumed for present purposes to be one with a single income equal to male average earnings, borrowing housing finance at the most commonly prevailing savings bank interest rate for first mortgages, with repayments calculated on monthly rests for a B-year loan, with the size of the loan limited so that repayments will not exceed 2.5 percent of household income (i.e. of average earnings) at the time of contracting the loan, and with savings adequate to cover transaction costs together with 20 percent of the value of a chosen property (i.e. it is effectively an 80percent ratio loan).

Table 13 lists male gross average weekly earnings (in column 2) from the appropriate ABS series, the corresponding monthly loan repayments calculated as 25 percent of monthly income for a household on average earnings (in column 3), the most common savings bank interest rate (column 4) and (in column 5) the loan able to be serviced by the repayments of column 3 at the interest rate of column 4. This is augmented to give the property value (in column 6) for which the loan would amount to 80 percent. Finally, proportions of houses and flats sold in each year, affordable under these conditions, are listed in columns 7 and 8, estimated from the sample of housing transactions described in Appendix A (see also Fig. 4).

288

TABLE 13.

Monopoly Rent 289

Average earahgs, estimated aftmlabk propefty value, aad estimated propcnth~as of boases aad flnts affordable. Meham 1932-1982

Year ending June

1932 1937

Affordable Average Savings Affordable proportion of weekly Monthly bank interest Affordable property

earnings repayments rate loan value houses flats % 8 % % 8 % %

1.18 8.43 6.0 1 308 1 635 62 8.81 9.54 4.5 1 716 2 145 63

1942 11.40 12.35 4.5 2 222 2 778 65 1947 14.00 15.17 3.88 2 910 3 638 79 1952 29.00 31.42 3.88 6 028 7 535 83 1957 39.60 42.90 5.0 7 338 9 173 67

1962 48.50 52.54 5.75 8 352 10 439 69 58 1963 50.10 54.28 5.25 9 058 II 323 67 90 1964 52.50 56.88 5.5 9 263 11 578 66 70 1965 56.40 61.10 5.75 9 712 12 140 74 64 1966 59.20 64.13 5.75 10 194 12 742 67 74 1967 64.10 69.44 5.75 I1 038 13 797 71 79 1968 67.80 73.45 5.75 I1 675 13594 75 82 1969 72.40 78.43 6.25 1 I 889 14 862 70 65 1970 78.40 84.93 8.25 10 772 13465 50 68 1971 86.40 93.60 8.25 11 871 14 839 60 64 1972 93.90 101.73 7.75 13468 16 835 61 74 1973 102.80 111.37 7.75 14 745 18 431 41 55 1974 118.80 128.70 9.5 14 731 18 413 14 25 1975 147.80 160.12 9.0 19 080 23 850 20 61 1976 170.50 184.71 8.5 22 866 28 582 29 41 1977 191.10 207.03 10.5 21 927 27 409 13 37 1978 209.30 226.74 10.0 24 952 31 190 23 46 1979 226.60 245.48 9.5 28 097 35 121 33 59 1980 248.80 269.53 10.5 28 546 35 683 34 51 1981 280.60 303.08 11.5 29 906 37 383 26 53 1982 311.00 336.92 13.5 28 904 36 I30 18 37

APPENDIX C

~stj~atjffg ~ousj~g-~e~ate~ Gusts and Returns

We estimate the material costs and returns of owner-occupiers, renters and landlords. We begin with the situation of an owner-occupier vis-ci-VZ’S that of a renter over the five years from the end of 1962 to the end of 1967; thence, for alternative assumptions about level of equity in the property and level of income (hence marginal tax rate), the situation of a landlord is considered over the same tive-year period. The analysis concludes with variations over different regional and dwelling type submarkets, and over time.

OWNER-OCCUPIERS AND RENTERS

From the end of 1962 to the end of 1967, house prices generally in Melbourne rose by 33 percent (i.e. the price index was 1.33) (Table 11). If a householder had purchased a median-priced house at the beginning of that period, he would have paid $8,705 for it; if its exchange value had risen at the mean rate of increase, and he had realised that value by selling at the end of the period, he would have received $11,578; and if he had financed his purchase in the way described previously, the 20 percent deposit together with transaction costs (a further 4 percent of price) might have involved an outlay of some $2,089; and his monthly repayments would have been $41.73 in 1963, $42.81 in 1964 (to accommodate an interest rate rise), and $43.79 in 1965, 1966 and 1967 (assuming repayments were adjusted with changes in interest rates). There would also be expenditures on local taxes, water and sewerage charges, insurance and maintenance, previously assumed to equal 1.3 percent of purchase price, and in the present case set at $113 in 1963 and increasing in each year by the rate of house price inflation in the previous year. Finally transaction costs at the time of selling can reasonably be assumed to be 2 percent of the sale price.

If, on the other hand, the household had decided to rent a house over the same period, and the mean advertised rent for Melbourne generally had applied to it in 1962 ($20.90 per week) and in 1967 ($22.99), and if we interpolate rent levels for intervening years proportionally to the rates of change in house prices, then we can estimate the 1963 rent at around $21.74, that for 1964 and 1965 at $22.17, and for 1966 at $22.39. At the beginning of the tenancy there would have been a rental bond as initial outlay, usually equal to four weeks rent, refundable at the termination of the tenancy.

These various expenditures for buying and renting are listed comparatively in

290

Monopoly Rent 291

TABLE 14. Costs of owning and renting a median priced home. Melbonm 1%3-1%7

Owner occupancy Rental

Median purchase price (1%2) Initial outlay (end of 1962)

Deposit (20%) and transaction charges (4% assumed)

Expenditure (current dollars) 1963 repayments (annual)

other (annual) 1964 repayments

other 1965 repayments



other Total outlay and expenditure

(1967 dollars) Receipts at end of occupancy

Sale price (1962 median X 1963-67 price index) Loan outstanding Transaction charges (2% assumed)

Total Balance (receipts - total outlay and expenditure) Net benefit (balance + rental benetit) Return (net benefit/outlay and expenditure)

8 705

2 089

501 113 514 127 525 133 525 134 525 138

5 889

11 578 Refund of rental bond 87

-6 236 -232

5 110 -779 -6 267

5 488 0

93%

Rental bond (4 week rent)

1963 rent (annual)

1964 rent

1965 rent

1966 rent

1967 rent

87

1130

1 153

1 153

1164

1 195

6 354

Table 14. It would be useful to add those for each tenure form, to compare ‘total expenditures’. Accordingly the various items have been translated into 1967 dollars (using Consumer Price Indices with 1967 base as deflators), and summed. The table continues with ‘receipts’ at the end of 1967, on the assumed termination of the occupancy: sale proceeds or refund of bond.

On this evidence, net expenditure of an ‘average’ renter of a house between 1962 and 1967 - represented by the final balance figure of Table 14 - might have been some eight times that of an ‘average’ owner-occupier. Even when we ignore the owner-occupier’s capital gain and the equity in the dwelling acquired through his repayments, and consider instead simple outlays and expenditures, the renter still would have paid more than the owner-occupier. However the items in the two columns of Table 14 cannot be directly equated: those associated with owner-occupancy are based on a systematic sample of all dwellings changing ownership, whereas the rental data derive from a sample of dwellings that landlords have advertised for rental - i.e. from one component of all rental dwellings, which in turn are only one component of all dwellings. The rental stock tends to be of poorer quality than that in owner-occupancy, and so, in most submarkets, the rent applicable to a house of median price (the subject of the purchasing costs in the table) will tend to


be higher than the mean rent for advertised rental houses (the subject of the rental costs).

If, with due caution, the rental and purchasing costs of Table 4 are equated however, we can adopt the rental expenditures ($6,267 in 1967 dollars) as a conservative measure of the implicit rental benefit received by the owner-occupier. On that basis, his net benefit - rental benefit and end-of-occupancy receipts, less total outlay and expenditures - would amount to $5,488 (i.e. $6,267 + $5,110 - $5,889), or an effective return of 93 percent on the $5,889 investment represented in outlay and expenditure. Stated otherwise, the owner-occupier has had virtually free accommodation over the period, while the renter has paid $6,267.

LANDLORDS

This comparison can be extended by considering the position of a landlord vis-a’-vis the renter of his property. The renter’s costs remain those estimated above; the landlord’s position, however, varies with the way investment in the property is financed, and with his marginal tax rate. In the ‘best’ case (for him), he would have had the lowest possible level of equity in the dwelling and the lowest possible interest rate. If we assume, realistically, 10% equity with the remaining 90 percent financed by an ‘interest only’ loan at the weighted average rate for overdraft advances from the major trading banks (5.9 percent in 1963), then initial outlay would have been $1,132 at the end of 1962 (10 percent equity together with transaction charges, for a median-priced house, less the previously assumed $87 rental bond), his 1963 interest bill $462 and, as for an owner-occupier, ‘other’ current expenditure $113. Mean advertised rent in that year was estimated previously at $1,130; if that rent had applied to this dwelling, and if a landlord had paid tax on rental income at the marginal tax rate applying to an individual on average male earnings and ‘normal’ deductions for superannuation payments, etc. (23.6 percent), but could reduce his tax by claiming as deductions (1) interest payments, and (2) ‘other’ current costs, then taxable income from the property would have been $555 (i.e. $1,130 - $462 - $113); the tax paid would have been $131; and the net income therefore $424.

It would seem that most rental income, in 1962 as in 1982, was taxed at higher than the marginal rate for average weekly earnings. If we therefore assume the marginal tax rate on an income of twice average earnings (36.4 percent in 1963), the tax paid on the $555 rental income would have been $202, and the net income accordingly $353.

By contrast, the landlord’s least advantageous case occurs with full equity. With no interest payments, taxable income from the property would have been $1,017 (i.e.

$1,130 - $113), his tax $240 if we assume average earnings (or $370 if twice average earnings), and net income therefore a relatively high $777 (or $647). However that higher income is on a much higher initial investment, namely $8,966 (full purchase price, plus transaction charges less rental bond) against $1,132 in the case of 10 percent equity.

Data on these four situations - low equity and full equity, each with high and ‘average’ marginal tax rates - are displayed in Table 15 for 1963 to 1967. Also

Item Landlord with 10% initial equity Landlord with full equity

Initial outlay (end of 1962) Income (current dollars)

1963 1964 l%5 1966 1967

Total income (1967 dollars) Receipts at assumed end of investment (end of 1967)

Sale price (1962 median X 1963-67 price index) Loan outstanding Transaction charges (2% assumed) Refund of bond

Total Total benefit (total income + receipts) Initial outlay (l%7 dollars) Return (net benefit/outlay)

1 132 8966

Rental Inwme- interest -‘other’

after tax: @ a.w.e rate

424 413 373 370 371

2 113

Rental Income - ‘other’

555 540 511 513 532

2 86.5

@ 2 X a.w.e. rate

353 343

z 293

1717

1017 1026 1020 1030 1057 5 559

11578 II 578

-7 a33 -232

-87 3 426

5 539 5 143

1300 1300

326% 296%

-23:

-87 11 259

after tax: @ a.w.e @p 2 X a.w.e rate rate

777 647 784 653 744 744 :z 737 582

4093 3 328

15 352 14 587

10 293 10 293

49% 42%

displayed are estimates of sale proceeds accruing to each type of landlord if the property were sold at the end of 1967, from which are derived estimates of total benefit (i.e. net income plus receipts of sale proceeds, all in 1967 dollars), and finally estimated rates of return on initial outlay (alI in 1967 dollars).

VARIATIONS WITH REGION AND DWELLING TYPE, AND OVER TIME

In Tables 16 and 17, this analysis is extended to variations in expenditures and returns with region and dwelling type, and for different periods. Five indicators are listed:

(i) Net costs of a renter paying mean advertised rent, expressed in end-of-period dollars (column 3).

(ii) Net costs of an owner-occupier of a median-priced house (i.e. net outlay and expenditure, less receipts of sale proceeds with capital gain over the period), again in end-of-period dollars (column 4).


TABLE 16. Costs aad returns associated with a mediaa-priced (and mesa-rent) house, over Bve-year periods. Melbourne 1933-1982 aad Melbourne regions 19634982

Landlord

Region (component local (government areas) Years

10% equity 100% equity Renter Owner-occupier 2 X a.w.e. a.w.e.

Net costs Net costs Return Return Return % 0 % % %

1

2

3

4

5

6

I

8

9

10

Inner urban 1963-67 5 143 426 115 366 59 (Melbourne, Fitzroy, 1968-72 7 767 2701 77 218 33 Collingwood, Richmond, 1973-77 16 355 -11 542 217 875 95 South Melb, Port Melb) 1978-82 28 390 18 561 24 97 8

Middle-riag east (Hawthorn, Kew, Malvern, Camberwell)

1963-67 6 737 1 255 83 257 44 1968-72 9 745 906 87 313 43 1973-77 20 654 -12 052 163 663 68 1978-82 30 527 2 778 53 268 29

Outer-ring east (Box Hill, Nunawading, Waverley)

Outer-ring northeast (Doncaster-Templestowe, Diamond Valley, Eltham)

Outer east 1963-67 5 329 1 856 74 197 37 (Ringwood, Croydon, 1968-72 7 273 578 89 322 44 Knox, Lillydale, 1973-77 15 394 -7 982 140 575 56 Sherbrooke) 1978-82 22 103 23 774 -4 -9 -7

Middle-riag south (St Kilda, Prahran, Caulfield)

1963-67 7281 -379 113 384 60 1968-72 9 559 695 83 308 42 1973-77 20 155 -6 036 161 609 62 1978-82 31 561 14 415 31 151 14

Middle-ring bayside (Brighton, Sandringham)

Outer bayside 1963-67 5 587 167 101 337 54 (Mordialloc, Chelsea, 1968-72 7411 1643 66 239 33 Frankston, Mornington, 1973-77 15 285 -9 294 151 626 63 Flinders, Hastings) 1978-82 22 316 21 244 3 7 -5

Outer-ring southeast (Oakleigh, Moorabbin)

1963-67 5 919 1408 70 215 38 1968-72 8 109 376 82 311 42 1973-77 15 308 -5 155 113 468 42 1978-82 21 346 20 669 2 9 -5

Outer southeast (Springvale, Dandenong, Benvick)

1963-67 6 125 2615 47 129 26 1968-72 8 742 2 345 58 212 29 1973-77 18 786 -6 513 121 492 45 1978-82 26 286 20 927 12 61 2

1963-67 6 125 1 234 93 278 47 1968-72 8 742 136 88 324 44 1973-77 18 768 -14 681 158 668 68 1978-82 27 652 29 549 -4 -10 -7

1963-67 6 725 -745 85 306 49 1968-72 10 224 6 752 31 59 11 1973-77 22 788 -8 712 169 652 67 1978-82 34 713 -2 486 84 381 45

1963-67 5 346 3 561 29 40 15 1968-72 7200 2 469 60 196 28 1973-77 14 676 -10 963 144 617 61 1978-82 21 619 21 197 1 11 -5

TABLE 16. continued

Monopoly Rent 295

Landlord



Net costs Net costs Return Return Return g g % % %

11 Mhhlle!-ring nurth (Essendon, Brunswick, Northcote)

12 Outer-ring nurth (Coburg, Preston, Heidelberg)

13 Outer north 1963-67 4690 480 78 260 43 (Broadmeadows, 1968-72 7 056 2 458 54 185 26 Keilor, Bulla, 1973-77 14 585 -8 166 145 601 59 Whittlesea) 1978-82 19 605 25 653 -15 -48 -13

14 Middle-ring west (Footscray, Williamstown)

1963-67 5 347 -1 589 151 542 81 1968-72 6 379 2 059 61 205 29 1973-77 13 148 -1 892 122 457 42 1978-82 19 113 18 013 4 5 -5

15 Outer west (Sunshine, Altona, Melton, Werribee)

Melbotune metropolitan area

1963-67 5781 709 95 298 50 1968-72 7 333 336 83 317 43 1973-77 13 412 -8 349 149 619 62 1978-82 19 587 20 995 -4 -15 -8

1963-67 6 553 259 110 359 58 1968-72 9 018 4 472 46 131 20 1973-77 16 343 -5 139 137 541 52 1978-82 21 008 18 134 7 51 0

1963-67 4690 1441 59 178 33 1968-72 6109 2 416 48 165 23 1973-77 13 650 -9 389 151 632 64 1978-82 19 212 24 302 -14 -52 -13

1933-37 1938-42 1943-47 1948-52 1953-57 1958-62 1963-67 1968-72 1973-77 1978-82

720

5461 5 834 6 267 8 823

17 428 26 856

630 122 851

-1 770 -459 1 139

779 2000

-9 184 22 200

10 2 14

173 635 87 98 337 53 93 296 49 77 259 37

158 642 65 11 43 0

(iii) Return to the same owner-occupier (i.e. assumed rental benefit less net costs, as percentage of combined initial outlay and net expenditure) (column 5).

(iv) Return to a ‘professional’ landlord, with 10 percent equity in a house of median price and attracting mean advertised rent, and taxed on the basis of an income equal to twice male average earnings (column 6).

(v) Return to an ‘accidental’ landlord, owning a median-priced house outright, receiving the mean advertised rent for it, and taxed on an income equal to male average earnings (column 7).


TABLE 17. Costs and returns associated with a median-priced (and mean-rent) flat, over five-year periods. Melbourne 1963-1982 and Melboarw regions 1%&1982

Landlord



Net costs Net costs Return Return Return % g % % %

her (Melbourne, Fitzroy, Collingwood, Richmond, South Melb., Port Melb., Prahran, St Kilda)

Middle-rhrg east south and bayside (Hawthorn, Kew, Malvern, Camberwell, Box Hill, Caulfield, Brighton, Sandringham)

North, west and outer (Remainder)

1968-72 6 255 3951 28 79 12 1973-77 10 905 -2 985 105 426 37 1978-82 16 988 9 437 25 132 11

1968-72 6 338 3 016 37 133 18 1973-77 12 068 -5 502 106 452 39 1978-82 18043 11204 17 117 8

1968-72 5781 3 398 31 95 14 1973-77 10 713 -3 613 96 408 34 1978-82 13 926 18 187 -13 -29 -11

Melbourne 1963-67 4 959 3 023 29 64 17 metropolitan area 1968-72 6 175 3 175 371 120 17

1973-77 11008 -4 683 105 446 39 1978-82 16 071 14 279 5 52 0

In computing the fourth indicator, ‘negative gearing’ has been assumed: where expenditure has exceeded income - mainly because of the coincidence of very high nominal interest rates on borrowed capital with relatively low rents - the resulting losses have been allowed to write down other income for tax purposes. The tax reduction has then been treated as income attributable to the dwelling.

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