Rethinking Property Ownership: Real Property

One in a series of occasional articles on ideas we like, though we acknowledge their time has not yet come

Nothing is more central to the organization of collective life than the question of who owns what. As 18th-century British philosopher David Hume put it (in an 18th-century way), “the convention for the distinction of property, and for the stability of possession, is of all circumstances the most necessary to the establishment of human society.” In this article I will look especially at the ownership of what lawyers call real property: what the rest of us generally call “real estate.”

Perhaps because property rights are so deeply embedded in our collective arrangements, we take them largely for granted. It requires an effort of the imagination to recognize that the set of rules by which we acquire and hold property are not intrinsic to human nature, nor organic products of our species’ evolution, but the result of conscious decisions made by our political forbears. They reflect the power structures, values, and necessarily limited understanding of the distant eras from which they arise, which in the case of modern America is Europe of the 17th and 18th centuries.

The members of hunting and gathering societies which comprised all of humanity prior to the advent of agriculture did not acquire property rights to the land upon which they hunted and foraged. Agricultural land was privately owned in ancient Athens, but it was periodically redistributed to take into account the dwindling or swelling of family lines across generations. Later, in feudal times, property rights were generally understood to devolve from the monarch, in a chain whereby the conditional right to the use of land, from which virtually all wealth flowed (along with the goods it produced and the people who produced them) was held in exchange for loyalty to the warlord one step above oneself. The great mass of the population, often bound  serfs, were legally barred from holding any landed property at all.

It was with the demise of feudal arrangements, and the evolution of commercial, free-enterprise societies, that modern conceptions of property—the exclusive use of part of the earth, transferable but otherwise held inviolably and for life by private citizens, and through their heirs in perpetuity—came into being. While these exclusive, fungible rights no doubt contributed to the advance of prosperity, and even the evolution of political democracy, they were also highly advantageous to entrenched interests, particularly the landed aristocracy which initially ended up with the lion’s share of benefits. It is not surprising that this aristocracy, down to and including the founders of the United States, enshrined the right to hold unlimited amounts of landed property, and to bequeath it to one’s heirs, as a fundamental pillar of the societies they created. The newly created wealthy of the industrial age, in alliance with the old landed wealth, had every reason to see this situation perpetuated—and extended to other forms of property: chiefly money, precious commodities, and investment instruments, which grew to equal and eventual greater importance than land.

The vast majority of citizens in modern democracies have continued to accept this system of property ownership with little question, seeking only to maximize their own position. We are quietly indoctrinated from birth, often unintentionally, to believe that our current system of property ownership is normal, natural and “right.” Whether such a system is just is far from the average citizen’s preoccupations—or even whether such arrangements are the most effective means of insuring the general prosperity.

The only determined assault on this system has come from the adherents of Marxism, 20th-century experiments in which have generally been considered unqualified failures. I share this view, and it is not my purpose here to make a plea for state control of the “means of production.” I believe that allowing private entrepreneurs to gain access to resources in order to create economic goods is the most effective system conceivable, not only for insuring material prosperity, but also for allowing the creative energies of human beings to flourish. What I would like to do, however, is to examine our conceptions of property—and the systems that flow from them—with fresh eyes. Since property rights can take, and have taken, many different forms—since no one type of arrangement for Hume’s “distinction of property”  can claim universal, timeless validity—why should we not look at our current arrangements with an eye to whether they can be improved upon?

A chief aim here will be to distinguish between those things that citizens should be allowed to privately own and those that they should not. Our guiding principle will be that one should only be able to privately own things that one is responsible for creating, or that one has purchased from someone else who was responsible for creating them. To name an obvious example, no one is responsible for creating the air, therefore no one should be able to own it and charge the rest of us a fee for breathing. Nor is anyone responsible for creating the oceans, and we would be aghast if someone wanted to claim private ownership of the fish which live in them. No one created land or copper deposits, either: it is my contention that these goods should be no more ownable than the atmosphere and the oceans. At issue is what is referred to in social democratic circles as “the commons”: those goods which we all own jointly, and which should never be alienated to the control of any private individual.

This is not an argument for socialism, at least not in its classic sense. I am not calling for collective ownership of the “means of production.” Factories, tire shops and grain mills are not naturally occurring aspects of nature as are the air, soil and water. Their existence is the result of the efforts of some entrepreneur or group of entrepreneurs. It is my believe that people should be able to own that which they create.

Chief among those things which no one creates but which can be owned is land. One way to look at the question of land ownership is to consider by what means any of us is able to own a piece of real estate: let’s say, the yard upon which sits your house. The answer is simple: the State. It is the State which registers who owns what parcel. More importantly, it is the State, representing the organized will of the community, which prevents anyone else from using the land you call “yours.” Should a gang of outlaws decide to create an encampment in your back lot, it is representatives of the collective—otherwise known as the police—who will eject them. Looking at a larger picture, should a foreign nation decide that it wants not merely your, but everyone’s yards, it is the again representatives of the collective—this time called the armed forces—who will defend your ownership rights. These armed forces would potentially comprise—through conscription—all adult citizens of the nation.

Since no one creates land, our fundamental principle dictates that no private individual should be able to own it. And since it is the collective, acting through the State, which both fixes and insures the use of land, it seems only fair that it is the State which should have ultimate ownership. This does not mean that none of us would be able to enjoy the exclusive use of a house and a yard, however. Nor does it mean the GM could not acquire land upon which to build a factory, or Walmart to build a store. There are two major components to ownership: one is to have the exclusive use of something; the other is to have the right to sell or bequeath it to one’s heirs. It is perfectly possible to separate the two—to allow private individuals the exclusive use of some parcel of land, without also allowing them the right to sell it or bequeath it to their heirs.

This would be accomplished in regard to real property through what are known as “ground rents.” Ground rents were once a common device whereby the owner of a piece of land leased the land to another for some fixed term. The person leasing the land could use it for any purpose allowed by law and the terms of the lease, including building a house or business establishment. In our scheme, in which the State would own all land, it would lease out parcels for different uses as dictated by zoning laws and master plans. Subject to these limitations, there would still be a free market in property: that is, changing local conditions of supply and demand would determine the costs of land use.

 

Leases for both residential and business purposes would be for very long terms—for life in the case of homes—in order to achieve the stability required to enable people to build structures that last for decades. Things would operate much as does our current system, until the leaseholder decided to sell. Since the leaseholder owns only the building, but not the land upon which the building is constructed, the sale price would not reflect the value of the land. The new owner would buy only the building and continue to pay rent to the collective—the State—for use of the land.

Aside from adhering to our primary principle—that one should not be able to privately own things that no one creates—adopting a ground rent system would uphold another key social democratic principle: that economic rewards should be gained by service provided to the community. This second principle goes to the issue of merit. Social democrats, unlike socialists, believe in meritocracy, and we believe in entrepreneurialism. Our primary argument for a private enterprise economy—and against the socialists’ State-owned and run economy—is that the former incentivizes individuals to find some way to be of service to the community by providing useful labor or manufactured goods which others need and/or want. The fact that such a system results in greater rewards for those whose contributions are more than commonly helpful  we do not consider, in itself, unfair (though, out of regard for the negative effects of too much inequality, we believe this should not go too far).

There are aspects of our current system, however, which we do believe are both unjust and not in any way, or only very tenuously, connected to rewarding merit. An obvious one is inheritance. One lives a life of ease and luxury, controlling others’ actions through one’s buying power, due to services provided to the community not by onseself but by one’s parents, or even one’s great-great grandparents. Another example is income that is earned for the appreciation of some good which one owns. Ownership of land is the most notable example of this kind of income. A friend of mine bought a two-bedroom, unrenovated 1930s bungalow in an inside-the-Beltway neighborhood of Washington, D.C., in the late 1990s for $139,000. As it happened, the area was on the cusp of a major real estate boom. Five years later, when he moved out of the area, my friend sold the house for $440,000. He had done no renovations, additions, nor in any other way added to the value of the house. Yet he walked away from the deal with just over $300,000 in free money. This is not entrepreneurialism; nor is it meritocracy. This is a quirk in the system. A worker paid  $15 per hour would need to work full-time for 10 years to make $300,000. My friend got the money for nothing.

In a system of State-owned land, such  travesties could never occur. When my friend sold his house, he would have gotten back the value of the house itself, plus some inflation. (His purchasing price would have been lower than the $139,000 he paid—likewise reflecting only the value of the house.) The bulk of the increase in the property’s price occurred because the land had become so much more valuable: location, location, location. This neighborhood had suddenly become so popular, with worsening traffic making distant suburbs ever-more undesirable, and a subway recently installed nearby, that developers were buying homes similar to my friend’s for similar amounts—and then tearing the houses down to build McMansions! In my system, the costs would still increase, as the State would raise its ground rents to respond to market conditions (only after the lifetime lease holder moved). The difference is that the State would receive the $300,00 windfall, not my friend. Put differently, the State would have a huge new source of revenue to help pay for public services.

Another example of people owning—and greatly profiting—from things they do not create occurs when individuals own land bearing valuable mineral resources. There is no reason in justice or practical necessity why the sudden discovery of natural gas deposits under someone’s farm should render millions in free money to the owner of the land. The same is true of copper, gold, uranium, oil or coal. All of these rare and useful materials should be the common property of us all—part of the commons. No one should be able to waive a deed in our faces and make us pay through the nose to gain access to them. In the system I am recommending, the State would own all subsoil minerals, just as it owns all land. Concessions would be granted, through competitive bidding, to extraction companies, with leases of appropriate length to make the investments that must be made worthwhile. Private entities would still make profits for their role in extracting, processing and selling the minerals involved, but there would be no profit attached to the mere owning of them. That benefit would accrue to the only entity that can claim any true right to own them: the collective, acting through the State. A very similar system is already in place, in fact, on many federal lands and offshore areas, where drilling and mining leases are granted to private enterprises. It would merely need to be generalized to cover all mineral resources.