No Longer Nomads: The History Of Real Estate
For almost half of human history, our ancestors moved with the four-legged food supplies of their respective areas, leaving only trace signs of their lives - a cave painting here, some stone axes there and the odd carved trinket in the belly of a saber-toothed tiger.
Our ancestors abandoned the hunter-gatherer lifestyle gradually over the period from 30,000 B.C. to 15,000 B.C. This change was far from global, and hunter-gatherer societies still survive in some areas of the world today, but it did mark a transition toward an agrarian society - a transition that also heralded the advent of home ownership. In this article, we will look at the original investment, the birth of homeownership and real estate. (To read more about real estate, see Investing In Real Estate, Smart Real Estate Transactions and our Exploring Real Estate Investments tutorial.)
Many agrarian systems progressed like this: fertile plains were staked out and settled in a might-makes-right manner in which those who could defend the land were those who kept it. Eventually, a system of tribal leaders developed, and those who had the approval of the tribe would disperse lands, settle disputes and require a payment from all his subjects. The shift toward more and more powerful tribal leaders culminated in a pooling of labor along with a CEO of sorts to direct efforts. Irrigation channels were dug, strongholds were built, farming methods improved and temples were erected. With the land improvement, populations exploded. Now, where a family of hunter-gatherers might be able to support one or two children at best, farmers could produce several children. The increased fertility also meant increased available laborers.
The Original Protection Racket
Hunter-gatherers also followed a tribal system, but scarcity and the uncertainty of the life meant that a tribe could only support two or three extended families. The amorous farmers, however, soon found that they could not name everyone in their tribe anymore. In return for the sacrifice of familiarity, people living in these small societies gained the safety of numbers. A well-fed army easily repelled any desperate raiders. In return for this security, the people all paid homage to the lord or king who claimed ownership of the land - which, in essence was the first system of rent. As these farming villages grew into cities, the leading families maintained ownership by right of lineage - their ancestors had clubbed all other challengers senseless - thus becoming the kings, pharaohs, daimyos and the heads of other feudal dynasties. (To find out more about renting, see Are You Ready to Rent?, To Rent or Buy? - Part 1 and Part 2.)
All Hail the King
This system of labor-for-protection developed into two separate systems in most countries: taxes and tenancy. Royal families spread their wealth to friends, signing away titles and deeds to lands that allowed the holders to collect the revenues (rent) produced by the peasants living there. On top of this rent, all the people within a ruler's realm were generally required to pay a tax. Many other demands were made by ruling leader, such as military service, and they were grudgingly met because these rulers owned the land not only by birthright, but by military might as well. Rulers could be overthrown by other rulers, and sometimes by peasants, but a new ruler would sit on the throne and the average peasant would rarely notice a difference.
It wasn't all bad news for the peasants, however. They were able to trade with other kingdoms and the general level of wealth increased, giving rise to a merchant class as well as specialized laborers - the tradesmen - who were able to earn a living with their skills and not by their crops. This, in turn, resulted in non-agrarian shops and houses that still paid rent and taxes to the various lords and kings, but were bought, sold and rented among the common folk rather than by the royal class. Richer merchants became the first common-born landlords and gained wealth and status. These merchants didn't own the land, but they owned the houses on it.
The King is Dead
Many aristocracies were eventually displaced - usually by displacing an aristocrat's head from the body - with supposed meritocracies - a system where the best and brightest lead a nation for the good of all. What happened instead was the creation of politics. Title lands were broken into smaller parcels and sold on a free market of sorts, but the people with the money to buy the deeds were either merchants or former aristocrats who managed to escape being shortened by revolutionary fervor. Peasants had yet to make much progress from the original farming-tribesmen 30,000 years before them.
The Age of Machines
The industrial revolution was one of the great equalizers in human history, perhaps only matched by the invention of firearms. The effects of industry, much like a gun, were neither positive nor negative, but depended on application. The use of machines for manual labor freed many peasants for different tasks, and allowed a privileged few time for education and specialization into new fields of labor opened up by the mechanization of industry. Cobblers, seamstresses and cabinetmakers found that their once invaluable skills were now obsolete, leaving them to return to the land and the coal mines beneath it to try to eke out a living.
People with ambition were able to jump classes and bring some of their low class sensibilities with them, leading to track housing for laborers and a range of products aimed at the lower classes. The people who made up the classification of peasants now became middle class, blue collar, white collar, and a handful of other things. They owned houses, cars, and eventually, radios and televisions, which suggested what other things they might want to own. (To find out more about these current-day distinctions, see Losing The Middle Class, Surveying The Employment Report and Invest In Yourself With A College Education.)
The invention of mortgages belongs to no particular country. Mortgages existed for a long time as an exclusive loan given only to nobility. After the industrial revolution, however, the wealth of the world increased to the point where banks opened themselves to "higher-risk" mortgage loans to common people. This allowed individuals to own their own homes and, if they so desired, to become landlords themselves. It took 30,000 years, but home ownership is now open to many people. In fact, it has reached the point where people often buy too much or take out too much of a mortgage. (To learn more about buying a house, see our Mortgage Basics tutorial.)
The freedom to own something can be a heady brew, so it is important to practice moderation. Consuming too much debt by way of a mortgage can help you lose a house as likely as it will help you own one. (When people take on too much debt, the market can fall due to loan defaults. For a one-stop shop on subprime mortgages and the subprime meltdown, check out our Subprime Mortgages Feature.)
Ownership, specifically ownership of land, was the basis of all the investment opportunities we see today. Without a stable population and a set location, trade and commerce between groups is limited. Ownership has moved from being established by strength to being something you can buy, sell, trade and rent. There has always been a tradeoff for tenancy - a fee paid to the "owner" for the land and its protection. This responsibility was first afforded to tribal leaders, then to kings and finally to landlords. Now we have the power to own our homes, a move that has changed the way people live.