"The wicked rentier class" is a fine old Marxist cliché, though "wicked" is without doubt an exaggeration in most cases. The small investor is rarely a slum landlord on the Rachman model or the lazy scion of a well-to-do family. Even so, as compared with the wage earner, even the small rentier's income derives from little or no present work: it is hardly "in the sweat of thy face shalt thou eat bread" (Genesis 3:19). 

Although it is all very well to say that the rentier's income is based on past work, this is far from invariably the case. Even when it is, it is not necessarily the past work of the rentier himself or herself. In the UK in particular, it is frequently based on the work, good luck or even rapacity of the rentier's ancestors, or on enormous increases in property values well within living memory.  

The reason for including rapacity is that many great estates and great fortunes were founded by the most reprehensible means, ranging from straightforward war and plunder to (for example) slave trading. Even so, the rapacious and immoral form a sufficiently small percentage of the rentier class to be of no great consequence. Far more people inherit a more modest portion of more modest gains, usually made more or less honestly. 

This, very frequently, is where houses come in to it. If the house is in one of the more prized parts of the UK, it may well have increased something between ten-fold and fifty-fold in price in the few decades since it was bought by parents or grandparents, so inheriting even quite a modest (but fully paid-for) house can be an incredible windfall. Some of my friends and acquaintances have done very nicely, thank you, out of a previous generation's house-buying habits.  

Some of those who inherit a house will not have a house of their own: they can either move into the house they inherited, or sell it and buy another. I know three couples who found themselves in exactly this situation. By an odd coincidence, all three were small builders. 

But (here's the drawback) if the lucky inheritors already have a house of their own, the inheritance can very easily turn them into rentiers of the oldest and most basic kind: landlords. Money flows out of the pockets of those who rent, who are normally poorer than their landlords, into the pockets of the house-owners. Money begets money: this is cumulative advantage. Of course chance plays an enormous part in everyone's life, but a large part of the purpose of society is fairness. Without fairness, things turn sour, and every man's hand is soon turned against every other. 

With too much money chasing too few investments, real estate offers both income and capital appreciation: it is a very rational decision for those who can scrape together enough for a buy-to-let mortgage, let alone for those who have inherited a house. Not only does it reinforce cumulative advantage: it also drives up house prices, further and further out of the reach of those who buy houses as somewhere to live rather than as investments. 

Income (including capital gains) from rental properties must therefore be something of a special case when it comes to social equality and hence taxation. Rather than being encouraged, perhaps it should be subject to higher taxes than money that is earned by productive work.

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Words and picture copyright (c) Roger Hicks 2016