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Once upon a time, long, long ago – in lands both far and near – it was possible, nay, entirely necessary, to be able to build or buy a home without credit. Admittedly, the vast majority of the population did not own their dwelling, largely because credit was really only available to the aristocracy, or the landed gentry.

The upper-classes also owned most of the land, which meant that buying a piece of land on which one could build was quite a feat in itself. Many people built their houses on land that did not belong to them, but was owned by a local landlord. This of course left effective ownership of one's house in the hands of the landlord.

If you managed to acquire land, by whatever means, you then still had to ensure that you had enough money to pay for all the necessary materials and labour. Then, as now, there were very few people that had large enough cash reserves to accomplish this. Subsequently, the majority of the “common” population either lived in what were effectively shacks or hovels, rented a house from a landlord, or were provided with housing by their employer. This latter option was particularly fraught with risk since losing one's job also resulted in you and your family being out on the street by nightfall. Employers therefore had vast, unfair leverage and power. However, for centuries, there were few, if any other options. The upper-classes owned all the land, and held all the wealth and power, while everyone else made do as best they could. There was a small merchant-class that fitted somewhere in-between these two, main groups, but there was no true middle-class.

The advent of the Industrial Age inspired mass rural-to-urban migrations all across the globe, and thereby freed many from their utter reliance on the traditional, aristocratic, employer-landlords of the day. While factory workers initially had very few rights, they generally did have the double-edged freedom of taking responsibility for their own housing. City populations grew at such a rapid rate that most new arrivals grabbed any residential space they could find. Those with a little more cash, who had usually been in the city a little longer, bought a small piece of available ground in or close to the city and built whatever shelter they could afford, which was often as bad or worse than the hovels they had left. If they could not find open ground, they would often strike a bargain with an existing house-holder and add a structure to the top of the existing building. Slum-settlements sprung up outside city walls, and later, as shacks were replaced by houses, became known as sub-urban developments, or suburbs. (Sound familiar in our South African context?) Even city walls, and bridges across rivers did not escape this feverish building activity.

The original London Bridge, across the Thames River, was apparently so crammed with houses and shops that it generally took an hour or more to traverse the 180 metre (approx) bridge. Space was at such a premium that these buildings even over-hung the narrow bridge-road, often leaning against the building opposite, creating a tunnel over the road. Other buildings extended up to two metres over the river-edge of the bridge. By the time that an Act of Parliament to demolish these buildings was signed in 1754, there were about two hundred business on the bridge, not to mention residences belonging to business owners and others. Cities were the new source of wealth and social mobility, and everyone wanted to be as close as possible. It is estimated that by about 1851, a mere fifty or so years into the Industrial Revolution, approximately half of the entire English population lived in London. Other industrialised English cities, such as Birmingham, Liverpool & Manchester also experienced explosive population growth.

During this time of vast and tumultuous change, some city-dwellers began to buy property in order to let it. These new landowners created an entirely new niche in society, the urban, residential landlord. These new landlords, due to the demand for housing, exerted complete control over the residential rental market, and gouged exorbitant rents from their tenants, while doing little or no maintenance on their buildings. The term “slumlord” was born. It was quite common for entire families with five or more children (common in those days) to live in a single room, and even, to share that room with another family of similar size. For much of the 19^th-Century, these vastly over-crowded, urban maelstroms of humanity had no garbage removal services, running water, sewerage, or even drainage systems. The 19^th-Century could well be characterised as the 'Century of Disease'. Epidemic cholera, typhus, typhoid, and influenza swept back and forth across England and Europe like marauding armies, ravaging the population with little surcease. Diseases such as tuberculosis and smallpox followed in their wake and killed many of the weakened survivors. Most of the disease and death that characterised this century can be laid squarely at the feet of the massive, explosive, unplanned urbanisation that accompanied the Industrial Revolution.

On the other hand, this ongoing industrialisation and urbanisation of society effectively created, and developed a strong economic middle-class. While society's upper-classes remained almost entirely stagnant due to qualification by ennoblement, large numbers of lower-class “commoners” began to find themselves part of this new, rapidly growing, increasingly influential sector of society. This middle-class, due mostly to sheer numbers and economic pressure, began to exert more and more influence within both economics and politics. Prior to industrialisation, income was largely non-monetary, and defined as “whatever your employer-landlord gave you”. That provision was based more on what he thought you needed than on your actual needs, and was part of a system designed to keep you in your place, subservient to your “lord and master”. Now, however, more and more people were beginning to earn a living wage. Commoners had cash, and thus also became candidates for credit, particularly for large purchases such as houses.

Although various forms of property mortgage had existed since the 12^th-Century, our more modern property mortgage system originated in Prussia in 1769, just a few years before the Industrial Revolution really got under-way. In the mid to late 1800s, when middle-class demand for residential ownership began to gather steam, building societies were formed in order to lend money to this newly-moneyed middle-class so that they could build or buy their own houses. (Interestingly, “mortgage” is originally a French legal term, literally meaning “dead pledge”, due to the fact that the pledge/loan-agreement “dies”, either when the loan is paid off, or when the property is repossessed by the lender due to non-payment.)

Middle-class families benefited because they could now own their own residences. Building societies benefited because mortgages were almost zero-risk loans, because the house itself generally provided sufficient collateral to cover any part of the loan that was not repaid. Society and the general economy benefited because property ownership strengthened and stabilised the middle-class. Property owners not only felt better about themselves, but also discovered a sense of ownership within society; a realisation that they had a stake in what happened within that society, whether politically, socially, or economically. Thus were the middle-classes drawn further into politics, commerce and general involvement within their communities, both local and national. Thus was the true strength of these European nations discovered.

This middle-class “buy-in” to society, made itself positively felt in the early 1900s in the buoyant social, scientific, economic and political climate throughout Europe, most of the Americas, and even the Far East. Adventurous scientific and commercial enterprises flourished; empires – personal, national, and commercial – expanded phenomenally, and the middle-class established itself as the new core of society, providing both the energy and the stability for this explosive growth. While I'll not attempt to claim that residential property ownership was the sole cause of this phenomenon, I can, with complete historical security, claim that it was one of the largest single causes of the “boom-time” of the late 19^th and early 20^th-Centuries. A commercial stake, and a sense of ownership, will almost always produce a greater sense of political, commercial, and societal responsibility.

Let me put this in a nutshell before I move on. During a time of great societal, migrational, political, and economic change & upheaval, a new banking venture was instituted that benefited society more than anyone could previously have imagined. This benefit played out in massive social, scientific, economic and political growth and stability. All it took was for “someone” to take the limited risk of doing something new – lending money to “common folk” so that they could own a house. As we've seen, this risk was not only truly negligible, but produced a return far beyond expectation.

Let me bring us home, and up to date. I'm sure you've noticed by now that there are certain key similarities between middle-class development during the Industrial Revolution, and middle-class development in post-1994 South Africa. For instance, in both instances, a significant portion of the population, who were previously disadvantaged – socially, educationally, politically and economically – found themselves in a situation where they were able to improve their lot in life. Millions, who previously lived lives with little hope of improving their socio-economic status, were then, and are now, beginning not only to dream, but to grasp, and commence this ascent of society's rickety rungs. Then, as now, this massive change is marked by new laws for new situations, massive rural to urban migrations, and passionate expressions of new-found political power. The South African middle-class is not only growing prodigiously, it is also changing massively; it is being inundated with new cultural mores, with new expectations, new vitality, and all this wrapped in and permeated with a sense of vast impatience.

Building societies are no more, and banks, famed far and wide for being considered overly-conservative by the overly-conservative, now provide mortgages – or home-loans as they are more commonly known in our fair land. While all economic levels of South African society have felt the pinch of the current global recession, it is the economically lower and middle-classes that have been hardest hit, due mainly to their limited cash and investment reserves. The area in which this is particularly true, and most visible, is residential property purchase. While it is understandable that banks feel a need to be more careful when lending large amounts of money in difficult times, the current difficulty – some might say impossibility – of acquiring home-loan approval, has resulted in a huge decline in the housing market. This decline has not only had a negative economic effect on buyers, but obviously also on sellers, agents, and even banks. However, I believe that this negative effect reaches far beyond the purely economic ramifications of a depressed property market.

It is an historical fact, that a stable middle-class, with a personal economic stake in their nation, is a vital component of the strong foundation necessary for all other areas of national development and growth. To put it a little differently. If I own a piece my country, in this instance by means of property ownership, then I automatically have a vested interest in my country's growth and stability. I am less likely to think of national issues as “someone else's problem”. Conversely, lack of ownership, as can be clearly seen in South Africa (and many other African countries), often results in apathy, as well as high levels of frustration, and ever-escalating assaults on the status quo, none of which makes a positive contribution to national stability or growth. Middle-class property ownership unquestionably provides a vital key to national growth, stability and vitality in all spheres of national endeavour.

With that said, what can be done about the present situation? Banks are doing everything they can to reduce their risk, which means that most of the South African nouveau-middle-class cannot get approval for a home-loan. These economic new-comers must therefore continue to rent their homes, with the resultant sociological, and psychological negatives that go along with that. It is impossible to predict or define exactly what societal changes would be effected by either positive or negative changes in levels of middle-class home-ownership in South Africa. However, there is a strong and undeniable historical precedent, which remains true across many ages and continents, that clearly demonstrates the positive effects of a strong middle-class with an invested interest in their nation.

At the start of the Industrial Revolution, the financial sector was faced with an unprecedented situation. Never before had financial institutions of any kind, lent relatively large sums of money to large numbers of “common” people. It was unheard of that financial institutions would lend money in order for commoners to buy or build a house. Remember, the home mortgage had only been invented relatively few years previously. This situation, not only resulted in a new strata of financial institutions, building societies, but also in unprecedented financial, political, scientific and social growth and stability.

While I don't have all the answers, or possibly even all the questions, it is obvious, even to me, that for South Africa to take advantage of our burgeoning middle-class, we will need to be willing to do something different, something adventurous, something unprecedented. We will need to take a leaf out of the books of those economic pioneers of the early Industrial Era, and act with a blend of foresight and daring if we are to make a long-term, positive difference in our nation. Just as home mortgages were initially a completely new and probably nerve-racking venture for entrepreneurs of the 19^th-century, so must we find that new and daring something that will provide greater, easier home ownership for South Africa's middle-classes.

At present one can rent a home, with no sense of ownership or stake in the nation; alternatively if one is already far enough up the food-chain to qualify for a home-loan, one can buy. But what about rent-to-own? We already do it with cars, televisions and other large home appliances, why not with houses? What about really taking a new and fresh look at the laws surrounding ownership of a house in bond so as to reduce the risk to the bank? If the bank has reduced risk, might they not be willing to reduce or even do away with the large, and largely unaffordable deposits currently required? What about some as yet non-existent, new and creative financial institution that is able and willing to provide financial services that the banks will not. (Today's equivalent of yester-year's building societies.)

While I do seem to have an ability to perceive the need for change and to view situations in ways that others don't, often through the lenses of history, I do not claim any great economic or financial expertise. However, many of you reading this article, are economically skilled and gifted. Many of you have, or are busy proving yourselves in the fields of business and entrepreneurship. It is up to you to design the new way forward; the modern day equivalent of building societies and mortgages for the common man. The question is not whether we need such an innovation, or whether it will strengthen our nation, but merely which of you will set your hearts and minds to this challenge, and come up with solutions that future generations will point to as turning points in South African, African, or even world history.

Author: Robin Bownes