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Housing financialization

Dernière mise à jour le 28 August 2019

Definition

Manuel Aalbers (Catholic University of Leuven in Belgium), proposes an economic definition of the phenomenon: financialization can be characterized as the passage of capital from the primary, secondary or tertiary circuit to the quaternary circuit of capital (= that of finance).  (in Financialization of Home and the Mortgage Market Crisis – 2008). This was a form of dispossessed capital accumulation for David Harvey, a British geographer.

In the publication of European Coalition Action, also by Manuel Aalbers, another definition – in terms of power relations – is proposed, inspired by Epstein (2005): financialisation is the growing domination of financial actors, markets, practices, modes of evaluation and narratives, at different scales, and which leads to a structural transformation of economies, companies (including financial institutions), states and households. (in Housing financialization: trends, actors and processes – 2018)

Why and how?

Housing is a central aspect of financialization. The financialization of mortgage markets requires that not only housing, but also homeowners, be considered financially viable. Since mortgage markets are both local consumer markets and global investment markets, the dynamics of financialization and globalization directly link (small) homeowners to global investors, which explains the 2008 deletion crisis.

The explanatory legal section

The mechanism for the financialization of housing is based on a reality : that of individual ownership. It should therefore be remembered that in law, ownership is divided into 3 real rights:

  • The USUS which gives the right to use a property
  • The FRUCTUS which makes it possible to collect the fruit (the usufruct) of a property
  • The ABUSUS which makes it possible to completely dispose of a property. So we can transform it – give it away – destroy it

As we can see, the abusus is the full ownership allowing the owner to act totally at will with his dwelling. This is why the notion of ownership also refers to power relations that are established between actors. “Ownership is a symbolic relationship between two human entities (collective or individual). This relationship expresses a power relationship between these two entities, the first legitimizing the access of the second to a “delegation of power”, itself symbolized by a median object (which can be absolutely anything, mineral, vegetable, animal, human, abstract)” (History of individual property by homo-rationalis.com)

As a corollary, the owner may decide to bring his home into a form of real estate or land speculation. The Federation of Notaries of Belgium proposes the following definition for real estate speculation: “Speculation is defined as speculation when the profits made are considered as the result of “risky” management, without it being a professional activity. Different criteria are taken into consideration by the administration to prove that there has been speculation”. Even if speculation is a consequence of financialization, the two phenomena should not be confused.

This is why many social movements are advocating for the recognition of a social function of property. The idea here is that the use of a dwelling, a property should take precedence over the right of abuse. The financialization of housing is developing thanks to the absence of adequate legal frameworks (local – national – international) (or even favourable regulations) that should protect the right to housing.

The explanatory economic section

A brief history helps to understand the antecedents of the phenomenon. (based on Manuel Aalbers).

In the 1920s in the USA, commercial banks were able to enter the real estate market… which is not unrelated to the famous 1929 crash. Therefore, the United States will set up the mortgage market in a “modern” version, with standardized guidelines: long-term mortgage loans – construction of subsidized housing – building regulations – State facilitates access to credit and prevents foreclosure of houses.

During the second half of the 20th century, interest rates fell, making it easier for low-income people to access mortgage loans. We are witnessing a strong growth in access to home ownership. The household debt ratio is rising sharply. It is even a declared will of the World Bank at the end of the century, by encouraging countries to “offer” citizens access to property.

At the end of the 20th century (1990s), the growth of the global real economy stagnated. This is why finance (as an increase in monetary capital) is used to revive the global economy. As a result, the financial sector is shifting from being a catalyst for economic growth to a fully fledged industry (Engelen 2003). This is how the “quaternary” economic circuit was born. This results in a mortgage market that continues to exist in the primary market, but also develops in the secondary market. The primary mortgage credit market is the one that is generally developing at the national level, on real estate, with lenders and borrowers. The new, “secondary” real estate market is a global one. What is exchanged is no longer real property (housing), but property titles. These titles represent a small part of the real property. Thus, a person will hold a certain number of titles, without even imagining that the last of these titles are dwellings occupied by inhabitants. This is called housing securitization, one of the most subtle forms of housing financialization.

In 2008, the globalization of the exchange of these securities, with policies that no longer fit into this capital exchange, will lead to the subprime crisis. Another form of financialization is emerging: the Vulture Funds. When some of these securities are backed by doubtful loans (borrowers do not really have the means to repay), some players buy them back at a low price (the Vautour Funds). The American state has made a major contribution to this international deregulation, hence its responsibility in this crisis. One of the countries that illustrate this phenomenon of financialization is Spain. A typical example of capital accumulation by dispossession (David Harvey).

What are the results?

  • First, the crisis is attributed to public debt, which allows neoliberal policies to significantly reduce government spending. However, as we have seen, it is indeed a private debt that led to the crisis. Read CADTM publications on the subject. As a result, new rules (called macro-prudential rules) are being put in place. They regulate mortgages that are highly accessible to the lowest income groups.
  • Secondly, the financialisation of housing is analysed in all its aspects, which makes it possible to link phenomena that do not seem to be connected a priori: evictions – gentrification – vacant housing – land grabbing – UBER – RBNB -… (see publication 2018 of European Coalition Action: Housing financialization, trends, actors and processes, published by the Rosa Luxembourg Foundation).
  • Third, to counter these phenomena and allow people to keep their homes without falling into debt, housing models are coming back to the forefront and are being promoted by certain social movements: cooperatives, community land trusts, collaborative housing, light housing (yurt, cabin, tiny house)… in short, what is also known as the social production of housing.

Translated with www.DeepL.com/Translator