Why is there a housing crisis? Why are we under attack? And what the heck is ‘financialistion?’
The housing crisis…
-is not because of the Europeans;
-is not because of immigrants or asylum seekers;
-is not because ‘not enough homes are being built;’
-is not because of the the ‘law of supply and demand;’
-is not because of TINA (There Is No Alternative);
It is because of something called ‘financialisation.’
The Financialisation of Housing
Housing activists often attack Margaret Thatcher for the sale of council housing. They say that it lost loads of social rent homes which are desperately needed to solve the key issue of the housing crisis – the lack of homes at reasonable rent. This is correct
But her policies were part of a process which is less talked about. Financialisation.
From the 1980s, Margaret Thatcher’s ‘Right to Buy’ policy helped ‘financialise’ homes. Meaning that public housing for rent was bought by tenants using mortgages. And this process dragged social rent homes into the financial markets (1).
In Holland the government sold off public housing to private companies (2). The Dutch government created a special website to tell foreign investors how to buy up public housing (3).
In Spain there was huge investment in construction and the mortgage market in the 2000s. The 2008 crash created disaster with tens of thousands of homes repossessed by the banks. It is estimated that over 800,000 households have been evicted (4)) and three and half million homes (owned by banks) stand empty (5).
In Greece, the banks are still auctioning off the homes of Greeks who cannot pay their mortgage because of the disastrous effects of the European ‘bailout’ on ordinary Greeks.
And of course in the United States mortgage companies eagerly gave ‘predatory loans’ to people on low or insecure incomes who were sold the story of constantly rising house prices. Worries about people defaulting on their mortgages created the crash of 2008. Many homes ended up in the hands of private companies.
A ‘wall of money’ looking for for somewhere to be invested
An American researcher working on financialisation points out that ordinary people still bear the brunt of the housing crisis. It’s the people who are doing the exploiting that have changed:
“Today, private equity funds and equity stakeholder, global banking and financial services companies, and issuers of mortgage-backed securities are responsible for exploitation, rather than the inner city slum landlords of the 1970s.” (6)
As the world economy rapidly expanded from the 1980s, and Western governments gave banks free rein, there was a ‘wall of money’ flooding across the world looking for investment. A lot was invested speculatively in property – by banks giving easy credit for mortgages. This boosted demand and ensured house prices rose, leading to more and more household debt and higher bank profits.
This process called ‘financialisaion’ is still operating.
It turned people’s homes into assets that can be profitably bought and sold by investors.
In 2017, globally, property was estimated to be worth about US$ 217 trillion. This was nearly 60 per cent of the value of all global assets (7).
Financialistion is a process that was – and is – actively supported by governments like ours and bodies like the European Union.
But what has ‘financialisation’ got to do with charitable housing associations?
From 1989 direct government funding for the construction of social rent homes was run down as successive governments pursued an ideology of withdrawing state support for housebuilding in favour of private finance. If they wanted to build with lower grants from government, housing associations went to the financial markets for funding. The financial markets are, of course, interested in a return on their investment.
The effect on the housing association movement has been catastrophic. Many housing associations are now heavily in debt to banks or have bonds which much must be repaid, especially associations that speculated heavily before the financial crash.
Housing associations now work closely with financial institutions to create a welcoming climate for investment – not to build low-cost homes to solve the housing crisis. As one academic says of housing associations: ‘At every turn, the question being asked is : How does this effect our bonds?’ (8)
‘Joint ventures’ with commercial organisation produce profits, but not social rent homes.
Social rent homes were – and are being – sold to pay for the construction of out-of-reach shared ownerships or market sale homes.
The policy of ‘conversion’ meant that some housing associations converted social rents (at about 40% of market rents) into ‘affordable’ rents (at anything up to 80% of market rent)
As one housing association boss put it in 2015: “[We are] really looking at our asset base and seeing what the value of that is and how we can get our hands on that value, by changing its tenure, by churning it, by selling it” (9)
A new language has been created which, for example, avoids using the phrase ‘social rent homes.’ Housing associations have to ‘spin’ the truth to cover up what is going on.
The housing associations have become the velvet glove which covers the steel hand of the financial institutions who are really in control.
Service charges are soaring as housing association attempt to claw back as many costs as possible. The Government has agreed above-inflation rent rises over five years starting from April 2020. Repairs and maintenance budgets have been pared down. Housing associations don’t build to solve the housing crisis but to increase the profits of financial institutions which control them.
This is ‘financialisation.’ It is the cause of the housing crisis. And it is why residents of housing associations are under attack.
(1)Albers. M (2016) The Financialistion of Housing. Routledge p 125
(2)ibid p 125
(3)European Action Coalition. Housing Financialistion: Trends, Actors and Processes (2018). Rosa Luxemburg Stiftung p 37
(4) Ibid p 27
(5) Ibid p 29
(6) Fields DJ, From Property Abandonment to Predatory Equity: Writings on Financialization and Urban Space in New York City. City University of New York. 2013.
(7)Report of the Special Rapporteur on adequate housing as a component of the right to an adequate standard of living, and on the right to non-discrimination in this context. Thirty fourth session 27 February – 24 March 2017 p 3
(8) Albers. M (2016) The Financialistion of Housing. Routledge p 126
(9) Neil Hadden: The Full Interview. Inside Housing. 4 August 2015