8 things we get wrong about financialization
17/11/23
The financialization of housing has been one of the biggest areas of housing research over the past decade. It has also been a key focus of social movements, and possibly the most controversial issue in housing in terms of the public debate. Despite the traction it has as a concept, there are some pretty big problems with it as currently understood in much of the academic literature (and even more so in the political debate). This post provides a brief summary of the key issues. Some of the reasons relate to the broad area of financialization, some relate more specifically to housing financialization.
We don’t have a clear definition of it: Manuel Aalbers, the most influential figure in the housing financialization research, defines financializaton as follows:
“Financialization refers to the increasing dominance of financial actors, markets, practices, measurements and narratives. It also refers to the resulting structural transformation of economies, firms, states and households.”
While this is a helpful starting point, and a definition I have used in my own research, it amounts to saying ‘there’s more finance and consequently firms, states and households (i.e. everything) change’. The point of a concept should be, however, to capture the nature or significance of this change. Moreover, is this a quantitative change, i.e. we just have quantitively more finance, or is it a qualitative change, i.e. something has changed in the nature of finance or its relation to society? In short, the leading definition tells us very little about what financialization actually is and why it is important.
We focus too much on mortgage debt: the housing financialization literature really kicked off in the wake of the global financial crisis, and so it is perhaps unsurprising that mortgage debt has played a big role. But still today a lot of the literature tends to overly focus on mortgage debt, or debt in general. Take for example two of the leading political economy perspectives. Schwarz and Seabrooke’s ‘varieties of residential capitalism’ is almost totally focused on mortgages and related financial products (securitisation). Similarly, Fuller’s recent The Political Economy of Housing Financialization, gives priority to mortgage markets in how it defines housing financialization. While there has been a more recent wave of research on the private rental sector, at a conceptual level not enough attention is played to non-mortgage forms of credit (development finance, investment finance etc. - a notable exception here is the work of Halbert and Attuyer) as well as non-debt forms of finance (e.g. equity) and their role and impact.
Financialisation is unlikely to be linear: there is an (often implicit) assumption that financialization will be associated with a progressive increase in the volume or dominance of debt in housing systems. This neglects that financial markets are cyclical. For example, the concept of financialization is used to understand the dynamics that led to the global financial crisis (rapid expansion of credit), but is also used to talk about the post-GFC era. However, in the post-GFC era mortgage markets contracted, banks re-allocated capital away from housing, most countries tightened lending rules or ‘macro-prudential’ regulation (LTVs etc.), and in general debt played a much diminished role in housing systems. This might seem like a contradiction, but if we foreground the cyclicality of financial markets it is exactly what we would expect to see (i.e. a boom and then a bust). Consequently, financialization won’t necessarily mean permanently higher house prices or ever greater amounts of credit, but more likely more volatile house prices and more volatile credit levels in the housing system.
We don’t really know how financialization impacts most key metrics in housing, and most importantly we don’t know what the causal pathways are: There is much discussion about how financialization has ‘caused’ higher house prices, or even homelessness. But as far as I can see from my reading of the literature, there is very little evidence showing specifically how financialization impacts key variables in housing systems, such as supply, prices, volatility etc. Moreover, we don’t know what the causal pathways are, i.e. how does financialization lead to higher house prices. A lot of the arguments in this area can be somewhat simplistic, for example pointing out that financial landlords set high rents etc. But what is not clear is whether or not these rents would be any lower if a non-financial landlord was setting them. In other words, what is the specific difference that the ‘financial’ bit makes in all this. To be clear, I am not saying there is no evidence or understanding of the impact of financialization, just that the specific nature and mechanisms are unclear. Brett Christophers has made a similar argument in some of his work.
We need to distinguish between ‘macro’ and ‘micro’ financialization: often many different phenomena are lumped together under the heading of financialization. Most importantly, the term is used both to refer to the role of financial institutions, and the behaviour of households. With regard to the latter, issues such as the buy-to-let landlord boom of the 2000s, Air BnB, ‘asset based welfare’, and the rise of the ‘investor subject’ have all been conceptualised as forms of financialization. Here I think it is useful to distinguish between what I call ‘macro-financialization’ (changes at the level of financial markets) and ‘micro-financialization’ (changes at the level of individuals/households). With regard to the latter, it is unclear whether this should be even considered financialization, as it is not clear that the tendency for households to treat housing as an asset has any direct relationship with what’s going on in terms of financial markets. Indeed, Ryan-Collins and Murray use the term ‘rentierisation’, which might actually capture this better than the term financialization.
We focus too much on the private sector, and not enough on non-market actors: almost all the research has been on the private sector, but non-market housing has become increasingly financialized, in particular housing associations. There is some recognition of this in the early financialization literature, as things like securitization actually originated in Federal mortgage institutions in the US. There has also been some great work in England and Netherlands on housing associations. Closer to home, we have seen that our AHBs are now almost entirely reliant on debt to deliver social housing. This means that things like gearing and interest rates are crucial variables in ways that were not the case a decade ago. It also means many AHBs have hired staff from the private financial sector, and there is a question about how that could impact how AHBs think of their role and their social mission.
We need to distinguish between good and bad finance: there appears to be a kind of moralism around much of the critique of financialization, as if financial institutions and financial mechanisms, such as debt, were in a sense morally tainted or suspect. The problem here is that, while financial institutions can and do have terrible impacts on housing, debt is essential to the housing system on many levels. Housing is a capital intensive, ‘lumpy’ investment with high upfront costs and a very long lifecycle. We therefore need to debt-finance it. Most of the social housing built in countries like Denmark, Austria and Netherlands for example, was debt financed. We need to have a clearer understanding of what specifically is or can be problematic when comes to finance and housing
Finally, and relatedly, we need to focus more on definancialization: some countries, including Ireland, have introduced policies to moderate the financialization of housing (the Danish case being the most prominent), and social movements have advanced concrete and ambitious forms of ‘definancialziation’ (Berlin’s Deutsche Wohnen & Co. Entiegen), but there has been relatively little research and policy work in the area. Wijburg has set out a housing definancialization research agenda, and Michelle Norris has written about ‘tools to tame financialization’, but we still know very little about how to de-couple housing from some of the more destructive aspects of the financial system.
Luckily, as academics we will eventually get bored of financialization and move on to the next buzz word, having never got to the bottom of what it is or how it should be understood (I’m looking at you globalisation literature from the ‘90s!).
Events & News
Someone has independently put together a website to crowdsource tenancy-level information on rents. This grassroots project aims to enable tenants to check the previous rent in their dwelling, and therefor to know if the landlord has increased the rent by more than 2% between tenancies. It’s another fascinating example of tenant politics, and also how tenant activism can use data to make change. An important upcoming event organised by the Housing Agency and others, looking at land for affordable housing - in Trinity College on Dec 1st. There’s a new website portal for all the Irish affordable homes schemes. A new TG4 documentary puts the housing crisis in historical perspective.
What I’m reading
An important new book out, For a Liberatory Politics of Home, by Michele Lancione. He is also currently leading an ERC project called Beyond Inhabitation, which has several key housing researcher/activists in Europe working on it. I expect we’ll be seeing a lot of work coming from those involved over the next few years. A propos of today’s topic, a new article on aiming to conceptualize how state’s enable housing financialization. And finally, there’s nothing that warms the heart of an Irish housing nerd quite like evidence that Austria’s housing system is brilliant, so here’s some recent research showing cost rents generate affordability across the housing system.