Is it wrong to object to BTR?

The Week in Housing 26/11/21

There is a growing, and increasingly acrimonious, divide between those believe institutional investment has an important role to play in Ireland’s housing system and those who do not. One side has levelled accusations that its opponents are 'anti-science', 'silly', and NIMBYs. In response, the other side claims we are being 'gaslighted' by pseudo-scientific economists.

These are very much issues we will be discussing at the webinar I am organising with international researches on financialization and the PRS, coming up on December 8th.

But here, I want to look at the argument, which has become a mainstay of political comment in recent times, that it is wrong or hypocritical to object to Build-to-Rent (BTR) developments.

The first thing we need to recognise is that the two opposing positions on this argument derive from divergent underlying methodological and conceptual frameworks, in other words different ways of thinking about 'the housing question'.

For economists, the production and allocation of resources (including housing), is seen primarily through the lens of market transactions. As Robert Skidelsky argues, this is an approach which focuses on non-coercive (i.e. voluntary) transaction which occur in the market place, and in so doing it tends to bracket out any analysis of power relations, social structures and, hence, politics. Indeed, Skidelsky, echoing Marx’ critique of economics, argues that "By ignoring the extent to which power pervades the economy, mainstream economists buttress existing structures of power by rendering them invisible". This is indeed one of the arguments that have been levelled at those who defend BTR.

Moreover, social and political structures and institutions shape individual behaviour and social outcomes – a sole focus on voluntary transactions between individuals tends to cause these phenomena, which are central to understanding social reality, to fade into the background.

From an economistic perspective, the important thing is that supply can meet demand in terms of overall units. The actual outcomes, in terms, for example, of the experiences of households, are not seen as a particularly important question. Economists tend to assume that if people are willing to pay for something they must want it, and therefore it must be satisfying a need. The market won’t produce unaffordable housing since in a literal sense there is zero demand for any housing that nobody can afford, and since all new housing increases supply vis-à-vis demand, it must, perforce, support affordability.

The question of what type of housing, how sustainable it is, what kind of communities can develop etc., all tend to disappear into the background as these are all questions that should be left to individuals to decide for themselves through the means of voluntary transactions in the market. So the fact that working class people might be priced out of a particular development or indeed neighbourhood is not, in and of itself, of immediate interest to economists. This is most clear when we look at Irish research conducted from this economistic perspective, which typically focuses on the overall dynamics of supply and demand and the factors with shape them, rather than looking at housing outcomes at the level of particular neighbourhoods or how particular groups are impacted, for example.

Another way of saying all this is that economists tend to operate through a kind of abstract model of housing markets, which neglects the fact that housing takes shape in real, material built environments, that these environments are populated by people and communities who can make political claims in relation to the nature of urban development, and are subject to conflicts, contestation and inequality between social groups and classes.

From this point of view, in short, there can be no grounds to object to new housing supply.

Turning to the other side of the debate, those who oppose BTR and institutional investment tend to come from a housing studies or human geography perspective and have a very different set of underlying assumptions. They often begin from outcomes (rather than abstract models) and often focus on case studies, such as a specific neighbourhood or development (I often use this approach in my own research, for example when I critiqued NAMA by focusing on its intervention in the Docklands SDZ). Moreover, they highlight structures and inequalities, and think about how structures and inequalities within housing relate to wider social structures, such as class, gender and migration. The focus here goes beyond a focus on voluntary transactions between individuals to focus on power relations, such as how policy and legal institutions can systematically benefit some actors involved in urban development, like developers. They also tend to take seriously local claims in relation to the specific nature of urban development, for example when communities want particular types of development or a certain level of affordability, not at the level of the housing system as a whole, but in relation to their neighbourhood. In other words, place-based claims.

In short, the intellectual underpinnings of this perspective are based on the argument that the housing system is not an abstract model of market transactions, but rather consists in the material form of the built environment and place-based, social and political institutions and relations that shape it. From this point of view, normative judgements (such as support for BTR housing) that are based on abstract formal models have no value, and hence the arguments of economists can be easily dismissed.

So, how should we assess these rival perspectives?

Although I am in general much closer to this second perspective, there is a real danger here that some of the system level market dynamics that economists focus on too readily disappear from view. A second issue with this perspective is what one might call ‘normative judgement creep’, because from this perspective it can be too easy to make arguments about how a neighbourhood ‘should’ develop and what type of housing we ‘should have’. Let’s look at these issues in turn.

By system level dynamics I mean, for example, the overall level of capital required to provide sufficient housing output and the overall, structural drivers of future housing demand. In the Irish case, for example, private domestic capital is currently severely limited and therefor there is certainly a degree of reliance on international capital (I discuss Ronan Lyons’ research on this here). In relation to demographic trends, Ireland has a significant need for one-bedroom housing and, if anything, has an over-supply of larger houses (as argued by Lyons elsewhere). It is in relation to insights like these that a system level model of the housing system can be useful.

Turning to the issue of ‘normative judgement creep’, from the starting point that individuals and communities can make normative, place-based claims on how their neighbourhoods should develop, it is all too easy to start making all sorts of claims, some of which may not be well-grounded in analysis of the housing system and housing need. The example of one-bed room housing is relevant again here, as despite the fact that this housing is needed and many neighbourhoods in Dublin are dominated by three bedroom houses, it is sometimes claimed that ‘communities’ don’t want one-bed room housing because what is needed is ‘family homes’. While there may well be people who legitimately want this, it is easy to see here how normative claims can start to drift dangerously from the reality of housing need. Similarly, we have seen recent arguments against ‘transients’ which are dubious to say the least. These are the types of claims that are often accused of ‘NIMBYism’.

To be clear, I am not arguing that all objections to one-bedroom housing are invalid; there can be very good grounds to object to some developments which focus on very-small, and often very expensive, one-bedroom and studio units. My argument is that there are also occasions when such normative claims are not well grounded in a robust analysis of the housing system.

Stepping back from the two perspectives discussed so far, it seems clear that what is required is a perspective that can integrate three levels of analysis:

1.       A macro-level, ‘abstract’ analysis of market dynamics, including those of supply and demand;

2.       A fine grained, often place-based, empirical focus on actual housing outcomes and how they impact individuals, communities and neighbourhoods;

3.       Attention to how both voluntary transaction between individuals and social and political structures and relations, including of power and inequality, shape housing systems and housing outcomes.

To my mind, this is exactly what a political economy perspective can bring to an analysis of housing.

We can now return to the question we started off with, is it wrong to object to a BTR development? I am some what conflicted on the issue because I am acutely conscious of the need for housing, including one-bed room housing, and the overall supply constraints that exist. I also do not agree that all housing developments need to be affordable in the sense of involving housing costs that are less than 30% of disposable income of the median household. There are plenty of relatively high income households out there and there is no reason that the housing system should not provide housing for this segment. Moreover, I also don’t agree that housing provided at relatively high prices makes no contribution to the overall affordability issue because it does indeed add to overall supply (again for clarity, this is not to say that expensive housing is the best way to deal with affordability, it is not).

Nevertheless, I ultimately feel that in many instances it is indeed justified to object to BTR development. If we look at the structural role of institutional investors in Dublin, the nature of affordability in the PRS, and the quality of housing which is sometimes provided, there is a strong case to be made that we can do much better. There is international evidence indicating that financialization (which BTR is an aspect of) has overall negative outcomes in terms of affordability (at the level of the system), and can exacerbate inequalities and exclusion (at a local, neighbourhood level).

In short, it is possible to integrate insights from both perspectives outlined in this piece and still make a robust critique of BTR in general and specific BTR developments at a local level.

There is nothing silly, hypocritical or ‘anti-scientific’ about opposing institutional BTR investment. However, we do need to be careful about the normative claims that are made in opposing it, the reality of housing needs, and the overall system level dynamics of our housing system.

[NOTE: this is quite a long post and it took me a while to get these ideas together, so I won’t be writing anything next week so I can focus on some other projects. We’ll be back on December 10th]

Events

The call for papers for the 2022 annual Housing Studies Association conference is now open – this is a great event for housing researchers so if you have an idea your working on fire in an abstract! An event I am really looking forward to is this webinar on the 7th of December entitled ‘Rethinking rent control in Europe’. And of course on the 8th of December I’m organising this webinar on institutional landlords and the PRS, mentioned already above.

What I’m reading

Speaking of institutional landlords and financialization, Maedhbh Ni Lochlainn of TCD Geography has a fascinating new paper ‘Digital/material housing financialization and activism in post-crash Dublin’ which has just been published in Housing Studies. I was delighted to receive my copy of the just published Oxford Handbook of Irish Politics this week. I have a chapter in it on the political economy of Irish housing with Michelle Norris and one on the political economy of banking with Sean O’Riain, Patrick Gallagher and Fergal Rhatigan. Myself and Michelle Norris also have an article (originally published a couple of years ago) in a new special issue of Environment and Planning A, looking at neoliberalism and financialization, check out the introduction to the issue by Chris Muellerleile and Shaun French here.

On the data front, Savills have a new report on the Irish investment market, and, as mentioned last week, the CSO released new data on Ireland’s PRS. Both are well worth a look.