From the mortgage scam to the rent scam
A decade after the worst real estate bubble in history burst, access to housing is still one of the major social problems. And it is because states operate as another cog in the financial and real estate industry. Barcelona’s reality is testament to this: both yesterday’s mortgage bubble and today’s rent bubble have been politically plotted by way of a decisive government intervention.
Although there is virtually no talk about it, only a short time has passed since the worst real estate bubble in history. A little more than a decade. Nothing compared to the duration and magnitude of its dire consequences: hundreds of thousands of families evicted, lifelong debts, dozens of suicides and lives in the gutter. And yet, as incredible as it may seem, we are talking about the “drama” of housing again today. The rent bubble is getting bigger and bigger and, every few minutes, a family loses their home since they cannot afford to pay for it. The low income and health of many are fading at the same rate as real estate profits are growing. How is that possible? What is failing?
The myth of the self-regulated market
The apologists of real estate capital always draw on the same argument. For them, everything boils down to a problem of supply and demand. Too many people wanting to live in cities and insufficient housing to meet these needs, which supposedly drives up prices. The great solution, for them, would be to liberalise and allow unfettered construction, like José María Aznar’s government did in 1998. But housing systems do not actually work like a perfectly competitive market, in which supply and demand balance each other out, with self-regulation and price fixing. That theoretical myth only appears in the textbooks of some business schools and economics faculties. The reality is different. You only have to see what happened between 1998 and 2007, when twice as many houses were built as homes were created, and yet prices skyrocketed as never before. Or between 2008 and 2013, when the price of rent dropped even though the number of tenants rose.
In fact, if anything demonstrates the current housing crisis it is the failure of the neoliberal assessments that have led us to it. And if we still don’t see the light it is, in part, because some of its preachers, famous for having denied the financial bubble until the last minute, still have important spokespeople. Even so, you cannot fool people forever. Even among those institutions that are very inclined to leave housing in the hands of the market, critical voices are emerging. To give just one example, a 2018 article published by the Federal Reserve of the United States concluded that, even if supply rose by 5%, its impact on prices would be almost nil.
One thing is certain: the housing market is much more complex than the word seems to suggest. Only a superficial assessment of a city like Barcelona is needed to see that the reality is far from the caricature that is portrayed in business schools. Just look at some of the distortions in the so-called supply to get an idea. At present, 9,600 properties have tourist licenses, courtesy of the Government of Catalonia, which allow them to operate as clandestine hotels instead of homes. More than 10,000 homes are uninhabited, according to the 2019 census. And the supply incorporated into the market as new properties is increasingly monopolised by international funds that keep them as luxury investments or second homes.
In other words, market, supply and demand explain very little. In actual fact, they act as fetishes that conceal both the dense network of actors and social forces operating on the ground, and the decisive role of the state. We mustn’t forget that public authorities regulate each and every one of the aspects that affect housing: land uses, private property rules, construction, rental agreements, the mortgage system, eviction and relocation policy, fiscal policy, coordination with the financial system, and more besides. There is probably no market more built by public authorities than the housing market.
Now, historically, political action has contributed to making housing a prime business. A commodity above all else. In this respect, talking about housing policy is somewhat misleading, since it takes the existence of an intrinsically benevolent state for granted. Past experience is different: on the whole, governments have not striven to guarantee universal access to housing, but rather to preserve the political order and to facilitate the accumulation of capital through housing.
Political action has contributed to making housing a prime business. Governments have not striven to guarantee universal access to housing, but rather to preserve the political order and to facilitate the accumulation of capital through housing.
The hegemony of ownership
As regards the political issue, there has certainly been no more successful social government initiative in the last century than that of home ownership. The decades-long attempt of political elites virtually across the world to prioritise it as the sole means of accessing housing does not correspond to scientific criteria. Nor does the fact that they have devoted themselves to stigmatising renting, turning it into a volatile and uncertain form of tenure. And even less that they have fabricated national myths, such as that property is the moral foundation of the family or of security. It is a political decision, which involves aligning the interests of the elite with the middle classes, and is aimed at protecting the system of fairer policies more oriented towards redistribution. It is based on the premise that, if people access a tiny slice of the pie, they will be much less likely to rebel and attack the larger slice.
After all, the goal of extending home ownership is as old as contemporary cities, which emerge with industrialisation. Already in the second half of the 19th century, the reformist bourgeoisie presented it as a means to domesticate those below them: the new urban proletariat who, faced with no alternative, was forced to live in neighbourhoods of shacks. However, almost a hundred years had to pass before some countries managed to extend home ownership (through all kinds of government aid) to broad swathes of the population. The Franco regime, in this respect, was a pioneer. There are few successful propertisation initiatives like the one initiated in the late 1950s, and carried on by the governments of the PSOE [the Spanish Socialist Workers’ Party] and the PP [People’s Party] until the 2008 crisis.
In that sense, it’s also important to debunk the myth according to which the supply of rental properties would dwindle on account of the open-ended contracts established by the 1964 law. The truth is that the rental market share continued to drop after the Boyer Decree of 1985, which stripped guarantees from tenants under the pretext of doing the opposite. And the explanation is simple: the stark policy, since the 1960s, to make buying the only means of accessing housing. From the “we do not want a country of proletarians but of owners”, asserted by Minister Arrese in 1957, to deductions on purchasing and easy borrowing in the last bubble.
It doesn’t take much thinking to imagine the socio-political effects of the access model to housing through purchasing. From the outset, it helps individualise the problem of access to housing, reducing it to an every man for himself approach. It has adverse effects, like small owners who tend to share the interest of maintaining high prices with the elite so that their equity does not lose value, at the expense of making housing unaffordable for society as a whole; or their support for regressive policies, such as the elimination of inheritance tax, which currently applies in various autonomous communities.
The access model to housing through purchasing has adverse effects, like small owners who tend to share the interest of maintaining high prices with the elite so that their equity does not lose value, at the expense of making housing unaffordable for society as a whole.
The colonisation of finances
Beyond its political side, housing has become an increasingly important element for global capitalism. And differently to before. Although rent extraction – the appropriation of wealth without the production of added value – has always been a feature of the economic system, it has taken on an almost pivotal role in recent years. Hence, the processes of dispossession that we suffer in the living space, in the home, are today often as relentless as those we endure in the workplace.
This change began to take shape in the 1980s as a result of states’ decisive action to make housing a major asset, increasingly linked to the goals of finance, which have since accumulated a great deal of power. We witnessed the first phase of this process during the mortgage bubbles of the past (1986-1992 and 1997-2007). Securitisation was introduced, which allowed banks to trade a large volume of mortgages on financial markets, selling them to third parties and generally behind borrowers’ backs. A predatory business, with practices close to looting, which gained popularity with the subprime mortgage crisis in the United States, sending it into a tailspin when the bubble burst.
However, some gave up on finance prematurely. In recent years, housing has continued to be an overriding goal for major investment funds and banks. Some estimates suggest that 30% of global money is channelled into real estate investment. In other words, the reproduction of a very significant share of world capital hinges on growth in housing and land prices. And again, this made a state intervention tailored to these actors necessary.
After the subprime mortgage crisis and the bursting of the housing bubble, some gave up on finance prematurely. Housing has continued to be an overriding goal for major investment funds and banks.
In Spain, this change occurred during the last term of the PP [People’s Party]. In view of the fact that a growing sector of the population chose to rent, the government did its utmost to transfer the real estate business to this terrain. The main task of the Rajoy Executive was to adapt the living conditions of millions of homes with tenants, many of them new, to the objectives of the funds. It was a fast and decisive operation. In 2012, it created a special tax regime under which real estate investment companies (SOCIMI) stopped paying corporate tax and enjoyed other tax benefits. And in 2013, the leasing law was amended and rental agreements were shortened to a three-year term, making them coincide with the mandatory minimum period during which a company must have a property rented. In other words, it generated losses for the treasury and made the lives of countless households precarious, making everything dependent on the interests of the shareholders’ business.
Today there are many investment funds and consultancies that recognise that the real estate market recovered (a fine euphemism to refer to the growing prices and evictions) thanks to the role of major funds. What they do not say is that finance is completely altering the housing systems of big cities and their social ecosystems. Buying houses at prices bearing no relation to local income, often in highly speculative transactions, drives the real estate market away from residents’ needs. SOCIMIs are the paradigm of this logic: companies that acquire thousands of homes so that remote investors can make a profit, investing in them in the short term, reaping profits that come out of the pockets of tenants renting homes and violating human rights, as condemned by the United Nations.
The protection of housing
Raquel Rolnik, following her time in the Government of Brazil and as the United Nations Special Rapporteur on Adequate Housing, said that nowadays states operate as another cog in the financial and real estate industry. Our local reality is testament to this: both yesterday’s mortgage bubble and today’s rent bubble have been politically plotted by way of a decisive government intervention. The good news is that this also reminds us that there is a solution. The market is not a meteorological phenomenon, but a power field of correlated strengths between those who speculate with housing and tenants, and between the real estate industry and neighbourhoods. Our future and that of our children will depend on pooling this collective strength to guarantee the right to housing, putting it on a par with health and education.
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