People interested in urban studies will have no doubt come across the term ‘the financialization of the city’, or similar terms such as ‘the financialization of real estate’ or the ‘financialization of urban space’. This post gives a sense of what this means, but also theorizes how financialization relates to urban space with regard to the ‘accumulation’ of wealth.
At its most basic, financialization describes the growing power of finance capital over economic, social and political processes. From an urban point of view financialization can also be understood as a form of accumulation characterized by the capturing of value and wealth through the provision of credit, insurance and forms of financial intermediation.
Debt extracts huge volumes of wealth from across the economy and society, leading Costas Lavapistas to conceptualize it as a parasitic form of ‘profiting without producing’. Much of the expansion of finance in this regard has occurred in the spaces left open by welfare retrenchment. The privatization of social housing, pensions, transport, education and healthcare have all been fundamental to the emergence of new financial markets. This draws attention to shift from ‘welfare to debtfare’ and thus to the ways in which finance serves to sink its teeth into the social reproduction previously sustained by public services. Here the literature on financialization shares much with concepts like ‘enclosure’ and ‘accumulation by dispossession’ (although these have taken aim at neoliberalism and privatization more so than at financialization).
While financialization refers to a vast and varied set of processes, urban space is especially important. There has historically been a strong link between finance and the built environment due to the large upfront capital costs of development and the need to manage risks across long time spans. However, the highly place-based nature of real estate has also traditionally posed obstacles for finance. Every property is unique and hard to measure against other properties and this has made property markets more local and idiosyncratic than, say, the market for cars, washing machines or pizzas. High transaction costs and the large amount of time required for property development, relative to other commodities, add to this.
Financial innovation and deregulation has, however, made property increasingly liquid. This works by disembedding property assets from local contexts as well as more complex mechanisms for managing risk. Real estate as an investment asset can now be easily traded on global markets (e.g. securities, mortgage bonds, large scale commercial real estate, loan portfolios) and investors have come to view property as a ‘tradable income yielding asset’. As one private sector informant told me, property sits ‘nicely’ between equities and bonds in that it produces a fixed income stream (like a bond) while at the same time offering possibilities for capital appreciation (like shares). At the same time, the wider financial system itself has grown rapidly because of deregulation, the liberalization of capital markets and currency exchange, and a prolonged period of historically low interest rates in key economies.
There is a large and growing literature on all of the above, but what has received less attention is what this relationship between finance and urban space means in terms of accumulation (i.e. the accumulation of capital). The fact that real estate allows the owner to capture socially produced wealth has long been recognized, for example in the pioneering work of Henry George. The late 19th century political economists wrote that if you speculate on land “You may sit down and smoke your pipe…and without doing a stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich.” What makes this possible is that increasing property prices and rent reflect value added by environmental improvements, public infrastructure and services, and social relations. Property values represent, as George put it, “a value created by the whole community”.
Because of the monopolistic nature of space, land and property values capture wealth creation happening in and around them. This ‘parasitic’ quality of real estate has featured prominently in debates about gentrification, where property speculation both feeds on and undermines unique locational qualities and forms of social and cultural wealth.
The financialization of urban space essentially involves the power of finance capital (especially credit and products linked to credit) to embed itself within space’s monopolistic appropriation of value, and thereby to extract and trade claims over income streams arising from property assets. What is financialized is not simply urban space, but more concretely space as an apparatus for capturing collectively produced wealth. And this process is not neutral, there are winners and losers here. The wealth appropriated by finance capital, whether in the form of job creation, environmental improvements, public infrastructure/services, or social relations, is central to social reproduction. It also has important spatial implications for the political economy of space. In particular, when the income streams captured by property become tradable on international markets they go global, integrating the places we make our lives in with transnational circuits of capital.
Finally, the state is anything but a hapless bystander in all of this. Scholars and social movements in cities across the world have highlighted the role of the state in the financialization of urban space and fomenting property bubbles. This research has primarily focused on how housing and urban development/planning policy serve to drive financialization. A smaller body of work has examined some forms of state intervention relating more specifically to financial assets, identifying how such interventions may lead to the creation of new products and markets (witness our own NAMA at the moment).
So, what can we do about all this? There has been lots of discussion about the ‘right to the city’ in recent years. This term is associated with Henri Lefebvre, but I think Henry George put it best when he said:
“The equal right of all men to the use of land is as clear as their equal right to breathe the air – it is a right proclaimed by the fact of their existence. For we cannot suppose that some men have right to be in this world and others no right.”
Property values, rent and financialization are all the flipside of the exclusion of all of us from housing and from free and equal access to and enjoyment of our cities. We can’t take on financialization, without taking back urban space.
Mick Byrne is an IRC postdoctoral researcher in NIRSA NUI Maynooth. He is also an activist involved in various housing issues, including the Dublin Tennants Association.