The deepening housing crisis - financialisation and accumulation
by Des Hennelly
Article originally published in Issue 4 of Rupture, Ireland’s eco-socialist quarterly, buy the print issue:
Since the 1970s, capitalism has struggled to find profitable productive deployments for capital, and it has instead increasingly turned to the finance and property sectors to find profitable investments. As a result, housing worldwide is increasingly in the controlling grip of the global financial system. The deepening relationship led UN Special Rapporteur on Housing, Leilani Farha, to note “the expanding role and unprecedented dominance of financial markets and corporations in the housing sector”.[1]
The commodification and financialisation of housing is a process that has been a key component of the growth and profitability of global capitalism since the early 20th century. The financialisation process began with the emergence of mortgage lending on a large scale in the United States during the 1930s. In the following decades, debt-based private home ownership became the key driver of the commodification of housing across large parts of Western Europe.
Securitisation
The advent of the neoliberal era in the late 1980s brought a new phase in the financialisation of housing, with the development of a secondary mortgage market. Known as securitisation, this is the financial practice of pooling various types of debt such as residential mortgages, commercial mortgages, or other loans and selling their related cash flows to investors as income yielding assets. Banks no longer just sold mortgages in their local markets to hold those mortgages to maturity over 20 to 30 years. They evolved into mortgage ‘originators’, selling the mortgages in the international financial markets. As such, securitisation embedded mortgages directly into the financial and stock markets. In their 2016 book, In Defence of Housing, David Madden and Peter Marcuse note that housing is increasingly treated as an investment for capital gain and rental income, rather than as a place to live. It is “becoming ever less an infrastructure for living and ever more an instrument for financial accumulation”.
Ireland and the financialisation of housing
A notable feature of the Irish state in its first four decades was that it built substantial new social housing. Between the foundation of the state in 1922 and the late 1950s, the social housing sector provided the majority of new dwellings constructed, and at its peak in the 1960s, social housing accounted for close to 1 in 5 homes in the state.[2] However, the provision of new social housing has been driven down since the 1980s by privatisation of the existing stock and reducing volumes of new builds, with provision of the new builds increasingly privatised through the Part 8 process. This decades-long decline has reduced the social housing stock to approximately 1 in 13 homes.
Over these decades, as social housing declined, it was offset by financialised housing in the form of mortgage-based private home ownership. Ireland reached levels of private home ownership that were high by international standards, spurred by enthusiastic policy support from every Irish government through the neoliberal era. Inevitably this crashed in 2007/2008, as the cheap and plentiful international credit on which the financialised model depended disappeared almost overnight. With very limited social housing available, this has led to a rapid increase in the number of households living in the private rental sector.
It is this combination of the decades-long process of reducing social housing stock, and the more recent collapse in availability of cheap mortgage credit that has generated the intense affordable housing crisis we now face in Ireland.
It was evident from the outset that a rapid increase in social home building was the only policy response that offered the form and scale of new housing that could respond meaningfully to the crisis. But the market ideology of Fine Gael and Fianna Fáil, coupled with their close ties with the property sector, meant that this crucial policy response has remained unused to any material degree.
Instead, the primary policy response of the Irish government to the acute crisis that developed post-2007/2008 was centred on the establishment of the National Asset Management Agency (NAMA) in 2009, and on creating a legal and tax environment that made acquisition of large blocks of apartments very attractive investment opportunities for corporate landlords, including Real Estate Investment Trusts (REIT).
NAMA acquired the high-risk debts from Irish banks and then set about disposing of the loans and their underlying property and land assets. NAMA was given a commercial remit and was pressed by the government to reduce its assets quickly. This ensured it disposed of its portfolio in very large blocks, thereby excluding private individuals and smaller commercial entities from the opportunity to acquire the property, and ensured that most NAMA property was acquired by large institutional investors, often at heavily discounted prices. In this way, NAMA effectively acted as ‘market maker’ for corporate investors to become major players in Ireland’s residential housing sector for the first time in the history of the state.
The establishment of NAMA, the enablement of REITs, and the creation of other tax incentives for corporate property investors had an explicit objective to attract international capital into the Irish property market. Senior government figures actively encouraged and participated in this approach, and the Minister of Finance, Michael Noonan, held numerous meetings with corporate property investors to offer encouragement to these investors to buy Irish property. And it proved very effective to this end. Neither IRES REIT nor Kennedy Wilson had any presence in Ireland before 2012, but they are now the two largest private housing landlords in Ireland. A recent Dublin Inquirer investigation has revealed how corporate buyers are increasingly dominating the housing market in Ireland’s main urban centres, [3] and the recent purchase by London-based Round Hill Capital of 135 out of 170 homes in a new Maynooth housing estate signalled the expansion of their presence into suburban areas.
But the response of Irish capitalism to a collapse that was decades in the making was not to begin the reversal of failed commodification and financialisation. On the contrary, the response was to deploy the institutions and resources of the state to enter a new stage of the process, by creating very attractive capital accumulation opportunities for international capital, underpinned by a nebulous belief that the entry of global capital would somehow create housing supply to meet demand. The strategy was very effective in driving property prices and rents higher, but has been a catastrophic failure in generating increased supply of affordable housing.
NAMA II - the Land Development Agency
And as the catastrophic consequences of bringing corporate landlords into housing becomes ever clearer, true to form, the Irish political establishment are responding by using the intensifying crisis to launch another variant on the policies that have failed for decades - this time in the form of the Land Development Agency (LDA).
The LDA will remove one of the few powers that local councillors have - to veto the sell-off of public land. Control over public lands will pass to an unelected and unaccountable bureaucracy, who will inevitably oversee the mass privatisation of public lands.
The context to the establishment of the LDA is that there is enough zoned residential land owned by local authorities and other public authorities to build 100,000 housing units, almost 60,000 of which are in Dublin. [4] Under the proposed legislation, the LDA can carry out a survey of public lands and pick the most profitable lands. Its role is then to develop selected land however it sees fit, including handing it over to private for-profit developers. In the LDA mandate, there is no mention of social housing and, in fact, the mandate includes a requirement to avoid what the legislation refers to as "undue segregation on the basis of social background." [5] This is familiar Fianna Fáil and Fine Gael code for pushing anti-social housing narratives to create public acceptance of privatisation of public land.
Through the LDA, the government is preparing to move even further away from the building of social housing, and towards many more public-private partnerships, with private for-profit houses built on public land. With the LDA not being subject to the same public pressure as councillors, these are likely to be even worse than O'Devaney Gardens-type plans.
The LDA mandate is very reminiscent of NAMA’s commercial mandate, and the outcome will be similarly disastrous for all but developers, the financial sector and professions associated with the property development sector - and of course the political parties they support and fund.
Other government ‘initiatives’ equally reek of the same slavish adherence to market ideology and determination to enrich developers. Fianna Fáil Housing Minister Darragh O’Brien recently indicated that the costs element of his planned cost/rental housing model will include a profit margin for developers, a bizarre reformulation of the cost/rental model that only the likes of Fianna Fáil could dream up. Days later it was reported that the government’s proposed affordable housing scheme will define affordable homes as those costing up to €450,000 in much of Dublin, and up to €400,000 in other urban areas. Minister O’Brien also ‘promised’ legislation to limit corporate investors’ ability to bulk-buy homes in new housing developments, including 10% stamp duty on ‘bulk-buyers’ of homes. But in their investment calculations, corporate landlords will typically spread this one-off payment over 20 to 25 years, and therefore it will have very little impact on their purchasing decisions.
Some of this would be laughable if it didn’t cause so much suffering and anxiety to so many.
Housing crises and social movements
The housing crisis is generating an explosive social situation. It’s notable that previous housing crises have played key parts in creating social resistance and rebellion. In its own elitist way, in May 1916 the Irish Builder and Engineer magazine recognised the part that Dublin’s early 20th century housing crisis played in the Easter 1916 rising.
‘ … we cannot doubt that the appalling conditions of working-class housing prevailing in Dublin has rendered these elements of society very receptive to the doctrines preached to them by agitators, and eventually many doubtless joined in an attempt to right evils by bloody means … If there were decent housing in Dublin, we venture to say not one in ten of those working class who unfortunately joined the rebellion would have given it their support.’ [6]
Many of the political campaigns of the 1960s in Ireland and around the world were in part fuelled by anger over poor and inadequate housing. People’s anger and anxiety about housing will fuel many protests and social movements to come at home and internationally.
Conclusion
As the wealthy become dramatically wealthier, so their increasing wealth seeks safe havens and return-yielding assets. Property is particularly attractive to the wealthy for the safety its tangibility provides and for the long-term relatively stable investment yields it provides year-on-year. It is this wealth that finds its way into corporate property investment vehicles to buy large swathes of residential property in urban centres across the world.
The policies of successive Irish governments have ensured that Ireland has been integrated into this global financial circuit to an even greater degree than many other countries. The response of Fine Gael and Fianna Fáil, on behalf of capitalism, is to display ruthless determination to loot public assets and drive the financialisation of housing ever deeper. Each phase of the crisis they create is used as the pretext to force through the next stage of large capital accumulation opportunities for building developers and financial institutions that will do little, if anything, to provide affordable homes.
Unfortunately the short to medium outlook for housing post-Covid-19 is bleak. It is projected that there will be just 15,000 new housing completions in 2021, far below the 35,000+ new homes that would be needed each year, even if there was no housing crisis. Housing crises will continue as long as capital and market ideology dominate and exploit our housing needs.
A key challenge for socialists is to collaborate with housing movements to demand mass public housing programmes to begin the process of decommodifying swathes of the housing market and exert downward pressure on house prices and rents. This would be a powerful starting point to ensure housing is ultimately removed from the circuits of capital accumulation, and becomes solely about meeting the basic human need for a secure and affordable home for all.
Notes
1. UNGA (2017) 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 (Online) Available at: http://globalinitiative-escr.org/wp-content/uploads/2017/08/Special-Rapporteur-on-the-right-to-adequate-housing-2017-report-on-financialization-English.pdf Accessed: 10 November 2017
2. Byrne, M. and Norris, M (2016) Social housing’s role in the Irish property boom and bust (Online) Available at http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201615.pdf Accessed: 5 October 2017
3. Lois Kapila - Mapping Dublin’s Growing Constellation of Company Landlords https://dublininquirer.com/contributors/lois-kapilaREF 2 -
5. Irish Statute Book http://www.irishstatutebook.ie/eli/2009/act/22/section/19/enacted/en/html
6. TCD library https://www.tcd.ie/library/1916/revolting-conditions/