How one person's housing crisis becomes another's housing boom.
We are bombarded with images of Wall Street’s evils and excesses. It’s martinis and yachts in one frame, foreclosed homes and a broken American dream in the next. “To those on Wall Street who may be listening today, let me be very clear,” presidential candidate Bernie Sanders thunders. “The greed of Wall Street and corporate America is destroying the fabric of our nation.”
The housing crisis of 2008 sits at the center of this narrative. It was greed that drove subprime lending. It was greed that packaged up the loans in those murky CDOs. And it was ultimately greed that cheated millions of Americans out of a home and left them with a mountain of debt. The Big Short, the bestselling Michael Lewis book later adapted into a blockbuster movie, offered this story as a picture book parable.
But the housing crisis was not driven by greed. Like all housing booms and busts, it was the natural product of a financialized housing market, in which homes become assets and a socially necessary good is transformed into a freewheeling commodity.
Consider London, the Great Wen of real-estate finance.
While housing finance in Britain’s capital is not quite as freewheeling as that of the US, house prices have continued to skyrocket. A house in London now costs, on average, $667,000 — seventeen times the UK annual income. Only forty-three properties in the entire city — including houseboats! — are affordable to families on a typical wage. A single-car garage in Kensington sold for half a million dollars at an auction in February.
Aspirational homeowners have coped with this crisis in one of two ways: by relocating to smaller English cities or nearly bankrupting themselves to get onto the housing market (the number of forty-year mortgages has doubled in the past five years). But there’s a third category: the evicted. In the last year alone, over thirty thousand properties have been repossessed. Kicked off the property ladder, these tenants have become known as “Generation Rent.”
Generation Renters feel excluded. They too want to ride the real-estate gravy train — not just watch it go by. And for good reason: as the British welfare state has withered — and wages have stagnated — homeownership has become an increasingly important insurance against unemployment and a nest egg for retirement.
Indeed, all the panic over Generation Rent and the London housing crisis obscures the fact that many Londoners have profited from rising house prices — and are counting on their continued ascent. For many of these homeowners — including the lawyers and doctors with high skills and high salaries — returns on real estate have exceeded their incomes year after year. Today, housing accounts for more than 60 percent of all wealth in Britain.
One person’s housing crisis, then, is another person’s housing boom. In London — where the homeownership rate is almost exactly 50 percent — half of the city clamors for steady increases, while the other half prays for prices to fall.
The “solution” to the housing crisis, then, presents a contradiction. On the one hand, both activists and politicians agree that the rent is too damn high — and not just because it cramps living standards for average Britons.
Politicians realize that the same people being priced out of the city are the ones who make it run — they fix the subways, drive the buses, pick up the trash, and deliver the mail. If they leave, the basic functioning of the city is under threat.
On the other hand, existing homeowners rely on a steady demand for houses in order to keep their wealth growing — a “reserve army” of renters hungry for a home. If the government succeeded in providing decent, affordable housing to all, prices would begin to drop, and household wealth would shrivel.
And this price decline might be as swift as its rise — falling demand means falling prices, falling prices mean lower returns to real-estate investment, and low returns could trigger a fire sale by London’s real-estate speculators currently holding onto rotting vacant properties. Prices may plummet.
In short, a conventional affordable housing plan might not simply antagonize high finance — it could also rankle homeowners who have used their dwellings to amass wealth.
Subprime lending — despite its reputation as a wacky, slimy instrument — was an innovative way to avoid this tradeoff. By lowering standards for lending, the government could simultaneously keep prices rising and bring more people into the property market.
The same kinds of tricks are in play in the United Kingdom: policies like the Housing Benefit or Help to Buy ameliorate the affordability problem without putting the brakes on surging housing prices.
But the pitfalls of these kinds of policies are now clear, eight years and a $700 billion bailout later.
At the same time, simply excoriating greed is not the solution. Many real-estate capitalists are avaricious — yes. But it is not the greed of financiers that is destroying the fabric of our societies. It is the transformation of social rights into commodities.
The story of the British housing crisis — like the story of the US housing crisis — is the story of a whole nation banking on the price of its homes and a whole economy banking on the performance of the real-estate market.
However cathartic, inveighing against greed captures none of this complexity, reducing broad economic trends and systems of economic power to moralistic transgressions. And misdiagnoses yield errant prescriptions.
The way out of housing crises — and the broader contradictions underlying them — is to boost social spending in targeted, complementary ways. More generous unemployment benefits and pensions, for example, can reduce people’s reliance on housing as a wealth generator. And reforms like rent control, maintenance checks, and increased public housing can bring down demand for houses, slow price growth, and lessen the risk of economic collapse in the event of a decline in real-estate values.
But above all, we cannot have it both ways. Housing cannot be a commodity in the market and a social right. The result is always the same: one segment of the population reaping returns from real estate while the other pays the price.
Inclusive cities require affordable housing. The only way to do that is to guarantee the citizen’s right to housing over and above the investor’s right to speculate on it.