Tag Archives: financialisation

Why are English local authorities behaving like property companies?

By Brett Christophers, Uppsala University

Flickr user Balmain

In March 2019, Harrogate Borough Council in North Yorkshire launched an independent, arms-length housing company called Bracewell Homes to focus on ‘the purchase, development, sale and leasing of dwellings, as a commercial venture for the borough’. The same month, at the other end of the country, but in an equally leafy milieu, West Berkshire Council announced that it had spent £60 million of a planned total new investment of £100 million in commercial property, not for the purpose of delivering council services but rather to be let to tenants; the properties it had purchased included offices, a warehouse and two supermarkets, the latter located, ironically enough, in North Yorkshire.

Since the global financial crisis of 2007–08, a string of English local authorities (‘councils’) have pursued similar initiatives: over a third are believed to have invested in commercial property to earn rental income, and nearly half are estimated to have established a private housing company.

These ventures have elicited a barrage of criticism. Councils, it is said, should not be behaving like property companies – investment in commercial property is a risky business at the best of times, and if councils are going to build residential property then it should only be social housing on a not-for-profit basis.

The initiatives in question are the focus of my new Transactions article, which is targeted toward a general audience as well as a scholarly one. It tries to do four main things.

The first is to paint an overview picture of these initiatives. Drawing on a range of secondary sources, the article discusses how prevalent they are, the regulatory context within which they have evolved, and the different approaches used by different local authorities.

The second contribution of the article is to conceptualise the initiatives in terms of what has come to be termed the ‘financialisation’ of urban development, namely a set of processes whereby financial actors, markets and/or logics come to play an increasingly important role in the development of the urban built environment. Insofar as English local authorities have been establishing housing companies and investing in shopping centres and the like with a view specifically to earning financial returns, they can be said to be financialising both residential and commercial property.

The article’s third aim is to explain. It is to ask why local authorities are pursuing these initiatives. While there are numerous factors in play, I argue that the most important is a set of profoundly significant recent transformations in what I term local authorities’ financial ‘conjuncture’ – the nexus of circumstances and forces bearing directly on their financial wherewithal.

I highlight three such transformations: the post-financial crisis devolution of austerity from central to local government, which has seen the latter bear the brunt of public-sector funding cuts; the largely unsuccessful reform of local authority housing finance in 2012; and a progressive cheapening of council borrowing capacity, also occurring in the wake of the financial crisis.

These transformations have not so much caused local authorities’ new commercial and residential property ventures as encouraged and enabled them. They have impacted local authorities in such a way as to make those initiatives considerably more appealing and arguably, in some cases, even necessary. They have, in short, pre-disposed councils to act as they have done.

In the light of this explanatory argument the article asks, fourth and finally, whether the criticism that has greeted councils’ new property initiatives is justified and fair. My answer is that it may not be, or at least not entirely. While local authorities would not need to pursue such ventures in an ideal world – one where they were amply funded to provide the services that local communities require of them – that is not the world in which they currently find themselves. For councils desperate to maintain social care, homelessness and other key front-line services in the face of savage cuts in funding from central government, commercial and residential property ventures appear to be – and indeed, may well be – the least worst option, a more sustainable and strategic approach than say liquidating remaining assets or raising council tax.

If we are to criticise these ventures, our criticism is perhaps better targeted not at local authorities themselves, but at the central government that is primarily responsible for shaping councils’ constrained financial conjuncture and that, in the process, has motivated them to behave like property companies rather than the service-focused community caretakers that the public expects them to be.

About the Author: Brett Christophers is Professor at Department of Social and Economic Geography, Uppsala University

References

Christophers, B. Putting financialisation in its financial context: Transformations in local government‐led urban development in post‐financial crisis England. Trans Inst Br Geogr. 2019; 00: 1– 16. https://doi.org/10.1111/tran.12305

Mortgaged lives: when lives become numbers

By Melissa García-Lamarca and María Kaika, University of Manchester, UK

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Eviction Foreclosure Mortgage Poverty Vector Design. Image Credit: iluistrator via Shutterstock

In early May 2014, the Bank of England issued a warning: the increase in gross mortgage lending combined with a rise in UK housing prices place the country’s financial stability under serious threat. Indeed, the running figure for mortgage debt in the UK is alarming, sitting at over £1 trillion, as mortgage lending only continues to expand.

But the UK is not alone. While data from the European Mortgage Federation from 2014 reported the ratio of outstanding residential loans to disposable income for the UK at 116.4%, this figure was even higher in other advanced European economies: 237.4% in Denmark; 197,3% in the Netherlands; and 135% in Sweden.

At the aftermath of the US subprime mortgage crisis, the risk that escalating mortgage debt poses on the global economy has received increasing attention. However, the risk at the household level – the ‘lived’ dimension of the financialisation of housing – remains largely off the radar of both academic research and policy making (with a few notable exceptions like Desmond 2012).

In our recent paper titled “Mortgaged lives”*: the biopolitics of debt and housing financialisation, we consider mortgages as a tool that engineers an intimate relationship between global financial markets, and the bodies and lives of the workforce. Drawing upon ethnographic research and in-depth interviews with people affected by mortgage debt defaults in Spain, we show how mortgage contracts connect not only a person’s current and future income into global speculative financial strategies, but also tie the practices of everyday life into the very heart of financial markets. In other words, as housing becomes financialised, so does life itself. This process affects not only access to housing, but also the ability to care for oneself and others, perceptions of self-esteem, social status, class, citizenship and belonging in society.

By linking the changes in macro-economic processes that made mortgage credit broadly available to the experience of living a “Mortgaged Life”, our work explains how interest rates, the fluctuation of real estate prices and currency exchange rates became factors determining not only access to housing, but the very conditions and (im)possibilities of life. It shows how people begin to realise that they had never really been homeowners or middle class. Just a proletariat indebted for life to their creditors.

As the impact of mortgage debt defaults cuts across borders, educational, income, status, gender and age groups, there is urgent need to focus beyond the macro-economics of mortgage lending and into their personal, family, health and community impacts. This is of particular importance as products like 100% mortgages are reappearing on the market in the UK, and mortgaged homeownership continues to extend across the world as an increasingly common way to access housing.

For the time being, a continuous rise in housing prices, relative economic stability, low interest rates and relatively low unemployment keep mortgage defaults at bay in the European north. However, the combination of escalating housing prices, rock-bottom interest rates and extensive mortgage lending is a potentially explosive mixture not only financially, but also socially. Our paper seeks to highlight this reality, and to call for deeper attention and action.

*The paper (and blog post) borrows its title from the title of Ada Colau and Adrià Alemany’s (2012) book Mortgaged lives: From the housing bubble to the right to housing.

About the authors: Melissa García-Lamarca is a PhD candidate in Human Geography at the University of Manchester and María Kaika is Professor of Human Geography at the same university.

books_icon Colau A and Alemany A 2012 Mortaged lives: From the housing bubble to the right to housing available online https://libcom.org/files/mortgagedlives.pdf [open access]

60-world2 Council of mortgage lenders 2016 Market commentary May 2016. available online at: http://www.hypo.org/Content/Default.asp?PageID=524

60-world2 Cunliffe J 2014 Speech: Momentum in the housing market: affordability, indebtedness and risks Bank of England Available online at: www.bankofengland.co.uk/publications/Pages/speeches/default.aspx

60-world2 Jamei M 2016 European mortgage federation: the voice of the European Mortgage Industry. Available online at: https://www.cml.org.uk/news/news-and-views/market-commentary-may-2016/

books_icon García-Lamarca, M. and Kaika, M. (2016), ‘Mortgaged lives’: the biopolitics of debt and housing financialisation. Transactions of the Institute of British Geographers, 41: 313–327. doi: 10.1111/tran.12126 [open access]

60-world2 Osborne H 2016 Barclays 100% mortgage: how much does it really help homebuyers? Available online at:  http://www.theguardian.com/money/2016/may/04/barclays-100-per-cent-mortgage-how-much-does-it-really-help-homebuyers

New Virtual Issue on Financial Geography in Transactions of the Institute of British Geographers – free online

Transactions of the Institute of British Geographers,  a Journal of the Royal Geographical Society (with IBG), invites you to enjoy a new Virtual Issue on Financial Geography, guest edited by Manuel B Aalbers. This virtual issue is free to access online for 2015.

The guest editor, Manuel B Aalbers says:

This Virtual Issue traces the development of financial geography through 15 papers published in Transactions between 1976 and 2014. Although Transactions published a few earlier papers dealing with building societies and international lending, the birth of a distinctive literature on the geographies of money and finance can be traced back to the mid-1990s.  While British geographers originally dominated the debate, financial geography is increasingly internationalised, rescaled and decentred. Financial geography has established itself within geography and increasingly also within interdisciplinary and pluralistic political and cultural economy debates.

books_icon This Virtual Issue on Financial Geography is available free to access for 2015 online via the Transactions (of the IBG) website

books_icon Please visit the Transactions (of the IBG) Virtual Issue page to access other VIs: including Adrian J Bailey and Brenda S A Yeoh’s guest edited VI on “Migration, society and Globalisation”.