City University of New York (CUNY) CUNY Academic Works Publications and Research CUNY Graduate Center 2019 The Housing Crisis and the Rise of the Real Estate State Samuel Stein CUNY Graduate Center How does access to this work benefit ou?y Let us know! More information about this work at: https://academicworks.cuny.edu/gc_pubs/552 Discover additional works at: https://academicworks.cuny.edu This work is made publicly available by the City University of New York (CUNY). Contact: [email protected] Mary and Andrew Bennetts, Flickr Hudson Yards in New York City. Cost to taxpayers in the form of bond offerings, tax breaks, and direct subsidies = $5.6 billion, dwarfing the incentives offered to Amazon in the failed incentives package to locate its second headquarters in Long Island City, New York. NLFXXX10.1177/1095796019864098New Labor ForumStein 864098research-article2019 New Labor Forum 1 –8 The Housing Crisis and the Rise Copyright © 2019, The Murphy Institute, CUNY School of Labor and Urban Studies of the Real Estate State Article reuse guidelines: sagepub.com/journals-permissions DOI:https://doi.org/10.1177/1095796019864098 10.1177/1095796019864098 journals.sagepub.com/home/nlf Samuel Stein1 Keywords urban planning, housing, gentrification, real estate, organizing Around the world, more and more money is equity firms like Blackstone—now the world’s being invested in real estate, the business of largest landlord.4 building, buying, and renting land and property. Global real estate is now worth $217 trillion, In 2016, a record 37 percent of thirty-six times the value of all the gold ever home sales were made to absentee mined. It makes up 60 percent of the world’s investors, a majority of which were assets, and the vast majority of that wealth— roughly 75 percent—is in housing.1 banks, hedge funds, and private There are a number of reasons why capital is equity firms . converging on land and buildings: a long period of low federal interest rates, “quantitative eas- As renting has risen, so have rents. Average ing,” and financial deregulation in the United move-in rents in the United States have more 5 States, which not only freed up huge amounts than doubled over the last two decades. Prices of capital in search of investment but also vary dramatically across the country, but the enabled and encouraged the mass securitization trend is clearly upward, with the fastest growth of housing as a global financial asset; massive in mid-sized cities like Seattle, Portland, 6 urbanization programs in China, the United Denver, and Cincinnati. Wages, however, Arab Emirates, and several other countries; a remain stagnant, putting tenants in a bind. proliferation of predatory equity funds scouring There is not a single county in the country the globe for “undervalued” investment oppor- where a full-time minimum-wage worker can 7 tunities and finding them in housing; economic afford the average two-bedroom apartment. polarization around the world, with extremely Rent burdens—the percentage of income ten- wealthy and somewhat nervous individuals ants put toward housing—are becoming oppres- viewing property as the safest place to hide sive, particularly for people of color in their money; and more. When capital gains rise segregated neighborhoods. Whereas the aver- while rates of profit plummet across many age rent burden in predominantly white neigh- once-dynamic sectors of the economy, real borhoods is 31 percent (itself slightly above the estate becomes the latest stop on “vagabond standard threshold of affordability), rent bur- capitalism’s”2 eternal search for profitability. dens in black neighborhoods average 44 per- cent; in Latino neighborhoods, they reach 48 percent.8 Every month in New York City, where The Housing Crisis housing costs are rising far faster than incomes, In the United States, homes are changing hands at a rapid pace, but homeownership is at a fifty- year low. In 2016, a record 37 percent of home 1CUNY Graduate Center, New York, NY, USA 3 sales were made to absentee investors, a majority Corresponding Author: of which were banks, hedge funds, and private Samuel Stein, [email protected] 2 New Labor Forum 00(0) almost 2 million people pass a majority of their political formation in which real estate capital income to landlords.9 has inordinate influence over the shape of our With wages flat, many people—even those cities, the parameters of our politics, and the with full-time jobs—simply cannot afford sta- lives we lead. ble housing.10 Last year, about 2 million people Landowners have been determining the shape in the United States went homeless and 7 mil- of cities for centuries, and the idea of housing as lion more lived in precarious housing situa- a commodity—even as a financial asset—is not tions—doubled or tripled up, couch surfing, or exactly state of the art. What is relatively new, sleeping in shift beds.11 however, is the outsized power of real estate These are not uniquely U.S. phenomena; as interests within the capitalist state, from preda- the global 1 percent reaps the majority of the tory equity investors like Blackstone to devel- world’s economic growth, they have formed oper giants like the Related Companies, as well what one analyst calls “a Niagara of capital into as local associations of landlords and developers real estate” and shifted the bulk of their invest- (like New York City’s Real Estate Board of New ments toward property over all other forms of York and Rent Stabilization Association). As economic activity.12 Building booms are eating real estate values have risen to absurd heights, so up cities around the world, from London to has the political force of real estate capital. Mumbai to Nairobi to São Paulo to New York, where enormous, expensive and frequently unin- . [R]eal estate capital has habited investment properties float menacingly 13 inordinate influence over the shape above scenes of homelessness and deprivation. of our cities, the parameters of our Vancouver urban planner Andy Yan labels this the “hedge city” phenomenon, or the way the politics, and the lives we lead. world’s wealthiest are transforming urban high- rises from “machines for living in” to machines The real estate state is a feature of government for money laundering.14 Such cities have seen at all levels, from the hyper-local to the global. It their housing prices balloon over 50 percent in is most firmly grafted onto municipal govern- the past five years; in some places, far more.15 ments, however, because that is where much of the capitalist state’s physical planning is done. City planners therefore sit uncomfortably at the The Real Estate State center of this maelstrom. Planners manage the The force behind these trends is the growing levers of urban change and make crucial decisions centrality of urban real estate to capital’s global about land use, transportation, housing, the envi- growth strategy.16 Through this process, the ronment, and more. In most places, planners are price of land becomes a central economic deter- tasked with the contradictory goals of inflating minate and a dominant political issue, deter- real estate values while safeguarding residents’ mining both which social groups have access to best interests. Capitalism never made planning urban life and what kinds of economic activities easy—organized money could always thwart the can survive. The clunky term “gentrification” best laid plans—but today’s urban planners face becomes a household word and displacement an existential crisis: If the city is an investment an everyday fact of life. Housing becomes a strategy, are they just wealth managers? globally traded financial asset, creating the con- 17 ditions for synchronized bubbles and crashes. Planners and Profits Governments, particularly at the municipal level, become increasingly obsessed with rais- Planning today is defined by incredible dreams ing property values and redistributing wealth and stultifying realities. The planners’ mission is upward through land and rents, in order both to to imagine a better world, but their day-to-day increase their tax bases and to compete for foot- work involves producing a more profitable one. loose global capital investment. Taken together, They almost universally espouse a commitment we witness the rise of the real estate state, a to pluralism and diversity, but the profession is Stein 3 58 percent male and 81 percent white—demo- but also because people always fight back: as graphics that are way out of step with the resi- individuals, as families (of birth and of choice), dents of the cities where most planners work.18 as communities (local and international), as Though most planning offices are structured to neighbors, and as a class. Most important, gen- build continuity across changing administra- trification is not inevitable. The real estate state tions, planners are still beholden to politicians is a historical and political construct: It was and their political appointees; those politicians’ formed by historical factors, and it can be agendas almost always tend to favor their most unmade by political movements. powerful supporters—a group that usually includes some strain of real estate capital. And Policy Alternatives while planning is a public function, planners in capitalist cities are always at the mercy of the Though our planning departments are not cur- market, since most of what they do is to regulate rently configured to embrace such initiatives, it private actions. What money planners have to is important to stress that there are policies— work with is largely derived from property taxes, perfectly legal within our current modes of pro- an arrangement that incentivizes developer- and duction and government—that would challenge homeowner-friendly policies, and restricts the the outsized power of real estate in our cities.