The Financialization of Housing in Capitalism’s Peripheries

Financialization has become a new keyword to describe and analyze contemporary developments in economies and societies. It has also become a key concept in understanding recent trends in housing markets and policies. Since most scholarship that has initially studied these new trends was produced by scholars based in Europe, North America, and Australia and reflected on the dynamics of countries situated at the centers of the world economy, questions arose on the extent to which these trends could also be detected outside of these countries. The call for articles that originated this special issue was intended to collectively answer this question: Does the financialization of housing shape, and is it shaped by, housing policies and practices in countries situated at the peripheries of the global economy?

The initial call for articles referred to these other territories and economies as the Global South. Although the term Global South is generally juxtaposed with the term Global North, which suggests a very strong binary, the idea was not to employ the term in this binary fashion. Rather, Global South was used as a shorthand or heuristic device to focus on countries other than Australia, Canada, New Zealand, the United States, or those of Europe. We also could have opted for terms like nonrich, poor, non-Western, Third World, developing, or underdeveloped countries. The denominations born of postwar decolonization processes, which are founded on the discourse in which Truman launched the Point 4 Program, divided the world into advanced, modern, and developed countries on one hand, and traditional, backward, and underdeveloped countries on the other. Development aid was thought to enable everyone to reach, at some point, the desired stage of a developed country. In the 1960s, multilateral agencies and central universities adopted a new epithet in the same direction: developing countries. But like the term Global South, these are all problematic terms. They all have links to specific modes of organizing the globe that, throughout modern history, very often produced a dualistic view of the world. Most recently, denominations follow each other in quick succession and compete: South, Global South, emerging economies.

Classification systems produce and reproduce a representation of the world and of the positions occupied by different individuals, social groups, and collective actors, but also by territories. South–North and Global South–Global North classifications are highly indebted to the tradition of geographic regionalization, which is based on homogeneities. In reality, there are more complex constellations of countries. We do not intend to resolve such issues in this special issue. Instead, we would like to focus on the financialization of housing in countries located at the peripheries of the world economy, with the specific goal of rejecting binary thinking about financialization processes. A common critique in the financialization literature is that the concept is used to suggest that the same process takes place across the globe and erases differences, resulting in increased convergence between countries and, in this case, their housing systems. This is not at all what we suggest. We see financialization as a process that unfolds across space—that is, it is structured by existing institutions in those spaces and it is restructuring those very institutions. Financialization is not a generalized process that erases existing differences across place and space. There is no model prescribing what the end stage of financialization should look like. The use of the concept of financialization is less about converging outcomes than it is about understanding processes through which housing markets, policies, and practices change.

The literature on the financialization of housing initially looked at the connections between booming mortgage markets, subprime lending, and securitization in the United States. It has since steadily expanded to, first, more countries in North America, Europe, and Australia; second, to other processes and mechanisms of financialization in the housing sector, including but not limited to social housing bonds, derivatives, and corporate landlords such as private equity funds and real estate investment trusts (REITs) buying up large portfolios of affordable rental housing; and, third, to countries in other parts of the world.

All too often, there is an implicit understanding that these financialization processes are happening in countries with developed, sophisticated financial markets. This special issue challenges that assumption by presenting a range of studies on the financialization of housing in different countries, with different financial market structures and different political economies of housing and urbanization. We aim to break down binary thinking by demonstrating that financialization is not restricted to a limited number of countries, while at the same time acknowledging the variegated and localized nature of this process.

One problem in many accounts of financialization outside Europe, Australia, and North America—related not only to housing but also to other fields and markets—is the reasoning that financialization in country X is different because it is not happening in the same way as in those epicenters of the global economy. We think that it is important to deconstruct seemingly obvious statements like these, because they are problematic for at least three reasons. First, the idea that there is some sort of normal or standard financialization model that all other forms should be compared with suggests that there is one dominant trajectory that other countries deviate from or are running behind on. This is not the case. Second, the idea that financialization across Europe and North America is more or less the same is as bizarre as the argument that financialization across the rest of the world is more or less the same. There are no two countries in which financialization processes unfold in the same way. This brings us to the third problem: typically, when financialization in a peripheral country is compared with that in the center, it is not compared with the diversity of experiences in the center, but with experiences in the United States or United Kingdom only. This kind of reasoning often leads to an incorrect argument about the nature of financialization in not only those peripheries but also the centers of the world economy. For example, if there are no REITs or there is no mortgage securitization in country X (or if they were introduced only recently), one may incorrectly conclude either that there is no financialization or that it is entirely different from that in the perceived centers. To illustrate the last point briefly: many countries in the center introduced REITs or mortgage securitization around the same time as many countries in the periphery. Yes, there are early adopters in the peripheries, but there are also late adopters and nonadopters in the centers.

Sometimes, scholars cite unique qualities of peripheral cities—such as informality, corruption, underdeveloped financial markets, extreme poverty, or the role of the state—to conclude that these are megacities rather than global cities. Although these are important issues in many of these cities, they inevitably play a role in European, Australian, and North American contexts as well. The burgeoning literature on informality suggests that it occurs beyond Latin America, Africa, and Asia. What is called corruption in one country is sometimes called lobbying in another; in other cases, it is—or should be—simply labeled corruption as well. Whereas financial markets in most peripheral countries could be considered underdeveloped compared with those in the United States or United Kingdom, financial markets in a range of eastern European (especially semiperipheral non-EU) countries are not necessarily more developed than those in other middle-income countries. Finally, the idea that market and state are entangled in some peripheral countries but not in Europe, Australia, and North America is problematic; in both cases, states and markets can be more or less entangled.

Is there nothing, then, that differentiates the financialization of housing in countries situated at the peripheries of capitalism from that in central ones? Yes and no. If we employ a strict binary lens, there is nothing that sets them apart in their totality, because such a hard binary does not exist. However, if we treat financialization as variegated, decentered, and therefore fundamentally different in each country, we can start seeing some patterns, and certainly the subordinated role that countries at the peripheries of the world economy play is important and relevant to understanding specificities.

First, we can think of how policies of multinational organizations like the World Bank and the International Monetary Fund have shaped the financialization of housing in different countries. By imposing housing market reforms such as loan conditionalities in several countries or simply by disseminating best practices and policies, several instruments and strategies employed in the financialization of housing markets were introduced. Here, there clearly are epicenters of dissemination of practices and reforms. But again, these reforms could never take place without the active role of local economic and political actors. Mexico is a good example of such reforms, and two articles in this special issue—by Alejandra Reyes and by Susanne Heeg, Maria Verónica Ibarra Garcia, and Luis Alberto Salinas Arreortua—point to the essential role of government-led coalitions in promoting private housing production and transforming housing institutes into finance institutions with the goal of expanding mortgage lending. In the 1990s, the National Housing Fund for Workers (INFONAVIT)—a tripartite institution governed by business, government, and labor representatives and founded in 1972 to produce housing for formal- and private-sector workers—began to guarantee a credit flow to finance the quick and mass production of housing, effectively absorbing much of the risk for the developers.

The central role of the state in the process of financialization is a key common trend. The two articles on Turkey, the aforementioned articles on Mexico, and the article on Taiwan demonstrate the fundamental role of public institutions and public funding in making mortgage lending viable. By pointing to how states made available public subsidies for low-interest mortgage programs (always using public funds), the articles show the extent to which direct state intervention increased homeownership rates, taking into account the political importance of housing. In this way, the goals of construction and finance industries were combined with those of coalitions in power. Melih Yeşilbağ’s article on Turkey shows how the state was able to generate an unprecedented construction boom despite the country’s relatively small financial footprint. Furthermore, Ivana Socoloff discusses the formation of an urban–finance coalition in Argentina and shows how it pushes for new financial reforms.

Another common trend is the relationship between preexisting, mostly informal residential markets and financialization. Without entering into the debate on the concept of informality, the existence of modes of housing production outside the circuits of banks, financial institutions, and often also planning regulations has always been an important feature of urbanization in peripheral countries according to the literature. In many cases, the emergence of finance-led housing production was enabled through the dismantling of preexisting systems. In other cases, financialization mechanisms were introduced into these preexisting systems. Several articles in this special issue refer to processes in which private property rights and mortgage finance are pushed onto poor populations by state–finance coalitions. Land reforms implementing property rights in situations where property-led systems coexisted with other forms of tenure provided, among other interventions, the foundation for mortgage lending. Again, the case of Mexico demonstrates how both state and local governments promoted the dissolution of the communal land-tenure system to allow for the privatization and development of low-cost rural land surrounding Mexican cities. Silvia Jorge’s article on Maputo (Mozambique) focuses on the transformation of the urban margins, where mostly self-built low-income developments existed and the majority of the urban population used to live. These margins transformed as a result of new interventions that established a new landscape but also a new sociopolitical order through a strong alliance between the state and new urban actors. However, the relationship between the new frontier of financialized housing production and the rather informal preexisting residential markets is characterized not only by land and tenure reforms but also by transformations in finance. Yi-Lien Chen’s article on Taiwan shows how a state-led policy used different methods to decrease informal finance and promote formal housing and housing finance markets.

Another important common trend is the deepening of preexisting patterns of segregation as a result of the financialization of housing. Julien Migozzi’s article on South Africa shows how financialization unfolds in metropolitan areas through the classification of people and the selection of spaces on the two axes of financialized housing markets that emerged in the country: corporate landlords in the rental market and mortgages for homeownership. By mobilizing credit scoring to classify and select tenants or mortgage beneficiaries, and by selecting places, the financialization of housing renewed urban patterns of apartheid. Landlords and mortgage lenders targeted specific areas in the postapartheid city to develop residential portfolios and allocate mortgages, reinforcing segregation. In Mexico, too, as Reyes points out, the thousands of vacant homes on the fringes of the city and the precarious living conditions of most Mexicans are the result of the financialization of housing.

Another point is how the financialization of housing affects general housing conditions in a country. In all cases presented in this special issue, with the exception of Taiwan, housing conditions and shortages have deteriorated after a decade or more of state-led and state-subsidized financialized housing production. Even though housing finance has extended the reach of credit, the very low-income segments of society—who form the majority of groups living in inadequate housing—were not reached. Moreover, most articles point out that the financialization of housing was responsible for massive waves of speculation that in turn led to house price increases and, consequently, affordability problems. This feature is, incidentally, no different from the experience of some European countries and the United States, where a housing crisis was the result of financialization.

Finally, housing financialization may be the result of investments by individual transnational actors or members of a country’s diaspora. In his article on Cambodia, Gabriel Fauveaud speaks of foreignization and discusses how local and international developers and brokers act as agents of financialization who differ from the usual suspects of financialization. This phenomenon is discussed in many other articles outside this special issue that talk about Ecuador, Cuba, Panama, Lebanon, and other countries in capitalism’s peripheries. In these cases, the globalization of real estate is not solely triggered by formal (and institutional) procedures and practices of market making; informal (and sometimes semilegal) housing dynamics are equally important for understanding transnational ownership patterns in urban housing markets. This does not happen in isolation, as Fauveaud insists: “The strong interdependencies among neoliberalism, authoritarianism, and neopatrimonialism in Cambodia certainly contribute to the deployment of an exacerbated and specific regime of housing financialization through extraversion.”

Financialization, like capitalism itself, is fraught with contradictions. Emre Ergüven presents these most explicitly when he discusses the interest rate dilemma at the heart of Turkey’s construction-led accumulation model. The dependence on capital inflows is discussed in different ways by several of the articles in this special issue, showing how financialization processes in the peripheries can be conceptualized as subordinate financialization, as Ergüven, Socoloff, and Fernandez and Aalbers do. This subordinate position is created by and creates the peripheral position of these contexts in uneven global economic and financial relations. In their contribution to this special issue, Rodrigo Fernandez and Manuel Aalbers suggest that the financialization of housing in the peripheries is fundamentally different from that in the centers because these countries are shaped by financialization—and not just of housing—in the centers. They argue that the recycling of excess liquidity from the center in countries that are lower in the global money hierarchy has contributed to the growth of mortgage lending in the peripheries. In other words, they call for a relational understanding of financialization between countries, which stems from the existing uneven relations between countries and from how these have changed under conditions of financialization. Fernandez and Aalbers go on to argue that subordinated financialization is a contemporary form of uneven and combined development, which suggests that “[p]ractices of financialization can coexist in otherwise nonfinancialized institutional contexts, but over time these practices can become launching grounds for a wider financialization of the economy, extending to different sectors, different places, or different classes of people.” This means that much research remains to be done. The articles in this special issue are merely a step toward understanding the variegated patterns of housing financialization.