Turkey, the Philippines, Germany, Slovakia, Romania, New Zealand, Portugal, Russia, the Netherlands… wherever we look, housing is becoming more and more expensive. In 38 of the 49 countries reporting statistics the housing price rose. In the United States it was a whopping 5%. Even in Spain, with the GDP in the worst fall since the end of the war, housing became 2.1% more expensive than the previous year, despite the lockdown. Only where capital is running away, like Argentina or Egypt, housing is down… and even then, less than any other asset. Why?
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Where does the speculation come from?
The accumulation of capital is the basic dynamic of the mode of production in which we live. To keep itself alive capital needs to be applied to production, to exploit labor productively. So profits are reincorporated into total capital and expand it. And at each cycle, capital concentrates more resources and, if it does not encounter obstacles, increases the productivity of labor.
The only problem is that imperialism] more than a century ago, obstacles to accumulation became present all the time. Over and over again, solvent markets were missing. Capital had to adapt to a world in which it could no longer freely develop. The great private accumulations began to be centralized around banks; financial capital as we know it today was born. And not even for that. Soon capital required more and more from the state to coordinate and ensure conditions to continue growing: monopolies guaranteeing profitability, central banks encouraging credit bubbles to pass the buck while getting new sales, militarism opening new markets in which to sell and find investment destinations…
In a few decades these difficulties became universal and transformed the global game of the system. Capital no longer found sufficient productive applications during most of the time. The tendency toward crisis became perennial. The system no longer faced cyclical crises like those of its youth. Between crisis and crisis, young capitalism could return to business as usual. Not now. The tendencies that reorganized it operated also in periods of prosperity and although recessions only occurred every few years, the difficulties and their internal consequences continued. Centralization developed into what is now state capitalism. The struggle for markets became an eternal cycle of conflicts, blocs, trade wars…
And in all of this, ever greater parts of capital, which could not find a place for itself by exploiting labor, went to fictitious capital: instead of being used to employ labor power, they bet on the results of other businesses. The volume of this speculative use was multiplied deforming the productive fabric in a thousand ways, and rendering the barrages of crisis and recession more and more explosive. When the bubble bursts, a large part of the productive fabric is carried away.
Why is speculative capital dedicated to housing?
The easy kind of speculation is upward speculation: you buy what is expected to be revaluated without the need for very precise terms. You buy shares in companies because you think they will give more profits in the future or because a buyer will raise the price with an offer; you buy rights to purchase raw materials waiting for industrial demand to rise; basic foodstuffs -such as wheat- waiting for increases in consumption or falls in production to make them more valuable… etc. etc.
In that logic, housing is a logical destination for speculation. In principle, demand should grow with population. In countries such as Spain, since 1900 the total population did not decrease a single year until 2013. And it grew again relatively soon, in 2016. Supply is also regulated by the municipalities, which decide the land that can be devoted to building homes and their conditions. But, as in virtually everywhere else in the world, municipalities are chronically indebted and financially under-resourced, so they depend on the revaluation of land to earn income with which to invest and build themselves, so municipalities are the first to ensure that prices do not fall. That’s why, for decades, investing in housing was a ‘safe business’ and accessible to relatively small capital, so it attracted a multitude of small speculators as well as large funds.
Why did housing fall during the 2008 crisis?
As we said before, it has been a long time since we left the youth phase of capitalism. In the decade prior to the crisis in the US, speculative capital had already financialized mortgages. Huge amounts of capital were dedicated to buying mortgages and integrating them in packages with other assets until they produced theoretically homogeneous products without great risk, the then famous structured products. The truth, however, is that the risk grew because in order to keep increasing the volume of mortgages sold, it was necessary to target an increasingly precarious working class. Leaving aside the fact that some operators were cheating to place some more or less substantial packages, the statistics did not vary substantially, but the reality is that with houses becoming more expensive and buyers of increasingly fragile incomes, the real risk increased even if the indicators did not reflect it. This is a nice micro-example of the contradictions generated by the permanent tendency towards crisis: the same thing that allowed the economic bonanza and an abundance of capital to be placed in mortgages – the precarization of workers – made it increasingly difficult to pay off the mortgages. When a certain level of delinquency was reached, all those financial products were devalued en masse with the mortgages they were part of, and the financial bubble burst. With the fall of the financial system, productive enterprises also went down in cascade and millions of workers around the world became unemployed. Houses in the US became cheap again because those who occupied them left en masse or were evicted because they could not pay the mortgages due to being unemployed.
When the wave reached Europe, the banks had to review their balance sheets and the Central Bank intervened. In doing so, it turned out that, oh coincidence, the Spanish banks, and especially the savings banks, were not only affected by the products they had bought abroad, but they had been the big beneficiaries of the real estate speculation that took place in Spain as well, especially the one linked to the tourist sector (second homes, golf courses, holiday apartments…). The devaluation of their assets thus came from two fronts that were actually part of the same global speculative phenomenon. The fact is that by devaluing their balance sheets the banks were on the verge of bankruptcy: their investments were worth much less overnight. Their ability to provide credit was reduced as a result. Many financialized companies and others were left half-dead, and the default rate increased fourfold. The financial crisis became a banking and industrial crisis. Unemployment reached a historic level. And with unemployment, the arrears on mortgages shot up. Thousands of homes were left empty, banks sold them off to vulture funds or to companies they had created, and prices fell for the first time in a long time.
How did the speculative housing market regenerate itself?
The outbreak of the crisis meant not only a devaluation of housing but also a direct attack on wages and a general drop in prices. Tourism was more competitive than ever, the ratio of tourists per inhabitant multiplied until it saturated entire neighborhoods in Lisbon, Oporto or, to a lesser extent, Barcelona. The emergence of a new business model, with Airbnb at the helm, made it easier for capitals to land en masse again in real estate. Tourist apartments were just the start, but they set new trends. The speculative market was gaining ground again, but now under a new model. Funds were investing in housing packages for renting to a mass of workers who, increasingly precarious, could no longer trust themselves to take out a mortgage and regularly pay a mortgage for thirty years. The rental market rose dramatically, giving returns of 6% to the funds and making rents grow faster than home purchase prices for the first time. Housing was again used to place local and foreign capital. It was a part of the new Spanish miracle of the Rajoy years: GDP was growing and everyone was pleased with the country’s attractiveness for investment… but workers’ income and their purchasing power was decreasing.
Why does housing keep on rising in the middle of a new crisis?
From the point of view of capital, any recession means the disappearance of profitable destinations. Companies accumulate debts and losses, a good part of the speculative markets are in a downward spiral, beginning with oil. New businesses appear -the production of masks, for example-, others increase their profits -delivery, reagents, etc.- but not even by far do their needs for capital leave room for all the mass of capital accumulated before the crisis. If we add to that zero or negative interest rates, we understand why capital has a real urgency to place itself in something like housing, where demand is relatively stable and which today continues to offer very positive expectations for speculators. Among other things, because the risk of defaulting on rent is always much lower than on a mortgage. But above all because during the last five years rental prices rose by 50% in Spain. The result is that more houses are bought to rent and logically, prices rise.
The Bank of Spain itself, seeing that housing can be a lifeline for the large masses of capital with no destination, has had no better idea than to pressure the government to improve the profitability of socimis, listed companies dedicated specifically to buying and operating real estate. In other words, everything points to the housing market becoming even more concentrated and prices rising.
What does this mean for workers?
We have to get used to seeing the economy from the point of view of class relations, which is what capital does when it designs policies in the face of the crisis. Policies that in the end are nothing but forms of organizing massive transfers of labor to capital. Housing is no exception.
The increase in rent is a drop in wages by other means and with a focus on the younger sectors and therefore with more difficulty in organizing the class. Because let’s not forget: capital flows and does not care too much about its own placements considered one by one. What is at stake is the distribution of the result of exploitation between capital and workers as a whole, so it is the struggle of one class against another, not of the workers of a company against their owners or the prices of a commodity against another. Housing, renting, is one more point where capital can make its economic levy, put the responsibility on the market – which is the mere translator of its interests – and make use of the state to ensure the conditions of extended exploitation. A new recession is coming. Now more than ever the contradiction between human needs, general needs, our needs and the needs of capital – to exploit more and to obtain more profit – are starkly shown.