CHAPTER 1
Introduction: Housing as Asset

Built Up situates real estate where it belongs, at the very centre of the process of urban development and the broader nature of advanced capitalism today.

(Florida 2022)

Houses are built to be lived in not for speculation.

(Xi Jinping, address to the 19th Party Congress, Beijing, October 2017)

We begin with three propositions:

1. Housing has a new-found centrality in advanced societies due to its expanded role as an investment asset and source of wealth accumulation. Housing matters more both in the macro-economy and in daily life since the financial deregulation of the 1980s and especially following the Global Financial Crisis of 2008-2009, due to an unprecedented low-interest environment and abundant footloose capital. But easy credit also raises the spectre of unstable debt loads and destructive housing bubbles.
2. While the same favourable borrowing terms have been available throughout a nation, housing investment is disproportionately attracted to the property markets of gateway cities, vibrant cosmopolitan portals connected to international flows of trade, capital, and immigrant labour. These cities display exaggerated house price cycles, heightened social inequality, and a political system that typically favours house price inflation as a household asset that offsets declining real wages and welfare expenditures.
3. Heightened investment activity from the globalisation of housing markets decouples an established connection between regional labour markets and housing markets, so that local wage earners are left behind by unaffordable residential prices. Conventional housing market explanations are no longer adequate in gateway cities where 'fundamentals' must be re-scaled to include immigration, off-shore investors, and the role of the global real estate industry. Financialisation, a growing sophisticated synergy of housing and finance, has up-scaled housing markets.

These three propositions give rise to a series of consequences that define the housing condition of gateway cities. The creation of housing as an asset in a deregulated global economy brings opportunistic capital flows from investors (both national and global) that are commonly willing and able to outbid local end-use buyers. As well-heeled household and institutional investors flood the market, surplus demand, beyond use or need, drives up prices and availability. Affordability becomes a major challenge to local workers. They make adjustments. Displaced from one housing sub-market they occupy another, themselves displacing less well-resourced fellow citizens. They double up or accept smaller units, they rent instead of own, they return to, or do not leave, the parental home, they enter informal housing arrangements, they accept lengthy commutes, they assume heavy mortgage debt, they leave the region, and sometimes they protest politically. They change jobs, take on a second job, become a two-wage earner family, postpone child-rearing, thereby reducing the birth rate.

But their frustrations and stresses contribute to the benefits and satisfactions of better-resourced households who are already property-owners. A broad separation in the distribution of wealth arises between early and late arrivals to the inflating housing market of gateway cities. Indeed, an egregious transfer of wealth occurs as late arrivals - the young, the poor, immigrants - attempt to leave rental units and enter the unaffordable market for a home whose rising cost builds the land-based portfolio of early arrivals. In their life chances early and late arrivals occupy opposing housing classes.

Some justification and expansion are needed of these propositions.

The New Centrality of Housing

During the house price run-up to the Global Financial Crisis (GFC) of 2008-2009, The Economist ran a special feature on 'The global housing boom' (The Economist 2005). Its tone was apocalyptic:

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. it looks like the biggest bubble in history.

With reduced confidence in the stock market, investment energies had turned to property as a favoured asset in many western nations. It was not hard to find evidence for The Economist's claim that 'Prices are being driven by speculative demand'. Investment instruments like interest-only and negative-amortisation loans revealed the gambler's stake in the continuing rapid inflation of residential properties; it was estimated that these frothy instruments accounted for 60% of new mortgages in California (The Economist 2005). In 2004, almost a quarter of houses in the United States were purchased for investment purposes, another 13% were second homes. The Economist ended its analysis with a doomsday scenario:

The housing market has played such a big role in propping up America's economy that a sharp slowdown in house prices is likely to have severe consequences. Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking.

Doomsday arrived in short order. The GFC proceeded from the unravelling of toxic home mortgages, extracted from risk-taking and often vulnerable American households, which then passed through an international financial sector short on ethical judgement and due diligence (Wyly et al. 2009; Forrest and Yip 2011; Bardhan et al. 2012; Farlow 2013). When this deck of cards collapsed, housing market failures brought down financial institutions, with knock-on effects through the economy, and unprecedented levels of foreclosure as financial crisis downed the American middle-class. Contagion into the rest of the economy and ensuing policies of harsh austerity in the US and the UK, amongst others, sustained the social misery (Peck 2012; Clark with Heath 2013). Since then, banks have paid over $150 billion in US court-imposed fines for their improprieties. The wider cost of the GFC to the US has been variously estimated from $22 trillion upwards, including lost revenue, incomes, and taxes, and $9.5 trillion in the UK (BBC 2017). Catastrophic though these events were, their inter-connections were not unique. More than two-thirds of banking crises in recent decades followed a boom-bust housing cycle (IMF 2019c, p. 62); consequently, 'House price dynamics and macroeconomic and financial stability are tightly connected' (ibid.). Housing matters!

Housing crises are not limited to western democracies. In East Asia the developmental state has used housing and property development as the front end of its urbanisation mission (Doling and Ronald 2014). In Hong Kong, Singapore, and China large and energetic property corporations harbour global ambitions. Immense wealth is derived from land development (Lin 2009); seven of the ten wealthiest men in China (including Hong Kong) in 2019 led property development or construction companies (Liu, Yiu and Liu 2020). Real estate has been at the heart of the Chinese economic development model (Wu 2015). Substantial land value gains and high real estate profits in urban China have encouraged excessive leveraging, with heavy overhanging debt loads that threaten both local government and the broader economy. A senior official of the National People's Congress laid out the dilemma:

The real estate industry's excessive prosperity has not only kidnapped local governments but also kidnapped financial institutions - restraining and even harming the development of the real economy, inflating asset bubbles and accumulating debt risk. The biggest problem facing the country is how to reduce reliance on real estate.

(Yin Zhongqing, cited in Wildau 2017)

The dilemma persisted. In the surprising initial boom during the COVID-19 pandemic, China's top financial regulator warned against the excessive exposure of banks to the property sector as 'the biggest grey rhino'1 faced by the country's financial sector (Ren 2021) - while the debt crisis among residential developers, led by Evergrande, steadily deepened.

The prominence of the property sector in the macro-economy is matched by its growing salience for private households. A conventional distinction has contrasted the use value from the exchange value of residential property. The former describes the utility and purpose of the home for everyday life, the latter its valuation as a marketable commodity. Together they incorporate the expanded mission of the modern home. As Fiona Allon has written, 'We want our homes to be everything: shelter, identity statement, asset, property investment, a ticket to wealth and riches, and even to function as banks' (Allon 2008, p. 12). As a younger urban Australian, Allon emphasised the economic dimension of the home more than an earlier generation might have done. The increasing cost of entry to homeownership and the potential for significant capital gains have raised its economic stake and sharpened the profile of inequality. In Canada, housing accounted for 34% of household wealth in 1990; in 2015 it crossed the 50% threshold (Statistics Canada 2020). Due largely to house price increases, median family net worth doubled in Canada from 1999 to 2016;...