Does housing financialisation deliver a Viable Economy for Greater Manchester?
Manchester’s skyline is changing. Fast. While the dominant narrative is that dozens of the buildings transforming this skyline aim to provide more housing in the city centre, the recent report From Homes to Assets: Housing financialisation in Greater Manchester by Dr Jonathan Silver makes clear that these housing developments are overwhelmingly driven by financial institutions and actors who have identified Greater Manchester’s urban core as an attractive site for investment. Indeed, the primary function of these developments is financial speculation. We are witnessing the process of housing financialisation in Greater Manchester. For those concerned about the wellbeing and prosperity of the people living in Greater Manchester, as we are at Steady State Manchester, this poses the question: Does housing financialisation deliver a viable economy?
What is a viable economy?
As we describe in our 2014 report The Viable Economy and in other publications, a viable economy is predicated on a shift in political decisions and societal actions away from the growth-driven instrumental rationality of neoliberal capitalism. Instead, a viable economy demonstrates greater resilience, localisation, and balance as economic activity is treated not an end in itself, but rather as a means to deliver a sufficiently prosperous future without growth. Further, a viable economy subordinates the economic system to the control of society, and organises around cultural attitudes favouring equality, solidarity and cooperation. Finally, a viable economy recognises the finite nature of ecological resources and embraces an ethic of stewardship by minimising imbalances to the planetary systems – including the climate, biodiversity, and nitrogen and phosphorous cycles – upon which human life depends.
So, how does housing financialisation in Greater Manchester measure up against a viable economy? This commentary applies a viable economy perspective on housing to Dr Silver’s report: it analyses the motivation driving housing financialisation, the evidence of it in Greater Manchester, and the social and ecological impacts of housing financialisation, and – importantly – concludes by proposing ways this trend could be reversed.
Housing financialisation for profit
Housing financialisation treats housing as an asset that can, should, and must, generate profit. So, housing assets are expected to provide a steady return to the financial actors developing or investing in these assets. This overarching motive remains firmly stuck in the growth-driving circular reasoning of capitalism whereby profit is necessary to accumulate wealth, and accumulating wealth is necessary to secure further profit. Perhaps due to its remit, Dr Silver’s report does not really explore housing financialisation as part of the desperate search for profit that characterises a stagnating capitalism.
Still, housing financialisation is a clear case of the constant search for profitable new frontiers inherent in growth-oriented capitalism. How can this continuous accumulation through profit to enable further growth treat anything other than profit as the goal? Indeed, any goal aimed at bettering the lives of Greater Manchester’s residents will be placed secondary to the goal of profit for the financial actors behind this housing financialisation. It fails, then, to utilise the economy for delivering societal well being if this profit is ever at risk. Any housing financialisation for the sole purpose of profit has no place within a viable economy.
Analysing the evidence of housing financialisation
To document housing financialisation in Greater Manchester, Dr Silver presents two types of evidence: one relates to government policies, and the other to the changing characteristics of the housing market.
Considering first the latter – evidence of which includes the expanding Private Rented Sector (PRS), involvement of financial actors, and the international origins of capital – it is clear that housing financialisation is not unique to Greater Manchester and occurs in many housing markets around the world. Two common explanations are, first, that the Internet and information technology have enabled financial actors to invest at a global scale, and second, that consumers lead increasingly mobile lives and careers and therefore demand more short-term rental accommodation. However, in both cases the role of producers in shaping housing markets is underappreciated or ignored altogether.
There is little doubt that technology has increased global capital mobility. But this has in turn allowed the concentration of capital into fewer and fewer – corporate or individual, and domestic or international – hands, thereby increasing the power of these few to set market conditions for pursuing profitable endeavours. So, the rise of the PRS reflects less the unified voice of a homogeneous consumer group demanding rental accommodation, and more the power of those that control international financial capital to maintain ownership of housing developments from which to extract revenue. Not only is this ownership model inherently undemocratic, but claiming that individuals can make their demands known through market choices misses the reality that financial actors increasingly dictate – and limit – the choices available to consumers. In other words, this is an oligopoly. The mechanism for reigning in this unequal power arrangement is through government policy.
Before examining government policies enabling housing financialisation, an elaboration on the outcome of the above ownership model is necessary. There are several ways international financial actors obtain ownership of housing. Large institutions can develop a site and maintain ownership, sell the entire building, or investors can purchase individual property – so-called ‘buy-to-let’ schemes. In each of these cases, owners have no meaningful stake in the local community. What sense of community emerges from thirty floors of identical, rented flats where one-year contracts ensure few neighbours get to know each other?
A viable economy approach would, for example, demand supporting local community infrastructure like green spaces, walkability, civic engagement and mass transit. It would recognise the persistent – and increasing – homelessness issue in Greater Manchester, and developers would proudly meet and perhaps even exceed affordable housing requirements. A viable economy approach may even find common cause with environmental groups over issues such as air pollution affecting health and wellbeing and contribute toward taking action. Of course, these proactive stances extend far beyond the concern of the financial actors involved in housing financialisation. So, how is government responding?
There is evidence of both local and national government policies supporting housing financialisation in Greater Manchester. For large development projects, legal obligations are waived, including affordable housing requirements and other Section 106 obligations, which mitigate the impact of a development on the local community. The ‘viability assessments’ – procedures that examine the financial viability for developers – should provide a transparent view of why affordable housing and Section 106 requirements are not being met. But these assessments are withheld from public scrutiny. Finally, Dr Silver’s report identifies government loans amounting to £265 million to developers by the locally-controlled Greater Manchester Housing Fund, which must be allocated to market-orientated developments, and a further £50 million from the national government.
All of these actions reveal that both local and national policies are helping to shape the housing market in favour of the housing financialisation model. This comes at the expense of other models, such as co-operatives or mutual ownership schemes, that align with a more viable economy. Further, the skirting of affordable housing requirements for developments in Greater Manchester’s urban core risks segregating society based on income. Other Section 106 obligations would require that developers address relevant social concerns, including the above mentioned investment in local infrastructure, alleviating homelessness, and air pollution, as well as others that would emerge through dialogue with local stakeholders. By waiving these obligations, local government – with backing at the national level – advances the housing market of Greater Manchester toward further financialisation.
Housing financialisation’s social impacts, but also ecological concerns
Dr Silver’s report identifies a range of impacts housing financialisation is having on Greater Manchester. With the local economy starved of funding, there is insufficient investment in the local community. Housing in the urban core is increasingly unaffordable for the working class. The threat of future boom and bust cycles in the housing market looms. Spatial implications include areas surrounding the city centre becoming targets for housing financialisation, the privatisation of public space, and destruction of the historic built environments. Finally, there are transparency concerns about the international financial actors involved in housing development.
These impacts reflect how changes to the housing market can be inherently unequal. A viable economy approach would respond to the increase in people living in the city centre by providing opportunity to all kinds of people. A mix of people living and rooted in a community leads to fundamentally different social solidarity than segregated, isolated and transient residents. Further, the population of Greater Manchester is expected to increase in the years to come. From the perspective of a viable economy, the solution is not a focus on densification in the city centre, but rather on encouraging medium-rise developments beyond the inner urban core that are accountable to Section 106 and are affordable to the working class. This should be complemented by renovation of the existing housing stock and continued investment in local infrastructure. This spatial distribution should occur across Greater Manchester and prioritise replacing existing stock or developing brownfield sites, not expanding to the green belt or other green spaces, which all provide significant amenity, biodiversity or carbon or floodwater capture services to Greater Manchester and must be protected.
A spatially distributed and diversified model is also more resilient: in the face of a potential housing bubble, hundreds of units with nearly identical offer do not flood the market at once. Instead, differentiated units are gradually developed.
Dr Silver’s report names many of the financial actors currently involved in housing financialisation, from pension funds and private equity firms to banks and wealthy individuals, providing a clear picture of the international nature of the current model. Instead of international financial actors, a viable economy approach would depend on local financing for housing projects, ensuring investors have a stake in working toward the betterment of Greater Manchester.
This would be a radical change from the current situation, where the citizens of Greater Manchester typically have little way of knowing who is behind the changes to Manchester’s skyline. Dr Silver’s report provides the beginnings of transparency regarding this housing financialisation, a standard that should be adopted by local government for all future developments. As the report indicates, transparency extends to information about the existing investments of international actors involved in financing these housing developments. At present, these actors profit from, among other activities, petroleum and palm oil extraction. If the attitude toward these investments is any indicator, these actors will ignore the impacts of their profit-seeking behaviour on individuals, communities, or the environment.
One area the report does not address, which may sit outside its remit, is the direct ecological outcomes of this housing financialisation. The energy footprint of high-rise buildings is enormous, including petrol engines running construction equipment, the transport of construction materials, and the production of those materials themselves. Concrete and steel are two of the most energy and carbon intensive products of industrial manufacturing, and thousands of tons of both are required for any high-rise development. Further, the international sourcing of the materials and fuels to produce them means these developments support extractive industries, which often exploit workers and ruin livelihoods and landscapes. Of course, the above critiques could be made of most new construction sites. What is worth noting is the role of housing financialisation in catalysing these projects at such a scale, volume and concentration in the urban core of Greater Manchester.
A related case of the way that ecological considerations are not addressed is how energy efficiency and the size of flats are dictated by housing financialisation. The extent to which energy efficiency is deemed a key feature of these new developments, and whether their design embraces alternative spatial norms favouring sufficiency – less square footage – deserves further scrutiny.
If consumer resistance due to the above social and ecological concerns leads to refusal to inhabit these new housing developments, there is a potential for oversupply in the housing market. Thus, echoing the call in Dr Silver’s report, new policies and standards should be applied to all future developments, and not only address social impacts but also adopt higher ecological standards.
The recent Green Summit, organised by the office of Greater Manchester Mayor Andy Burnham, considered discussing the large scale retrofitting of the existing housing stock to improve energy efficiency, with the potential for creating 55,000 jobs. Thus far, there is little indication this is moving forward. A policy subsidising the retrofitting of all housing to meet the highest energy efficiency standards would create many more thousands of jobs and would entail moving housing in Greater Manchester toward a more viable economy.
What can be done?
To the debate about the future of housing in Greater Manchester, Dr Silver’s report makes an important contribution. Recent media coverage on affordable housing, the council’s swift retaliation and subsequent withdrawal, and a recent motion by backbench Councillors to make viability assessments more transparent, all respond to the key messages in the report. So, what further specific actions can be taken for Greater Manchester to deliver a more viable economy?
The prior analysis points to some positive actions. Reigning in the lust for profit inherent to housing financialisation would involve holding financial actors accountable to affordable housing requirements and Section 106 obligations, making investment in the local community a prerequisite to future developments. Encouraging innovative ownership schemes and medium-rise redevelopments, spatially distributed across Greater Manchester, would diversify the housing market and improve its resilience. Demanding transparency about financial arrangements and social and ecological impacts of developments would honour the local government’s commitment to represent the interests of its constituents.
Still, these recommended actions entail a more proactive stance by the local government toward new developments. It is important to note that this certainly occurs within the constraints imposed by the national government and the concentrated power of international financial actors. Still, local government can be an agent of change. Proposing to retrofit the existing housing stock is an indication that these issues are at least being considered by Mayor Burnham.
Greater Manchester should utilise its clear appeal to set a new benchmark for housing developments in urban centres not only in the U.K., but across the globe. By acting as a facilitator toward a viable economy approach to housing, local government can reverse the detrimental trend toward further housing financialisation.
The upcoming release of the rewritten Greater Manchester Spatial Framework is an opportunity to articulate a new approach to housing development that places the interests of residents in Greater Manchester above financial actors. The Spatial Framework should articulate how mechanisms to decelerate housing financialisation in Greater Manchester will be implemented. But this is not a foregone conclusion and, at Steady State Manchester, our work in the coming months will focus on communicating a new vision for the spatial framework away from housing financialisation and more in line with a viable economy. This is an opportunity to position Greater Manchester at the forefront of innovative approaches to housing. Let’s not miss it.