The burgeoning literature on financialization, land value capture and urban development is often focused on transnational private sector actors, and has brought forward numerous detailed case studies of urban development in wealthier country contexts; interpretations veer between very wide-ranging generalizations on the circulation of capital, and detailed case studies of the politics of urban development.
Urban Transformations and UCL Geography host a Governing the Future City seminar with Ludovic Halbert (Université Paris-Est) and Tom Goodfellow (University of Sheffield), whose two papers intervene in the debates to build insights through comparative analysis across a wider variety of cases, including China, India, Africa, Chile, and attend to a diversity of actors, including states, smaller investors and emergent territorial networks.
Ludovic Halbert, Université Paris-Est, Latts
Beyond “yet-another case” of financialization of urban production: Financial infrastructures, comparative urbanism, and rent-based accumulation
This paper contributes to the debate on the financialization of the built environment, starting with reflections on the now well-honed Marxist framework which offers a general theory on the convergence between financial capital and landed property, two forms of “fictitious capital” that are constitutive of the real estate / finance nexus (Harvey 1985; Aalbers 2012). The paper suggests that the functionalist perspective inherent in this Marxist account, as well as the difficulties to operationalize it in fieldwork, may be overcome by developing an institutionalist perspective to explore financial infrastructures, i.e., the large-scale sociotechnical systems that circulate financial capital across space and give a specific texture to the money-form before it is transformed, here, into land/property capital. Such financial infrastructures are made of formal and informal rules and are devised, operated, and maintained through the mundane practices and cognitive categories deployed by the individuals and organizations that take part in them. They are always historically and geographically situated and thus fit well with the call for analyses seeking “particularizing theories” (Corpataux & Crevoisier, 2007), i.e., interpretations that do not look for a universal theory or general laws, but for realist and relativist explanations integrating a possibly wide-range of factors.
This analytical perspective on financial infrastructures opens a path for the academic community to engage in the now pressing task that consists in exploring land and property rent-based financialization processes in a global comparative urbanism perspective. It will benefit from the rich scholarship of the last fifteen years which offers both panoramic views that scan the forms and degrees of financialization within and between countries (Schwartz and Seabrooke 2008; Fernandez and Aalbers 2016), and from the grounded empirical material provided by an ever-growing collection of case studies analysing processes of financialization (and of “(non-)financialization” (Van Loon 2017)) of urban development in different national and city-regional settings. By mobilizing works developed by the research team, Latts, over the last ten years in different contexts (France, India, Mexico, Brazil, and Italy), as well as by a conversation with investigations in countries as varied as Chile, China, the US, Switzerland, or the UK, it becomes possible to follow the capital flows that are circulated through financial infrastructures by transcalar yet territorialized networks (Halbert and Rouanet 2014) and thus to put into comparison the different “particularizing theories” offered by these in-depth and empirically grounded works.
Far from any millenarian thinking, this will enable us to highlight how the current stage of capitalist accumulation through rent-based financialization is punctuated by three mutually reinforcing processes. The first one consists in a series of often decades-long political-economic transformations emerging into an unstable and potentially contested process of congruence. If many policies alter financial and land/property markets separately (facilitating respectively the expansion of financial markets and the treatment of land as a financial asset), they may combine and reinforce each other at times, either in an unplanned manner or as part of a more explicit policy project, and this all the more so where the multi-level state has converted itself to taking a financialized investor’s viewpoint, as well as drawing on their instruments and categories. Secondly, the forms taken by rent-based financialization, and their spatial, social, and political outcomes, are gradually framed by financialized conventions that are rooted in economic theory but also enacted within financial infrastructures thanks to historically and geographically situated professional practices, specific calculative devices, and associated cognitive environments. Thirdly, the paper will discuss how the texture of capital provided by financial infrastructures creates a window of opportunity and constraint for the individuals and organizations active in land and property markets. Although the latter may attempt to shape the financial infrastructures that provide capital to them, this time and place-bound window drives a series of sociotechnical mediations which unfold in more or less stable accumulation and regulation regimes associated with the pooling and channeling of financial capital into the (reproduction) of the built environment.
Tom Goodfellow, Urban Studies and Planning, University of Sheffield
Property and land value capture in the finance periphery
This talk explores the experience of efforts to raise government revenues through urban land and property in several African countries, drawing particularly on the experience of Rwanda and Ethiopia. In contrast to much of the world, these are places where financial infrastructures do not (yet) play a substantial direct role in shaping the built environment. Such places languish at the bottom of global indices for real estate investment opportunities, being labelled ‘low transparency’ and ‘opaque’. The fact that international financial investors are little involved, and that access to finance is highly constrained within these countries, creates opportunities for wealthy individual investors with resources to spare. Indeed, the opportunities for profit are such that although international financial actors see these settings as replete with risk, many domestic elites and diaspora see real estate as the ‘safest bet’ for investment. This leads to a channeling of capital into the ‘secondary circuit’, fueling the kinds of property booms associated with contemporary cities in the South that harbour burgeoning populations of international salaried personnel as well as a rich minority of nationals. Thus, rather than international institutional investors financing the properties that house the domestic population (as is happening in much of the rich world), we see more or less the opposite: domestic capital financing the properties that house a small and partly international elite.
This situation facilitates healthy profits for the few who are able to invest substantially in the real estate sector, and provides housing only for the rich. In a sense, this exacerbates inequality on two fronts simultaneously, while also drawing capital away from potentially more productive and job-creating sectors of the economy. Central to this whole problematic is the question of land value capture. Property development and the uplift in land values that accompanies it can be part of the solution to a range of urban problems from poor infrastructure to weak municipal government capacity – but only if some of that value is captured by the state. It is concerning that in some of the African countries where urban property booms have been most visible, land value capture has been virtually non-existent or deeply problematic. While Western donors have been pushing property tax reforms for years with little effect, more interesting to countries like Ethiopia has been the Chinese model of land-based finance. This can raise substantial revenues quite quickly, but is neither very socially progressive nor sustainable, as China is now discovering for itself. Potentially of greater value for African cities are lessons from the ‘tigers’ of North East Asia; but despite the enthusiasm for Singapore in countries like Rwanda, the ways in which those states instituted land value capture mechanisms (including recurrent property taxes) from an early stage has largely been overlooked. The resulting potential for untaxed profit makes investing in high-end, high return property even more appealing, and creates a vicious cycle in which a powerful class concerned to protect property rents is well positioned to resist any efforts to capture land and property values in a more robust way. The position of this class is bolstered, somewhat ironically, by the relative lack of financial penetration.