ANUOLUWAPO ODUWOLE READING REPORT 1 100828946 HUMR 3001 ST 1 FEB.

2013

THE CONCEPT OF HOUSING INVESTMENTS AS A CONTRIBUTOR TO ECONOMIC CRISIS In this report, I will talk on the argument that built environment especially housing investments plays an essential role in the capitalist crisis as evident in historical occurrence such as the U.S 2007-10 housing bubble crisis but it is largely ignored by both mainstream and radical political economists. I will look at why contemporary economic thinkers and Marxist political economy continue to turn a blind eye to the historical crisis and the implication of this to the society. In his book, Harvey examines recent economic crises across the world, with a particular emphasis on the U.S. and China, and notices that real estate played a critical role in virtually all of them, even crises such as the "Savings and Loan" crisis which is not usually considered in this fashion. Harvey argues that this is because when capital accumulation becomes frustrated, and as a Marxist he assumes that profit rates inevitably results in a downward momentum, that finance attempts to take advantage of the monopoly character of space by continually reselling built environments at ever-higher prices. Eventually though, the system becomes fictional debt-based and this results in the ravaging of the entire economy. Harvey explains that the enormous housing bubble of the early 2000s isnt comparable to any national or international housing cycle in history and there are several signs it is about to be repeated (p.27). He argues that conventional economic routinely treats investments in the built environment in general and in the housing in particular along with urbanization as some side-bar to the more important affairs that goes in some unseen or fictional entity called the national economy (p.28). They make it seem as if the spatial reorganisation, regional development and the building of cities is merely some low outcome contributor to the larger scale processes that remain unaffected by what they produce.

That is why he argues, in the 2009 World Bank development report which took economic, geography and urban development seriously for the first time the authors ignored the consequences that could come about to the economy as a whole as a result of the housing investments (p.28). The major creator of housing investment is urbanization. This because housing investment is very common to urbanization as it is a major means of capital accumulation. Urbanization has been a key means for absorption of capital and labour surplus throughout capitalisms history. Harvey explains that it has a very particular function in the dynamics of capital accumulation because of its long working periods, turnover times and the long lifetimes of most investments in the built environment. It also has a geographical specificity such that the production of space and of spatial monopolies becomes a part of the process of accumulation, not simply because of the nature of the created and produced spaces but also because of the very nature of the created and produced spaces and places over which these movements occurs. IMPLICATION OF IGNORING HISTORY OF HOUSING INVESTMENT Clearly property market booms and busts are intertwined with speculative financial flows of capitalism and these booms and busts have serious consequences for the macro economy in general as well as all manner of external effects on resources depletion and environment degradation. Firstly, lack of focus on the effects of housing investment crashes leads to a view that land as a commodity is not something that is physically relevant. As Harvey argues it becomes a fictional form of capital that produces expectations of future rents only. Because of this view, the catastrophic effects of housing investments on class disparities and underprivileged populations

will continue to be ignored and the higher-value land uses only will be focused on. It will allow unjust neoliberal urban policies such as the believe that redistribution of wealth to the less advantaged regions of the society is futile and instead wealth should be channelled to the entrepreneurial growth poles and that the capital or profits it produces will solve all the regional, spatial and urban problems and inequalities to become engrained in our society. It allows speculative capital to be favoured over people. As Harvey argues, it fosters the belief that the city can do well while its people and environment do badly and this is never examined. All this contributes to the root cause of economic crisis. An example is seen in the case of chinas urbanization which leads to the implementation of capitalist policies such as individual finances which have contributed to the burgeoning social inequalities and the environmental degradation along with signs of overextension and overvaluations of assets in the built environments of China (p.58-9). This could easily become a problem of capitalist development as was the case in the U.S housing bubble of 2007-10. Secondly, another implication of ignoring the influence of housing investments in economic crisis is the development of the idea that urbanization, which comes with building, is the solution to our great crises. This is wildly nave. After some time revenue streaming from assets such as land, property, etc. becomes spent and market for it becomes non-existent and contributes a huge problem (p. 41). Rapid urbanization is a symptom of systemic problems, not a solution. Our global trade regime is driving the enclosure and destruction of our remaining commons and ruining local agricultural markets, making it impossible for rural populations to survive. Cities hold great promise, but they are not yet the engines of transformations we need them to be. We need new ideas. A major example of the repeat of the U.S crisis is seen in the case of china who has implemented the general privatization of housing (p. 64). The prices of

housing have increased substantially since this policy was put into place. The aim was to reduce the social inequalities that have arisen over the last two decades across china but its downside is that it accelerates the dispossession of land from the rural uses and pushes peasants populations into a forced urbanization. The missing fact is a profound but ignored truth: The commons is the goose that lays the golden eggs. Without the commons, there is no market or future. If every resource is commoditized, if every square inch of real estate is subjected to speculative forces, if every calorie of every urbanite is used to simply meet bread and board, then we seal off the future. Without commons, theres no room for people to maneuver, theres no space for change, and no space for life. The future is literally born out of commons Lastly, lack of focus on the built environment as a major contributor to economics crisis creates opportunities for corruption to grow. The housing investment becomes an autonomous center of ever-growing affluences, influences and power which eventually corrupt those in power from congress to agencies to academic economists who produced reams of research to show that their activities were very low-risk. In our world today as seen the case of china Harvey argues the absorption of surplus liquidity and over accumulated capital in urbanization at a time when profitable opportunities are otherwise hard to come by has certainly sustained capital accumulation not only in china but around must of the rest of the globe over the last few crisis years (p.65). To ensure that this is properly achieved, many branches of government often become involved in the process and in the process become corrupted by capital. Another example is seen in the case of china. In addition to the rise in house pricing and dispossession of lower class population in china, corruptions have increased. A shadow-banking system has emerged that is strongly connected to land and property investments and is hard to monitor and

control and comprises new investment vehicles (p.64). But it should not be beyond the power of political movements of the left at the local, national, even international levels to discipline these aspects of the state apparatus to emancipatory public purposes. CONCLUSION Even though this historical anecdote is relevant today, considering the damage done by a speculative housing market run amok, we never hear about it. Mainstream discourse about cities is dominated by free-market; pro-growth ideas that have continued unabated even after the flaws of capitalism were made glaringly obvious by the 2008 financial meltdown. The economists of the world carry on with their growth-talk as if the crisis never happened (and global warming doesnt exist). If one believes the future will be made in cities, then this trading in failed ideas doesnt bode well for the future. The problem is that these operations operate in a context where the capitalist law of value remains dominant such that producers are subject to the laws of competition that eventually forces such independent efforts towards autonomous forms of organization to behave like capitalist enterprises. This is why it is so important to eventually think and act in such a way as to challenge the dominance of the capitalist priority of value. We also need to focus on the issue of housing investments as a root cause of economic crisis and examine how it comes about, how to avoid it and the possible solutions if the effects cannot be avoided. If this is not done then the people, environment and economy will continue to suffer because people in power do not want to face the inconvenient truth of housing investments.