The financialisation of housing production: exploring capital flows and value extraction among major housebuilders in the UK

The financialisation of housing production: exploring capital flows and value extraction among major housebuilders in the UK

Q’ For Monica Chatgpt. Please Summarise this and the two related Articles? ( I had to feed the Titles , The Links and add a bit of prompting to get something like a coherent introduction) Take it away Monica.

In the first article, “The Financialisation of Housing Production: Exploring Capital Flows and Value Extraction Among Major Housebuilders in the UK,” the author examines the ways in which major housebuilders in the UK are utilizing financialization to extract value from housing production. The article explores the financial mechanisms used by these firms and how they prioritize profit over addressing the housing crisis.

In the second article, “Legal and General Modular Homes, Just Another Part of the Affordable Housing Crisis, Lip Service, Talking Shop,” the author focuses on Legal and General Modular Homes and their role in the affordable housing crisis. The article argues that despite their claims to address the crisis, Legal and General Modular Homes is not doing enough to make a meaningful impact.

Legal and General Modular Homes, Just another part of the; Affordable Housing Crisis, Lip Service, Talking Shop 


In the third article, “The Finance Insurance and Real Estate (FIRE) Burning Down the Free Market in Housing,” the author examines the role of finance, insurance, and real estate (FIRE) in the housing market and how it is contributing to the housing shortage in the UK. The article highlights the ways in which FIRE companies prioritize profits over addressing the needs of the market.

The Finance Insurance and Real Estate (FIRE) burning down the free market in Housing.#AbsorptionRate #Dividends #Sharebuybacks #TopPay #SalesIncentives #LandBanking.

Here are some of the main arguments made in each article:

  • In the first article, the author argues that major housebuilders in the UK are prioritizing profit over addressing the housing crisis, and are utilizing financialization to extract value from housing production.
  • In the second article, the author argues that Legal and General Modular Homes is not doing enough to address the affordable housing crisis, despite their claims to do so.
  • In the third article, the author argues that finance, insurance, and real estate companies are contributing to the housing shortage in the UK by prioritizing profits over addressing market needs.

The financialisation of housing production: exploring capital flows and value extraction among major housebuilders in the UK

processes connected with housing production in the UK have changed in the wake of the global financial crisis (GFC) of 2007/8

 growth has been constrained by various factors, such as land availability, capacity and planning directives.

analysis shows that this narrative fails to take account of a central issue in these trends—the scale and impact of profit making and value extraction from the UK housing system since 2007/8.

analysis reveals a sharp increase in the scale of value extraction from the sector since 2010

 examining recent trends in capital flows and value extraction. We tease out the implications for attempts to increase housing supply in the face of what the UK Government has itself described as a ‘broken’ housing market (MHCLG 2017).

Real estate, including housing, performs a dual purpose in many modern economies, as both a tradable asset within financial markets, and as a commodity for private consumption (Aalbers et al. 2020).

the broad but serviceable definition of financialisation provided by Manuel Aalbers, as the “increasing dominance of financial actors, markets, practices, measurements and narratives, transforming economies, firms (including financial institutions), states and households” (Aalbers 2017a,).

financialising processes arising from, for instance, the privatisation of building societies as providers of mortgage finance (Boddy 1989; Martin and Turner 2000), the securitisation of mortgage loans (Aalbers and Engelen 2015; Wainwright 2009), and the rise of subprime lending (Langley 2008; Immergluck 2010)

 issues such as the entry of private equity, hedge funds and Real Estate Investment Trusts (REITs) into the rental market (Fields and Uffer 2016; Waldron 2018). The rise of ‘for profit’ housing associations in the UK such as Sage (a subsidiary of Man Group) or Blackstone are also recent examples of what is likely to become a growing trend (Manzi and Morrison 2018),

some local authorities are replacing traditional social housing with new developments and new tenancies which enables such homes to become a liquid financial asset.

Piketty’s underlying thesis about modern economies where R > G, when R is the rate of return and G is the extent of capital growth or economic output, is of significance to studies of housing financialisation.

what happens to the money—through changing capital flows and imposing a higher priority on extracting value from the production process. This has implications for outputs—getting new houses built. As housing supply is a primary concern of public policy, in the UK

the role of housebuilders in the pursuit of financial gain at the expense of supply have focuses on their practices on land acquisition and speculation (Robertson 2017). ( Absorption Rate Letwin)gives a restricted view of the recent transformations in the UK housebuilding sector, by overlooking or marginalising the importance of flows of capital and value extraction.

Alice Romainville (2017). In her research, Romainville studied the granting of building permits in Brussels during the 2000s to show, inter alia, how the share of financial capital in housing production has increased, so that two-thirds of active developers had a connection to an economic sector other than real estate.

a ‘meso’-level of analysis (van der Zwan 2014), concerned with institutional behaviour (Jacobs and Manzi 2019) and the use of particular ‘technologies’ such as financial metrics and accounting (Froud et al. 2000), rather than with either global capital flows, at the macro-level, or the financialisation of everyday life, at the micro-level.

Level of analysis

Meso level In general, a meso-level analysis indicates a population size that falls between the micro and macro levels, such as a community or an organization. However, meso level may also refer to analyses that are specifically designed to reveal connections between micro and macro levels.

 In 1980, there were over 10,000 small and medium enterprise (SME) housebuilders active in Great Britain, building 57% of all new housing; by 2014, this had dropped to 3000 SME builders delivering just 27% of all new dwellings (Lyons 2014).

Welling’s (2006) examination of market shares in the sector showed that the biggest ten private housebuilders produced 28% of new national supply in 1980. By 2015, the biggest ten housebuilding firms were producing 47% all new homes (Archer and Cole 2016). The process of consolidation and merger among the major companies has not always led to an increase in production. The output of the merged firms has often fallen, compared to the combined output of those firms beforehand (Griffiths 2011).

The UK government has recognised the risks of over-reliance on the small number of large firms that exert a powerful influence on overall supply (MHCLG 2017). This prompted some initiatives intended to revive the ailing SME housebuilding sector (HM Government 2015; MHCLG 2016) to ‘rebalance’ the industry. This renewed focus on housing supply has therefore drawn attention to recent trends in housing output, especially among larger housebuilders.

 Output by the largest nine UK housebuilders fell from 70,000 in 2007 to 45,000 in 2010.

In the first phase, developers sought to restore some economic and fiscal balance following the shockwaves of GFC by facing down debt. Housebuilders claimed that they were adopting a more cautious and diligent approach to investment than before the GFC, when volume output had been the primary driver of business activity (Payne 2015). Most housebuilders found themselves highly geared as a result of pre-recession lending and so focused on generating cash to reinvest into their businesses—partly through rights issues and building out existing sites at better margins—rather making returns to shareholders

The investment phase was therefore characterised as a period when large housebuilders diligently used conventional business strategies to secure cash returns and secure higher margins, in order to recover their position

followed by the growth stage, where land acquired since the GFC was developed predominantly where it could deliver better margins and return on capital. It was also at this point that the government introduced the Help to Buy programme, providing equity loans to households so they could afford to access mortgage finance for new housing (National Audit Office 2019). The programme enabled builders to commit more confidently to construction programmes, reduce their reliance on inducements for purchasers, better predict future cash flows, and maximise land values to secure more development sites.

Housebuilders therefore drew on existing organisational routines and repertoires in their response to the GFC, with government support through Help to Buy providing a more secure economic environment for investment. Their strategies focused on achieving more efficient returns on capital rather than radically changing the volume of output.

This analysis, reproducing an account ‘from within’ about the nature of the housebuilder response to the GFC, makes little or no reference to major changes in financial performance and priorities. This elite narrative is directed towards internal institutional changes, capacity and policy constraints, such as the onerous planning regime, rather than the financial environment in which the companies operated.

To explore capital flows into and out of the UK’s housing supply system in detail, we examine in more detail one of the largest shareholders in UK’s major housebuilders, Norges Bank Investment Management (henceforth Norges). Our research focused on Norges as, at the time of study, they held shares in nearly all of the largest private housebuilders in the UK (eight out of the nine biggest firms).

The case study provides a more nuanced assessment of the complexity of capital flows into and out of the UK housing system.

6 Trends in supply, revenue and profit among the largest UK housebuilders

Previous research (Archer and Cole 20142016) has provided a close inspection of the financial accounts of the largest private housebuilders in the UK. This examines changes between 2008 and 2015 in profit levels, housing completions, changes in the geographical distribution of new housing and in the use of surpluses by the largest nine UK housebuilders. Clear patterns emerged in this work, suggesting that revenues, profits and dividends were expanding at a disproportionately faster rate than the output of new housing (Archer and Cole, 2016). For the purposes of this article, the analysis has been extended in terms of both the financial measures analysed and the time frame covered.

Figure 2 shows that between 2010 and 2017, the revenue and PBT of the nine largest housebuilders increased at a much more rapid annual rate than their housing completions. During this period, the output of new homes grew by 70 per cent, from 45,000 units in 2010 to 76,000 in 2017. But over the same period revenues increased by 178 per cent, while PBT rose by 703 per cent: from £600 m to £4.8bn. Increasing profitability was seen by some firms as the successful outcome of ‘prioritising margin over volume’ (Taylor Wimpey 2011, p. 1).

By 2017, these housebuilding firms were generating over 100% more profit than they were before the financial crash. This was more than a ‘recovery’; it was a feast after the fast, and one which had taken profitmaking among large UK housebuilders to historically unprecedented levels. While the level of profitmaking had doubled in this period, in terms of housing supply the largest housebuilders developed only 1600 more homes in 2017 compared to 2006, an increase of just two percent.

 the modest increases in output since 2010 mask a much greater transformation in the levels of profitability achieved. Larger housebuilders were not, according to these figures, struggling to maintain their margins—they were increasing them significantly over this period.

7 Profitability, Dividends and Value Extraction

 One measure, however, has continued to grow every year since the GFC; that is the ratio of PBT to housing completions. This is essentially a measure of return on investment and is a signal of how far major housebuilders have shifted their business strategy to more financialised models. In 2008, the ratio of profit to each new dwelling completed was £21,545—that is, for every house built £21,545 of profit before tax was derived. This ratio then slumped in 2009, in the midst of the GFC, but has increased consistently year on year. In 2017, for every unit developed £62,702 of PBT was created

(Table 1). This trend challenges the narrative of housebuilders that they have been slowly recovering before a return to growth, Table 1 reveals these increases in the ratio of PBT per unit between 2005 and 2017, showing how it nearly doubled over that period.

The above trends, in part, reflect the growth in end sale prices of the new homes built. In the perennial discussions about the causes of rising house prices in England, reference is made to a range of contributory supply and demand factors, but the increasing profit ‘take’ per new home is rarely included in these discussions. Figure 3 shows the average sale price of new homes built by the largest housebuilders between 2005 and 2017.

In 2005, new homes built by Barratt’s, for example, were 12% above the average national house price. After the GFC slump, price growth returned, so that by 2013 Barratt’s units were selling—on average—at a 14% higher price than the national average. By 2017, Barratt’s sales prices were 26% above the average UK house price. In absolute terms, new homes completed by Barratt’s were nearly £49 k more than the average price of a UK home in 2017. The increasing level of profitability per housing unit produced is therefore reflected in higher average sale prices of new homes.

On rare occasions, shareholders may kick back against extreme outcomes for incentivising company executives. One such occasion was the disclosure in December 2017 of the bonus payments made to senior executives at the housebuilders Persimmon, in which the Chief Executive, Jeff Fairburn, stood to gain around £120 million, the Finance Director £77 million and the Managing Director £38 million. Financial sector interests represented on the board were concerned that the scale of the pay deals, and the consequent press coverage, would wreak reputational damage. Euan Stirling, Head of Stewardship at the major investor Aberdeen Standard, which owned a 2.3% stake in Persimmon at the time, disapproved of the deal, saying that ‘regardless of any moral or societal duties, company directors have a legal responsibility to act in the best long-term interests of the company that employs them’ (The Independent 2018). The Persimmon deal was therefore presented as an anomaly or an outlier, the unacceptable face of finance capitalism, rather than just one end of a spectrum in the trend of rapidly inflating pay outs for senior executives across the housebuilding sector.

Trends in other forms of capital outflow reveal the growing influence of financial interests in UK housing production. Returns to shareholders through dividends have reached unprecedented levels in recent times, as shown in Fig. 4.

In the years leading up to 2009—depicted as a ‘risk taking’ boom by proponents of the institutional recovery narrative—dividends from the largest nine housebuilders had followed a fairly steady path, at below £400 million per year. This peaked in 2008 at the aggregate figure of £464 m. The figure for 2017, by contrast, stood at £1.8bn, dwarfing the levels of dividends paid in the years leading up to the GFC.

This marked growth in dividend payments has increased as a proportion of annual profits, not just in terms of absolute value. For the nine biggest housebuilders, dividend payments were running at approximately twenty per cent of year-end profits in 2005 and 2006, rising to just over thirty per cent in 2007. During the GFC dividends continued to be paid, but on year-end losses. As housebuilding firms returned to profitability this ratio increased sharply, rising from seven per cent of year-end profits in 2010 to 39% in 2015. This figure is higher than that for the pre-GFC ‘boom years’, and the percentage continued to move upwards. In 2017 dividends amounted to fully 50% of year-end profit (Fig. 5).

Using data provided by the Financial Times (2017), it was possible to identify the ten investors with the largest shareholdings in the UK’s biggest housebuilders. This analysis revealed that the largest investors held shares in multiple housebuilding firms. Indeed, three investment managers (Legal and General Investment Management, Norges Investment Management, Vanguard Group) were among in the largest shareholders in eight of the nine biggest housebuilders. Through this, these organisations can exert significant influence not just on one housebuilding firm and its financial decisions, but on the industry at large. They could assert their demand for maximising shareholder value in eight different board rooms, knowing what the ramifications of selling their shares would be for wider confidence in the firm and its stock price.

The global nature of financial interest in UK housebuilders is indicated by the fact that many of the largest shareholders were not UK investment managers. For instance, an estimated 71%\ of all shares in Taylor Wimpey were, at the time of data collection, held by investment managers based overseas. The surpluses created by housebuilders, and then paid out in dividends, are likely to flow well beyond UK shores, and potentially be reinvested outside of the UK’s housing market. This makes it challenging to assess the ultimate impact of such large-scale distribution of surpluses on domestic housing production. It also poses serious questions about the prospects for decisive intervention in these processes by any national government that is seeking to ramp up housing supply.

The nature of the relationship between UK housebuilders and their shareholders, and the implications of this for capital flows, can perhaps be understood better by focusing not on the housebuilding firm, but on individual shareholders. As we have noted, shareholder influence is largely absent from the ‘institutional recovery’ narrative provided by executives in their accounts of post-GFC corporate performance, but it is a key factor in the system of housing production overall.

 Capital inflows—investments by Norges to support UK housebuilding

The organisation acquired nearly £33 million of UK government bonds in PRS Finance PLC, which has the aim of increasing ‘the supply of new, purpose built and professionally managed private rented sector homes’.


3 In addition to this, Norges made one equity investment which might be classed as providing new capital for housebuilding. Norges purchased approximately £12.5 million worth of new shares in McCarthy and Stone, a large builder


4 specialising in retirement housing. These shares—purchased as part of an Initial Public Offering—would, it was hoped, “provide flexibility for further investment in land and building” (McCarthy and Stone 2015, p.13).

 Capital outflows—capital extracted by Norges from UK housebuilding

the £45 m of new capital offered by Norges to support housing production was therefore eclipsed by the capital flows back to them from dividends and share price gains, which total £158 m. The market value of Norges’ shares in UK housebuilders in December 2015 was £664 m. By 2017 this had increased to £863 m (Norges 2017).

Some of the largest shareholders in UK housebuilders are extracting much more capital out of housing production than they are putting back into it. Ownership of shares in housebuilding companies provides a means for these institutions to shape strategies over the distribution of surpluses and to undertake activities which increase the underlying share price. Reinvestment in productive activity is given less priority. This analysis also reveals a perverse circularity in the relationship between these financial interests and the government. The government raises finance from firms such as Norges—through government bonds which have the aim of increasing investment in affordable housing. At the same time, Norges and other investors pursue increased returns on equity investments in housebuilding firms arising from increasing profit margins and average sales prices, which exacerbate rather than mitigate affordability problems.

Legal and General (Investment Management) receives significant returns from shareholdings in eight of the biggest UK housebuilders, but the Legal and General group also contains subsidiaries which are competitor housebuilders,


5 as the organisation makes investments in facilities for modular construction of housing


6 and partnerships to build and rent for specific markets. However, only a few shareholders in the UK have so far gone down the route of direct housing provision, and there are examples of such a shift taking place elsewhere in Europe (Wijburg et al. 2018). Overall, tracing capital flows prompts questions about the wider picture of leakage from the UK housing market, and the case of Norges exemplifies how the financing of private housebuilding is more about creating shareholder value than increasing housing supply. Any downstream economic benefits emanating from increased dividends are likely to be very diffuse, at best.

The financial performance of major housebuilders indicates how shareholder value has become more prominent in dictating how firms ought to be run, for short-term returns rather than for longer-term output growth—that is, building homes. As Mazzucato has suggested:

far from being a lodestar of corporate management, maximising shareholder value turned into a catalyst for a set of mutually reinforcing trends which played up short-termism while downplaying the long-term view and a broader interpretation of whom the corporation should benefit. (Mazzucato 2018, pp. 166–7).

executives are incentivised to deliver capital growth and higher dividends ahead of other objectives, such as productivity gains or increased output (Froud et al. 2006; Roberts et al. 2006). As a result, firms come under increasing pressure to boost capital flows to the financial sector through interest payments, dividend payouts and share buy-backs (Lazonick and O’Sullivan 2000; Lazonick 2014). Long-term investment, organisational development and product innovation take second place to short-term profit, outsourcing and share prices (Aalbers 2017a). Whilst not the focus of this paper, these processes may have been assisted by the consolidation in the industry noted in section three. As the largest housebuilders have taken more market share, and mergers have tended to result in a net reduction in output, one might question if the move towards an oligopolistic model (Griffiths 2011) facilitates the financialisation process. As noted, nearly all the major shareholders in the biggest housebuilders have shares in several of those housebuilding firms. And given that these firms are responsible for such a significant proportion of national supply, the role of shareholders in shaping new housing production has perhaps never been greater.

The public narrative emphasises how, at a time of austerity in public finances, investors are stepping in to provide much needed access to capital to get more houses built. In practice, it is a two-way process: the housebuilding sector helps to sustain and enrich financial organisations by proving a conduit for excess capital.

Since the GFC, corporate finance has alighted on UK housebuilding companies, having depleted other possibilities as avenues for investment. It remains to be seen what we happen in the post-pandemic economy, and whether similar trends will emerge as happened after the GFC. The analysis in this paper suggests one should not assume that any stimulus to assist larger housebuilders—to remedy the foreseen fall in housing output as a result of the pandemic—will produce anything like the outcomes envisaged or hoped for by governments.

The Finance Insurance and Real Estate (FIRE) burning down the free market in Housing.#AbsorptionRate #Dividends #Sharebuybacks #TopPay #SalesIncentives #LandBanking.

The financialization of rented homes: continuity and change in housing financialization

Gregory W. Fuller 

Another good definition specifically intended for this purpose comes from the UN Human Rights Council (2017, 3) which defines housing financialization as:

[S]tructural changes in housing and financial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth, and often as security for financial instruments that are traded and sold on global markets. It refers to the way capital investment in housing increasingly disconnects housing from its social function of providing a place to live in security and dignity.

2 Rental housing financialization

The first generation of housing financialization research focused extensively on mortgage markets and homeownership, as it was these assets that were integrated into increasingly globalized financial markets at the end of the twentieth century. It was not until the 1990s — accelerating through the first two decades of the twenty-first — that residential rental properties were subjected to the same process.

Despite their obscurity, REITs and REOCs were well-positioned after the financial crisis of the late 2000s — and again during the Covid-related downturns (Morwa 2020; Strauss 2020; Corcoran 2020) — to expand into residential markets. While listed real estate firms do earn income by selling their properties (as was the case with financialization 1.0 firms), this is not their chief goal. Rather, REITs and REOCs market themselves as providing sources of income insulated from the business cycle in the form of rents. Their investor presentation materials emphasize high occupancy, reliable tenants, quality locations, and low turnover of properties — essentially promising reliable returns even during bursting housing bubbles or international slowdowns in economic performance. If hedge funds went into MFR real estate engaged in the risky business of what Keynes called “speculation” (i.e., seeking capital gains by guessing where the market would go next), REITs and REOCs are engaged more in the more sober business of “enterprise” (i.e., seeking income-like returns on a longer-term investment). This, not incidentally, makes REITs and REOC shares look far more attractive to the glut of global savers driving Caballero et al.’s “safe assets shortage.”

Freed from the pressure to predict where capital gains will be highest, REITs and REOCs focus on achieving profitability through longer-term cost-cutting and revenue maximization. Cost reductions are typically achieved through economies of scale, with large regionally focused landlords able to use their size to reduce maintenance and upkeep expenses (though simple disregard for maintenance and upkeep have also been evident in cases). There are a number of different strategies in use to raise revenue, from divesting older properties and using the proceeds to develop or purchase newer higher-return properties, to aggressively raising rent in deregulated rental markets, to making property upgrades that can be used to justify rent increases even under controls.

Looking at residential REITs and listed residential REOCs together, their expansion has been a product of the post-financial crisis era. As noted previously, this was partly due to the crisis itself: private equity firms and hedge funds wanted to exit the market entirely as distressed homeowners sold property or were foreclosed upon and the prospect of capital gains dimmed. Both REITs and REOCs often stepped in as buyers of these properties. Funds continually merged and absorbed one another, leading to a bewildering array of rebranding exercises — as with the case of Vonovia. Indeed, reading even very recent academic articles about these entities often involves sleuth work to determine which names had been changed and who now owns whom.

Instead, the most substantial residential REITs located in the UK are far more niche. Some have invested predominantly in housing for retirees (KCR Residential and Residential Secure Income), others in university housing (GCP Student, Empiric Student Properties, the Unite Group), and two substantial REITs have focused on housing for disabled people with substantial need for living assistance (Civitas Social Housing and Triple Point Social Housing). Retirement and student homes are seen as less exposed to normal business cycle fluctuations and — especially in the case of student housing — benefit from localized monopolies in supply-constrained areas like central London. The two social housing REITs are among the most aggressive in marketing the ethics of their business models. This specific class of housing is exempted from wider rent controls in social housing because developing and maintaining them is particularly capital-intensive. Moreover, these REITs generally do not let directly to social housing tenants; rather, they partner with local government or private healthcare providers who then provide the housing to residents, limiting exposure to market fluctuations.

4.2 Change

There are also at least three substantive differences that emerge when focusing specifically on rental housing financialization: (1) whereas the financialization of homeownership has radically altered demand for housing, there is some reason to expect the financialization of rented homes to alter supply; (2) the transparency of listed instruments like REITs and REOC shares is far higher than the transparency of instruments more associated with owned homes, particularly MBSs and CDOs; (3) financialization alters a tenant’s relationship with their home less than it affects the owner’s relationships with their property. These three differences make the strongest case for the utility of different conceptualizations of how financialization affects the home.

There is some reason to expect that rental financialization can expand the supply of housing, potentially easing housing crises. This cannot be said about the financialization of owned homes — and points at one area where the broad promise of financialization may have some genuine appeal from a progressive standpoint. With mortgage-lending, the participation of financial firms in the markets acts to boost demand for housing: people who do not possess sufficient funds to buy a home outright (i.e., most people) can now borrow funds from a third party, requiring them to only raise a small percentage of a home’s purchase price. This pushes housing prices up as more buyers are brought into the market via increased financial access. There may be some eventual growth in housing supply as builders recognize the greater profits on offer — but it is not directly incentivized and might be opposed by existing homeowners.

The incentives work out very differently for financialized landlords, who want to maximize their number of units and tenants — especially if those properties are geographically clustered — to benefit from economies of scale. This means that while financialized landlords will clearly be looking for ways to increase per-unit rent (i.e., raising prices), they are also incentivized to create more units in the first place — necessarily mitigating some upward pressure on prices. However, the incentive to boost housing supply only operates in markets that offer strong returns. This contributes to the worry mentioned earlier: that purchases by listed real estate firms directly contribute to gentrification, pushing lower-income tenants out of areas targeted for development even as the local housing supply rises. This is reflected in how many listed real estate firms focus on what is sometimes called “workforce” housing — that is, housing that serves people earning between 80 and 120% of the local median income. While described as “affordable,” such housing is not affordable to large sections of the workforce, leading to some controversy over the use of the term (Ford and Schuetz 2019).

A second major difference between the financialization of owned versus rented homes is that listed rental real estate is a leap forward for transparency. The key difference is in the availability of information about the physical properties underlying the financial product: it is far easier to see the actual building you are purchasing a claim to when buying a share of a REIT or REOC than it is when purchasing an MBS or CDO. Indeed, obtaining information about the underlying properties at the heart of a securitized mortgage before the global financial crisis was so difficult that there is a bestselling book — and movie — entirely about the few (very wealthy) people that managed to do it (Lewis 2011). This was, of course, one of the most remarked-upon aspects of the housing bubble and subsequent collapse: so much so that financial literacy and improved disclosure rules have become near-universal policy responses to the broader rise of financialization.

5 Conclusion

On a practical level, what then does the existence of rental housing financialization imply for housing shortages, prices, and volatility?

The impact on the market for sold homes is likely to be minimal in the short term. Most rental financialization is oriented toward larger housing blocks rather than single-family units. Conversely, mortgage-driven financialization of homeownership is more concentrated in single-family units. The limited substitutability between a rented apartment and a purchased detached or semi-detached home insulates these markets from each other to a certain degree. However, over longer time horizons, it is reasonable to expect that housing shortages (or shortages of housing at affordable prices) may fuel more demand for rental property. Conversely, it is plausible that rapid growth in the availability of quality rented homes may have a depressing effect on prices for purchased homes.

However, rental housing financialization should have a major impact on the distribution of rental housing availability — especially in those dynamic local economies targeted by REITs and REOCs. Given their investment strategies, listed real estate appears certain to boost the supply and quality of housing intended for relatively well-educated workers earning around the median income. For this slice of the workforce, the effect of rental financialization may well be increased availability and affordability of quality urban housing.

There may be fruitful connections here to Thomas Piketty’s (2020Capital and Ideology in that we can identify beneficiaries of REIT-and-REOC-driven housing provision within multiple elite groups. As we have established, these funds prefer to provide for asset-poor but education-rich urban professionals, especially in their younger years. Furthermore, asset-rich elites also benefit from the integration of a new class of assets into mainstream financial markets, while limiting any downside that might come with increasing the supply of single-family properties. From an elite perspective, this may be close to a rare win–win in housing policy.

For renters who lack both human and physical capital, there is far less cause for optimism. Not only are many of these people too asset-poor to climb the housing ladder, they are too precarious as workers to appealing as tenants to REITs and REOCs. Worse, the expansion of higher-quality urban housing often results in the removal of existing property serving these poorer communities. In short, absent major efforts to orient listed real estate toward social ends — for instance, through public co-financing — there is more than a little cause to assess these financial structures as further exacerbating the divide between insiders and outsiders to the knowledge- and asset-driven globalized urban economy.

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MARCH 22, 2023 #GoingDirect to GFC Mk2 Reservations per outlet, Sales Incentives , Mortgage Commitments. Mexican Standoff between Sellers and Buyers ( Sticky Prices on the way down.)

#GoingDirect to GFC Mk2 Reservations per outlet, Sales Incentives , Mortgage Commitments. Mexican Standoff between Sellers and Buyers ( Sticky Prices on the way down.)

JUNE 5, 2022 Problems with the Money System & the Y2K bug that pulled up the Property Ladder. #QED

Problems with the Money System & the Y2K bug that pulled up the Property Ladder. #QED



Author: rogerglewis

Real Estate Entrepreneur.

1 thought on “The financialisation of housing production: exploring capital flows and value extraction among major housebuilders in the UK

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