Public Comment

Gentrification and the Corporate Structure

Steve Martinot
Tuesday July 07, 2015 - 11:15:00 AM

The issue of affordable housing in Berkeley (and elsewhere) has become a battlefield, one that will affect all neighborhoods in Berkeley. Because the need is great, and housing is a human right (by international standards), many social movements, local and citywide, have arisen to get that need fulfilled. But if housing is a human right, why are political movements needed to obtain that right? After all, doesn’t capitalism function best (and profit most) by producing for extant social needs? Why is there a battlefield? Because indeed diametric interests confront each other – humans needing housing we can afford, and corporations whose needs are for economic control over markets. 

Underneath this confrontation, serious political purposes lurk. Various government concerns – ABAG, the Plan Bay Area, and the financialization of the region – are in operation. ABAG’s purpose is to reverse the “white flight” to the suburbs that occurred during the the 60s and 70s. At that time, massive social movements targetted “Jim Crow,” and fought to enable people of color to become full members of US society. Though racial discrimination was never fully abolished (it persists in education and housing), the economy changed. Industry “ran away,” technology turned into technocracy, and a financial economy independent of production became a more facile source of profit, supplanting productive capital while controlling its destiny from its heights. 

The heirs of those who fled are the suburban technocrats, professionals, and executives of the area’s three major industries: financiers, IT technicians, transportation managers and their underlying bureaucracies. Today they spend time in traffic jams that clog their lives and their ability to work. So ABAG seeks to bring them closer to their desks, and gilds this project with ecological tinsel, saying that city densification will curtail expressway traffic, and preserve the countryside by curtail urban sprawl. To facilitate this, massive construction of high income apartments and condos is required. And planned. It is a restructuring of the area to facilitate its role as a major capitol city for the Pacific Rim Economy. 

That the Plan’s focus is on the very well-to-do is evinced by the absence of necessary infrastructure – enhanced public transportation, social services to enable low income people to deal with inflation, and affordable housing. Instead, funding of services is cut, and mitigations are enhanced that enable developers to avoid including affordable units. In other words, communities and life styles will be sacrificed to the wealthy, and moved out to the suburbs to replace the former commuters. 

Many white people think they can weather this storm as people of color leave because they live in the development industry’s target areas. Berkeley’s black community is now a third of what it was a decade ago. Many people of color wonder how it is that a version of the old time colonialism has resurfaced, without everyone noticing, and why they and working class whites are the one’s who must move out of town. It is a corporate process, but with a racialized dimension. 

The corporate picture

The fundamental operations of corporate developers  

Developers are corporate businesses. They operate on the basis of profit. A developer (corporation) will buy land or real estate where prices are lowest, so that when it sells the building and real estate to the next owner (and some of these buildings go through three or four owners before construction is even finished), its profit will be maximized. Working class neighborhoods generally have lower valued real estate, which is why workers find they can afford to live there. When real estate values go up, or rent levels rise – perhaps because the area is targetted for development – low income people find themselves forced to find other low priced areas. This is especially true for black and brown communities, where real estate values have been keep low by redlining and segregation (banks restricting loans to black and brown people, charging higher mortgage rates, restricting employment, discriminatory hiring and union membership, low funding for education, etc.). Without access to credit, property owners have trouble renovating or improving their properties. Without access to advanced employment opportunities, communities suffer forms of cultural famine. The purpose of segregation may or may not have been to provide for land profitability, but it now provides the opportunity for high development profit. 

Oddly enough, the Plan Bay Area broadcasts where the development areas are going to be (Priority Development Areas or PDAs). And Berkeley has actually published a list of properties that will be the targets of development in each of its four PDAs. That means that developers will face increased property values, as the property owners raise their asking prices in dealing with them. Three effects of this are foreseeable. (1) It will neutralize opposition to development among property owners. (2) It will set them against the social movements that demand affordable housing and political input into the process. (3) It will induce new buildings to be aimed at higher income use. 

The corporate origins of gentrification  

Yet this doesn’t explain the conflict between corporations and affordable housing. Why do they find it unprofitable? It is not just inflation, raising the cost of materials and labor. And it does not stem from the difficulties low income families have in getting rent subsidies. It has to do with the corporate structure itself. 

Affordable housing is housing whose rents or mortgage payments relate to the residents’ income, rather than to the value of the property or the real estate markets. "Affordable" is defined as no greater than 30% of a family’s income (specifically for those earning less than the area’s median income ($90,000 a year for this area). 

Because the affordability of housing is controlled and regulated by political means – namely, land use permits, construction permits, rent control laws, and federal grant conditions – it is more difficult to recapitalize the building. When, in the course of construction, a developer to find itself out of funds, it will seek to sell the partially constructed building. This happened roughly three times for one building on San Pablo Ave. Each time it is sold, profit is made on the initial capital outlay, even though the process of construction may have been operating at a loss, because the actual construction process, the debt structure that finances it, and the investment holdings that manage the finances are divided among different corporate entities (from constrators to holding companies). The debt structure can be reconfigured by recapitalizing the assets (stock, land, etc.), limiting losses to lower levels of operation, with profit made through recapitalization and sale at the higher levels. 

Thus, for a developer, the nature of the building is immaterial; what counts is the ability to recapitalize, and the stability of its securities on the securities markets. Since short term debt is acquired using capital assets (usually stock) as collateral, any drop in its stock price will diminish the value of that collateral, and require supplementation, which could easily threatens financial crisis. If cash must be used, the borrower can easily run out of funds, and be unable to meet its wage bill (for instance). 

So the corporation must operate to keep its securities attractive on the securities markets (demand maintains price levels). And the need to deal with political regulation mars that attractiveness. Capital will flee that developer’s securities. 

Capitalism may operate to meet human demands, but corporations operate to meet financial demands. They do so by creating securities demand, to the detriment of human demands. For this reason, developer-financed buildings must cater to an upper income class of people, and engage in larger projects which move greater amounts of money, producing higher earnings within the financial domain. In short, the financial survival of development corporations depends on an expanded level of gentrification, to which affordable housing and community character are sacrificed. The drive for gentrification is systemic, peculiar to the corporate structure. 

The racialized picture

The racialized dimension to this has already been suggested. It has been evident in the continual relocations of people of color – from SF to Oakland and Berkeley, now out of Oakland and Berkeley to El Sobrante or San Leandro, etc. Rents go up, services are cut, destitution and crime increase, and people move out. Speculators move in, buy up buildings and sell them to developers at a profit. In other words, the presence of more homeless people, who are precisely the ones who need housing most, become the means of clearing an area in order to build housing for richer people, who don’t need it so badly. 

Sadly, many white working class communities ignore the logic of this process. Those who feel that race is the real problem welcome the processes that induce that relocation. Later, they will be unable to resist when the same process is turned on themselves. 

Racialization is a vestigial product of colonialism, invented as a way of ruling conquered peoples and justifying settlements. It persists as white supremacist hegemony (the power of white people to have far-reaching social impact on people of color, which people of color do not have) and a complex social hierarchy. The terrible massacre that just occurred in South Carolina is only a direct expression of this sense of hegemony. The history of racialization begins with slavery (a form of prison labor), continues through Jim Crow with its chain gangs, plantation contract labor and rural debt servitude, and now takes the form of the largest prison system in the world, fed by racial profiling and persisting segregation in education and housing. It produces neighborhoods on which corporate development can opportune. 

Direct Democracy vs. Representationism  

Corporate need is incommensurable with social need. It is a conflict between human concerns and financial interest. What benefits one becomes a detriment for the other. They confront each other in ghostly battle. Yet housing remains a human right. To withhold it by whatever means (economic or political) is to violate human rights. 

Corporate interest may proclaim itself to be the public interest; it rarely looks that way to the people displaced. When it appears in the form of gentrification, those displaced are thrown into the silence of distance. No nice-sounding platitudes will bridge the gap. One side pays for land and buildings; the other side organizes social resistance. One side monopolizes the flow of information; the other side depends on word of mouth, discourse and meetings. One side buys politicians in the present; the other can only vote for or against them in the future. 

The political decisions that foster gentrification are made by agencies like ABAG or city planning departments that also dispense with major human concerns. Cuts in social funding, racial profiling, and the substitution of comments in hearings for participation are all methods by which a city government clears the land for corporate development. 

Finally, there is a continual demonization of social movements for "opposing" development. However, it is not development these neighborhood movements oppose, but elite settlement that will devastate their communities. They are demanding development at a human level. The job is to transform political acquiescence to elite development into a social process for affordable development. 

The problem for communities is how to gain democratic participation in planning, and not be simply restricted to “public comment,” as if that were input. It is how to create conduits by which to implement local collective decisions. If we are to rescue our city from the corporate jaws preparing to consume it, the democratization of development is a necessary place to start. That doesn’t mean electing other representatives, but locating the power to decide locally in the neighborhoods. 

Today, we elect representatives who represent nothing and talk politics elsewhere. Democracy would mean people talking politics, making decisions, and electing representatives to represent those decisions. Development will be democratized when local neighborhoods have the ability to make development decisions in dialogue with developers, before the developers go to get their permits.