Public Comment

The basic problem:

At present, the city of Berkeley is playing with the idea of removing all single-family zoning (R1 & R2), and opening those areas to more densifying (up to four-plex) development. One reason is a complicity of single family zoning with redlining and housing segregation. Also, “four-plex” is not required to consider including affordable units.

Because of the way the housing economy has been financialized, any development or reorganization (“build build build” or “up-zone single-family areas,” et al) that does not directly meet the needs for affordability of working people and low income communities makes the situation (aka the “housing crisis”) worse. “Worse” means that the rich (corporations) become even freer to do what they want with our world, and the options of low-income families become more restricted and impoverishing.

Here is an outline, and partial explanation, for why this is the case. 

Some historical mileposts in housing financialization  

During the crisis of 2008, many of the larger banks and financial houses, like Deutscher, BofA, Goldman Sachs, had accumulated foreclosed houses. Some banks made the decision to leave those houses off the market, unreconditioned and unrented. Millions of houses just sat around, rotting. 

After the crisis of 2008, real estate corporations found themselves able to buy huge numbers of real estate holdings in foreclosure auctions. From somewhere, various Limited Liability Companies (LLCs) appeared with loads of cash, and created enormous pools of real estate (REO Homes LLC, Community Fund LLC, REIT, etc.). 

In 2011, some financiers (quoted in the PUSH film) decided that they needed a resource to plunder. They turned to single family houses for that purpose. Housing became a resource to be mined, like copper or aluminum, and passed on to lower corporate forms. These financial firms became like mining companies. extracting mineral resources from the ground. 

Financial capital then combined the pools of real estate compiled by the LLCs with monetary funds (e.g. pension), and turned the whole thing into something represented by securities that could be sold and on which to speculate. Real estate ceased being a commodity for these corporations and became corporate assets. That had been the same process that led to the 2008 crisis, with its invention of mortgage-backed securities, and the subprime mortgage boondoggle. The financial corporations were now playing with “housing-backed securities.” 

Ten years ago in the BayArea, some people claimed that the housing crisis was a “shortage of housing.” Build housing, they said. But the Berkeley population was roughly the same as it had been in 1980 (around 115,000). Nevertheless, market rate housing was built–around 1100 units. Now, ten years later, we face the same “affordable housing crisis,” except that now, there is a glut of market rate housing. More developments will mean nothing for the people who need affordable housing. But it will be very enriching for the financialization process.  

The concept of “affordable housing” is defined as housing for which a family expends no more that 30% of its income. That means that housing is related to people rather than markets. That is what “human” means in “human rights.” 

The current stratification of financial interests 

With respect to the growing pools of real estate assets, local LLCs continue attempting to make a profit on their houses (through rentals or sales of refurbished units). Larger real estate corporations would buyu membership in these LLCs, as investors, and take control, transforming the LLCs into assets for themselves. Those real estate corporations in turn became sources of financial value for the still larger housing-financialization corporations (Blackstone, Carlyle, Clayton, TPG, Public Storage, and others). The securities issued by these financialization corporations then represented the increase in value of the entire financial structure that had been imposed on housing. Those at the top do not care what happens at the ground, where we live. Whether we find housing or not, or whether people get evicted or not, is immaterial for them. Their "real" interests lie in trading housing securities. 

Those securities become a source of speculative profit for securities investors (who are mainly corporations, not people). Many are attracted to those securities because prices will go up as assets increase (through construction, housing development, increased land values, urban densification, rent increases, and house commodity speculation). Whatever increases the value of those assets (houses, land, LLCs) makes money for those trading in real estate corporation securities. That means that pressure is put on housing itself, and housing management, to do nothing that would reduce value increases (like building affordable housing, or doing major but unseen maintenance). 

In addition, companies and corporations can borrow money from banks on the basis of their asset value. The greater their assets, the more they can borrow. Borrowed money gives them leverage in investment and other dealings. Corporations will do whatever they must to keep their securities prices up, in order to support their debt structure. 

Today, as a result, this "industry" has become really big. Blackstone owns more than 300,000 buildings around the world. REO Homes LLC owns hundreds of houses in West Oakland. The major real estate financialization corporations now control somewhere around $217 trillion in real estate value, which is about four times the size of the whole world’s Gross Domestic Product (GDP). 

This gives you a hint about the relation between the productive economy (GDP) and the financial economy. 

Consequences and Contingencies 

When houses and buildings are left empty: -- three things happen. 

1- Insofar as a building is one of hundreds commonly owned as assets by a single company, to leave it vacant means that rent can go up on other units in response to lower supply (the vacant building). As rent levels rise, the corporation’s asset value goes up. 

A solution: limit the number of houses one company can own to a small number. 

2- The asset value of the larger “housing financialization corporations” (the top level of the financialization pyramid) increases with the increase in asset value of the lower real estate corporations (of which the top corporations own a share). Each increase in asset value generally pushes securities value up. 

3- The direct owner of vacant buildings in the pool (the LLC itself or a proxy person) takes a tax write-off, which is the least of the benefits the real estate industry gleans from leaving houses vacant in its pool. 

The result: the housing situation, well under control by corporate power, makes money. The “affordable housing crisis” that working people and low income families face gets worse. 

A solution: a vacancy tax on houses during an affordable housing crisis. 

TV ads: “I want to buy your house” 

Today we see advertisements by outfits with down-home names offering to “buy your house.” They will pay cash, after making a cursory inspection, with no closing costs, no repairs, no fees. Just cash for a house. With huge financialization going on with respect to single family housing, this looks like a mop-up operation. And nothing will make it more attractive to home owners than the fear that the neighborhood will be taken over by developers building fourplexes. 

That is a fear that the up-zoning proposal will play into, which the speculators will be counting on. The pressure to give in to speculators will be enormous. The end result will be more total control over housing by financialization corporations. 

Up-zoning, the Trojan Horse of financialization 

At a time when finance capital has decided to make their money based on financialization of housing (by bundling and securitizing single-family houses), any scheme that will lift zoning regulations will make it easier for the real estate financial corporations (working through speculators) to absorb the rest of the supply. That is the gift that up-zoning promises to give the real estate corporations. Given the increase in land value (when single family houses are replaced by four-plexes), the attractiveness that it will bestow on housing securities will lead to price increases across the industry. 

As Patrick Condon’s research has shown, urban densification that increases building or development will result in increased value for that land (land price inflation). It will thus also result in increased rent levels. [Condon: land value is the biggest decider of housing prices.] The pressure from financialization corporations (much more powerful than mere developers) to minimize affordable housing on that land will be strong. In the face of up-zoning, cities will face a hard fight to provide affordable housing in place of single family dwellings. They will have to make the mitigation fee escape hatch a lot heavier. Nevertheless, in an “affordable housing crisis,” only affordable housing will provide a solution. 

One stop-gap measure Condon proposes is a land tax. Taxing the land will slow or stop development that increases land value, and ultimately bring land values down. He then proposes that the city use that tax money to buy the land and build affordable housing. 

The sociological research by Othering and Belonging 

The sponsors of the up-zoning measure have used some research from U.C. Berkeley's Othering and Belonging Institute. I fear they have misused that research. While the O&B paper they cite relates to the sociology of the present state of single family zoning, it only points to a correlation between such zoning and increased racial inequity in family asset levels, education, health care, job opportunity, etc. It suggests that single family zoning provided a conducive environment for the imposition by white supremacy on different communities. It does not claim that the zoning was a cause of racial inequities. 

Western cities grew around single family housing because there was space, cheap materials, and slow growth. Even the area that was once the heart of the black community in Berkeley, ironically, is still a predominantly single family or duplex housing area. Racial inequities were brought to neighborhoods by white privilege, white hegemony, and white desires for segregation which redlined areas which were already zoned. In that opportunist sense, zoning played a role in racial inequity in cities. But the white people who originally settled these cities brought their racism with them. They didn’t invent it through zoning. 

Summary 

The four economic states a house occupies 

Lodging – a human right, prevented from being so by property rights, which supersede the human. 

A commodity – a thing sold on a market as property, or whose rent is established on a market somewhere else. Commodification puts an end to housing as lodging and turns it into an economic category. 

An asset – a capital value that lists in a company’s portfolio as part of its asset value, and on which the company can raise money by borrowing. A house ceases to be a thing and becomes a ledger entry. 

A security – the securities traded by housing financialization corporations both represent and determine the value of the underlying houses through its dominance over the layers of economic organization between those houses and the corporations. Financialization puts an end to houses as commodities by turning them into assets. 

Conclusion 

What cities do to resolve their “affordable housing” crises, if not done at the level of lodging, will only fall prey to corporate financialization, and thus work against itself. 

The statistic about real estate financial value being greater than global GDP indicates that the global economy is today in two parts, a productive economy, in which things of social value are produced (GDP), and a financial economy, in which money makes money through various forms of speculation. 

Housing as a human right means setting housing in relation to humans as lodging, and wresting it free of being a commodity, a corporate asset, or a corporate security.