Barely a decade has passed since the last global housing crisis, but the global coronavirus pandemic is likely to cause another global economic crisis as well as a global housing crash. Some of the early responses are predictable as well as insufficient.
First, housing sales are likely to drop immediately: estate agents around the world confirm that this is already happening. With sales falling, it is only a matter of time before house prices will start to drop too. As the virus spreads deeper into our economy, job losses as well as lower levels of consumer confidence will lead to further falls. Likewise, tenants are less likely to move – how could they when viewings have been cancelled?
The second expected short-term result is that new construction will stall. This will impact the construction and property development sectors, but, as people are unlikely to move during this time, it will not have much of an additional effect on house prices. Yet by the end of the coronavirus crisis, the numbers of new construction projects will have been low for too long. This will have significant effect, especially in hot markets where supply is already lagging behind real demand.
A third factor to take into consideration is property as an asset class. There are two contradicting tendencies here. On the one hand, reductions in both prices and transactions will make housing a less attractive investment. But on the other, the ‘flight to safety’ – such as the strong interest in government bonds in today’s market – is likely to make property an even more popular investment class.
During the last financial crisis, we saw a similar response. Although housing was at the root of the crisis, particularly in the US, the seemingly paradoxical outcome was a rise in housing investments by institutional investors, including pension funds, private equity and hedge funds rather than a wholesale retreat from property.
Although the last crisis demonstrated the flaws with our financialised housing system, the result was not the definancialisation of housing but rather a shift from mortgaged homeownership as a neoliberal dream for all, to homeownership-for-some and overpriced private rented housing for others. This trend was generation-based at least as much as it was class-based. For younger households it became increasingly difficult to buy a house. Generation Rent was born. Coupled with changes in the labour market both lower-income and younger households became more vulnerable to exploitation through the private rental market.
The long-term impact of the coronavirus crisis and its aftermath will intensify these trends. When transactions and prices drop, private equity and hedge funds will be able to buy up large housing portfolios ‘on the cheap’. As long as interest rates stay low – and central banks are already doing everything possible to keep them low – and as long as this crisis doesn’t completely take down capitalism-as-we-know-it, these funds may be able to stay active. Over time, they may offload properties to Real Estate Investment Trusts (REITs) and other funds that invest in property, in which pension funds (who are always looking for ‘safe’ long-term investments) are the largest shareholders.
We know that governments, whether left- or right-wing, will try to save capitalism. We also know that the financial sector is central to capitalism and that, therefore, our leaders will do everything in their power to save the banks. But will they save us?
Contrary to the last crisis, governments in different countries are already stepping in to allow mortgaged homeowners to postpone mortgage payments. Coronavirus-induced financial hardship is quickly becoming a condition under which households can apply for mortgage relief.
In this sense, governments have learned from the last crisis. They now realise that bailing out the banks is insufficient; they’ll also need to bail out homeowners. Keeping homeowners in their houses rather than foreclosing on them is good for the economy and especially for consumer confidence. Homeowners, whose wealth is fuelled by debt, are considered the backbone of liberal democracy, and their security is seen as key to trust in both economy and government. Governments are unlikely to let them down so badly again.
Tenants may not be so lucky. If Generation Rent is eating too much avocado toast to afford a house, that’s their own fault, right? Except that it isn’t. If there are no permanent jobs available, let alone well-paid jobs, how can millennials be expected to take up a 30-year mortgage? The insecurity that typifies the millennial experience is preventing many young people from locking themselves into payments for most of their working lives.
While affordable housing continues to dwindle across the globe, a growing group of people who are working precarious jobs and can easily be laid off will be hit hard by the coronavirus crisis. In many cases they don’t even need to be laid off because the beauty of the gig economy, the sharing economy and the flexible labour market means that they were never ‘employed’ in the first place. Gig, sharing, flexible. All beautiful words that have become bywords for ‘shitty’: a shitty economy with shitty jobs and shitty housing.
So no, governments are not doing enough to bail us out. How many governments have supported rent freezes so far? How many of them have supported deferred rental payments? Some have temporarily halted evictions. But if we are willing to support banks and are now also willing to support homeowners who are struggling to make the required payments, we should also be willing to do more to support tenants who are already facing high rents and struggling to earn a living wage.
Policymakers and analysts like to talk about ‘tenure neutral housing policies,’ which means treating homeowners and tenants in the same way. Contrary to the widely-held view that tenants use up government support, in most countries homeowners receive more subsidies and tax breaks. The initial response to the economic fallout from the spread of coronavirus underscores this lack of tenure neutrality. Now is the time to bail out tenants. Their numbers will only increase once funds start buying up properties and maximising rent levels for ever-larger groups of society.