Every time there’s a recession, we’re told there might be an upside. An often-cited example is housing, one of the single largest sources of expenditure for any household. It tends to become less expensive — or at least stops getting more expensive — during economic downswings.
This has more to do with the way housing is financed than peoples’ demand to have a roof over their heads. In advanced economies, the vast majority of homeowners purchase property using a mortgage. When lending is plentiful and cheap, more people can take out mortgages and the demand for housing increases. But when banks stop lending, or interest rates rise, the inverse is true.
But today, we’re facing an unusual combination of negative growth and high inflation that is wreaking havoc on the housing market. The cost-of-living crisis has decimated household finances, and the threat of a global recession means that things aren’t likely to get better anytime soon. Banks know this and so are limiting the amount they’re lending to reduce their exposure.
Usually in such a situation you’d expect interest rates to be low. Low business confidence means less investment; less investment means higher unemployment, lower consumer spending, and lower business confidence. In this context, cutting interest rates to stimulate lending provides one way to break the downward spiral. If interest rates are low, investment is cheaper — and so are mortgages.
But today, we’re facing the kind of stagflationary (stagnation and inflation) crisis last seen in the 1970s. Growth and investment are both low, expectations about the future are dire, and yet interest rates are higher than they’ve been in years.
With credit both more expensive and less freely available, fewer people are likely to sell up. And potential first-time buyers are likely to wait until the economic situation picks up before trying to apply for a mortgage. Many people are already struggling to pay for the mortgages they do have.
The result will be a levelling-off of house prices across most advanced economies, especially those in which mortgage lending is the highest and where house prices have risen the most in recent years. The UK today meets both of these conditions.
A Vultures’ Paradise
Mortgage lending as a percentage of GDP has ranged between 60 and 70 percent in most years since the financial crisis of 2008. And house prices are a shocking 400 percent higher than in 1970, compared to 150 percent for the US and 50 percent for Germany. A correction was long overdue.
Prices have fallen at the fastest rate in a decade, down 1.1 percent from last year. Today, prices are nearly 4 percent lower than they were when prices peaked in August 2022. The reason for this sudden reversal? UK mortgage approvals fell to their lowest levels, pandemic aside, since the Great Recession.
The trend is likely to continue, and some have argued that prices could fall by as much as 30 percent over the course of the next year. Such a significant drop in house prices might be taken as a positive for prospective buyers, but the destruction of wealth that would come alongside such a fall would likely exacerbate the cost-of-living crisis and lengthen the recession.
A housing crash remains unlikely. House prices in the UK will remain significantly higher than in other advanced economies, relative to wages, even after falling over the coming year. But the correction in house prices will create opportunities for those who grew rich on the back of the last several housing bubbles.
While those who rely on mortgage lending to fund their borrowing are feeling the pinch, those who can draw on cash to fund their purchases will actually benefit from this fall in prices. Less constrained by the dynamics of the financial cycle, national and international investors and corporate landlords will be able to snap up plenty of housing on the cheap.
As The Telegraph’s economics reporter recently observed, the buy-to-let crisis is providing a ‘golden opportunity’ for landlords able to buy in cash. ‘Rocketing rents and falling house prices’, Lawford wrote, ‘can create surging profits for for select investors’. This should, by now, be a familiar dynamic.
In the wake of the financial crisis of 2008, when house prices fell far more rapidly than today, corporate landlords snapped up real estate all over the world. Investment flowed into ‘vulture funds’ — so-called because they swoop into depressed markets to purchase cheap assets.
In the US, asset manager Blackstone bought up billions of dollars’ worth of property in the wake of the crash, becoming one of the world’s largest corporate landlords. One of Blackrock’s many subsidiaries, Invitation Homes, became the largest single-family corporate landlord in the US with more than 80,000 rented homes on its books.
Unfortunately, the housing crisis only deepened during the pandemic. When it hit, many of the people living in these homes were unceremoniously evicted the moment they fell behind on their rent.
The Select Subcommittee on the Coronavirus Crisis found that just four corporate landlords had filed at least 15,000 evictions in the midst of the pandemic lockdown — often using intimidation and illegal tactics to force tenants out and despite an eviction moratorium imposed by Congress.
The committee found that one corporate landlord — Siegel — distributed copies of a court order wrongly suggesting that the evictions moratorium was not being enforced by the courts. A senior executive at the firm sent emails to his colleagues encouraging them to use this strategy to ‘bluff people out’.
The subcommittee found that ‘[p]roperty managers carried out this directive with evident glee, with one writing to an executive and a regional manager that he love[d] getting to say that this means the eviction may happen sooner than expected and seeing the look on their faces’. This particular message was followed by a smiley face emoji. Another Siegal executive suggested that one of his employees call Child Protective Services on a family as a way to expedite their eviction.
Siegel received millions from the US government in emergency assistance during the pandemic: assistance that had been designed to support tenants at risk of eviction.
In Spain, Blackstone purchased 100,000 distressed mortgages from one of the nation’s banks — a bank that had been bailed out by the government during the financial crisis. Rules surrounding debt repayments in Spain have always been notoriously strict and borrowers are often saddled with debt even after technically defaulting — unless, of course, you’re a bank that can access government cash.
Rather than negotiating with mortgage holders, Blackstone simply evicted tens of thousands of families from their homes. These homes were then rented out in private markets where the company could charge high rents. The company also purchased rent-controlled housing from Spain’s local authorities before jacking up rents.
In Ireland, Blackstone and other private equity and asset management firms bought millions of dollars’ worth of property in neighbourhoods decimated by the financial crisis before hiking up rents.
The United Nations issued a condemnation of the Irish government for supporting the ‘egregious’ business model. The UN special rapporteur on the right to adequate housing wrote in a letter to the Irish government: ‘Almost overnight multinational private equity and asset management firms like Blackstone have become the biggest landlords in the world … they have converted homes into financial instruments and investments.’
Housing as ‘Just Another Asset’
One of the ways in which these companies were able to access the cash they needed to fund their vulture funds was through Real Estate Investment Trusts (REITs), which own housing portfolios and can be listed on the stock market. This has, as one academic put it, helped to turn housing into ‘just another asset class’ as investors are able to invest in REITs just as they do in many other liquid financial assets.
The financialisation of housing has, if anything, deepened since the crisis of 2008, intersecting with other trends such as the digitisation of investment. As Matthew Ponsford and Ruairi Casey wrote in Tribune in 2021, the app Proptee ‘allows anyone with, say, five grand to buy shares in a buy-to-let flat in London worth half a million. In return, you receive a slice of its tenants’ monthly rent’.
The 24-year-old founder of the app explained that they planned to build ‘a stock exchange for properties that lives on your smartphone and combines the high yields and low risk of property investing with the high liquidity of a stock exchange’.
This recession is providing plenty of opportunities for investors to cash in on falling house prices. With interest rates so high, cash is king. And while the cost-of-living crisis is impacting the finances of many families, limiting the income they have available to invest, astonishingly high levels of inequality mean there’s always cash somewhere looking for a good investment opportunity.
The billionaires personally taking advantage of property prices collapsing include the Spanish founder of fashion outlet Zara, Amancio Ortega, Spain’s richest man. Ortega purchased $2 billion worth of property across the US and the UK as the pandemic impacted commercial and residential property prices.
In the UK, where corporate landlordism has been less prevalent than it has in countries like the US and Ireland, it has been buy-to-let landlords who have benefitted the most from rising house prices since the financial crisis. In 2022, the number of homes available from buy-to-let landlords reached a record high: 8.7 million homes were being rented out through around 2.7 million landlords.
But as it becomes clear that house prices will not crater, big investors will start crowding into the market once again. With a paltry stock of social housing, little regulation of the sector, and no sign of rent controls anytime soon, private rents are likely to stay high for the foreseeable future. And as long as rents remain high, UK housing will remain a potentially profitable investment opportunity.
The Grassroots Fightback
The 400 percent increase in house prices seen since 1970 is unlikely to be repeated. The generation that was able to take advantage of this astonishing boom will keep its capital gains at the expense of younger people looking to get on the housing ladder.
Eventually, this wealth will be passed down to the children — and what was once intergenerational inequality will be converted to bog-standard wealth inequality.
But there is another way. The route to housing justice runs through resistance to the current system, regulation of the private rented sector, and expansion of the provision of social housing. Activists around the world are pursuing each of these avenues, often with significant success.
In the UK, tenants unions have been growing in size and becoming more militant in response to the housing crisis. Groups like ACORN and the London Renters Union have supported tenants dealing with rogue landlords and those at risk of eviction.
They have also mobilised to put pressure on local councils to implement policies that alleviate the housing crisis. And ACORN has teamed up with the campaigning organisation Enough is Enough to link the struggle for affordable housing with protests against the cost-of-living crisis.
Activists have also joined up across borders to protest the extractive business models of asset management firms like Blackstone. In 2015, as Blackstone’s vulture funds swooped in to buy up housing across the US and Europe, activists in Spain, Ireland, and the US launched a day of action against the company.
Housing activists are also working alongside policy groups and political parties to push for greater regulation of the private rented sector and for alternative models of housing provision — from an expansion in social housing to housing co-ops and community land trusts.
In Berlin, activists won a significant victory in 2020 when the city’s left-wing government introduced a package of rent controls to deal with an affordability crisis in the private rented sector. After a sustained lobbying effort by the country’s big corporate landlords, the laws were overturned in 2021 by the country’s high court, leaving tenants facing hundreds of euros worth of back payments.
The international financial press launched a coordinated campaign against the proposals and rejoiced when they were repealed. The Economist celebrated that the ‘disastrous’ rent controls had been overturned, while Bloomberg argued that the proposals had proved to be the ‘disaster’ that they had feared.
The failure of the rent control bill should give tenants’ organisers an indication of the strength of the private housing lobby. But the fact that they were introduced in the first place is an indication of what can be achieved.
Another Housing System Is Possible
In fact, this is precisely why so many groups fought so hard to shut the proposals down — it’s critical for those profiting from the current system that those fighting against it feel as though any potential alternatives are impossible or unworkable.
Landlords will complain, as they always do, that greater regulation will simply encourage them to sell up, reducing the available supply of housing and increasing rents further. But this argument is absurd. Are these houses going to disappear once they’re sold?
The houses are there — and they’re not going anywhere — they’re just in the wrong hands. If landlords decide to sell up when greater regulation is introduced, local authorities should be instructed to purchase those houses and rent them out to social tenants at below-market rents. If necessary, the central government could provide the funding to facilitate this policy.
Over the long run, greater housebuilding is of course necessary. But this should not be left to the massive developers who currently dominate the housebuilding market, whose sole aim is to maximise profits to distribute to their shareholders.
Local authority housebuilding is one option. Environmental and housing campaigners have been working together to pressure governments around the world to respond to this recession by investing in green, affordable housing to create jobs, tackle climate breakdown, and solve the housing crisis.
But there are other models too. Community Land Trusts (CLTs) have been springing up all over the world in recent years. CLTs are non-profit organisations set up by members of a community to purchase land that is kept in a trust in perpetuity.
Housing is constructed on the land and either rented to tenants or sold to owners who pay a ground rent on the CLT’s land. The land is therefore not sold alongside the house, and any capital gains accruing from rising land values are kept within the CLT.
According to the Centre for Local Economic Strategies (CLES), there are currently 263 CLTs across the UK and at least 300 more in development. In Liverpool, a CLT acquired ten properties from the city council before redeveloping the units and winning a Turner Prize for their ‘ground-up approach to regeneration, city planning, and developing in opposition to corporate gentrification’.
Co-operatives provide another model of housing provision. Co-op members all buy into the co-op, which grants them access to a property as well as allows them to participate in decision-making processes.
While this model is more common across Europe and parts of the US, it is growing in the UK too. According to Community Led Homes, there are currently 685 housing co-ops in the UK with nearly 70,000 members. Recently, a number of student housing cooperatives have been set up across the UK as part of student-led campaigns against the high rents charged by corporate landlords.
It’s critical for local campaigns for housing justice to articulate their demands as part of a wider struggle. Housing co-ops and CLTs can help to fill the huge gaps in provision that have emerged as the housing crisis has worsened, but they can’t solve the crisis on their own.
For the human right to adequate housing to be realised, housing has to be decommodified — a part of the housing stock has to be insulated from the market altogether.
For this reason, housing campaigns are one place where nationwide campaigns for social justice meet community organising. The housing crisis provides many people with their first direct experience of the extractive and predatory nature of neoliberal capitalism.
The only sustainable way to better housing is a fundamentally different economic system — and that’s why organising for it has such radical potential.