How real estate became ‘just another asset class’: the financialization of the investment strategies of Dutch institutional investors

The managers of a growing wall of money are continuously searching for investment opportunities. The financialization literature describes how this mobile capital puts pressure on commodities, debt, public services and economic activities to transform into investable, tradable, financial products. Regarding real estate, these investigations show how opaque, local, non-standardized goods, highly depending on both local legislation and developments, have been transformed into liquid, globally traded financial assets. By analysing the real estate investment strategies of Dutch institutional investors since the 1980s, this paper shows how a quantitative framework increasingly provides the basis for institutional investors’ real estate investment strategies. Direct ownership of properties has been exchanged into shares of properties, that is, fictitious capital, creating an impetus for ‘objectified numbers’ to measure the performance of these indirect investments. As knowledge about real estate has been outsourced, Dutch institutional investors now perceive real estate increasingly as ‘just another asset class’, thereby increasing leverage and volatility. This paper not only shows how finance ‘financialized’ itself by adopting a quantitative investment perspective, but it also offers an empirical account on how investment properties are transformed into financial assets that put pressure on state agencies to mobilize urban planning to deliver more of such assets.     

THE DEBT/TAX CHOICE IN THE FINANCING OF STATE AND LOCAL CAPITAL EXPENDITURES*

ABSTRACT. State and local governments commonly finance investment in public capital by issuing bonds and by using current revenues. This paper presents a model of state and local governments' reliance on borrowing in which the optimal share of debt in the financing of capital investment depends on the relative costs of tax and debt finance. Equations are derived and estimated for spending on public capital and the share of debt in the financing of that spending. The results reveal that the level of private incomes plays an important role in both the capital investment and financial decisions of the jurisdiction. Even after controlling for Sunbelt-Snowbelt differences in incomes, grants, outstanding debt and certain demographic factors, the results indicate that state and local governments located in the Snowbelt rely more heavily on bond issues to finance capital investment. Finally, the estimated invariance of the level of state and local capital investment to the share of debt in the financing of the investment suggests that investment decisions are not greatly affected by factors influencing the willingness to issue bonds.     

Serious chemistry on set: the molecular structure of film investment in China

ABSTRACT

Using the case of the Mainland Chinese film industry, this paper argues that the competing features that attract commercial capital investment and drive state centralization create a molecular structure of national film investment, or the division of investment in the film industry into several interdependent centers. A combination of regulations, institutions, the built environment and access to capital leads to a distributed investment of strategic assets linked by bonds of complementarity. Beijing dominates in the area of state-supported production. Shanghai outperforms other cities in terms of foreign direct investment. Qingdao has attracted domestic Chinese private investment and entrepreneurship. Unlike the capital agglomeration seen in countries like the United States where film investment is driven centrally by financial considerations, the Chinese national film industry is strategically divided into several centers that rely more dominantly on political or financial resources. While this paper focuses on China, understanding the molecular structure of the Chinese film industry helps us understand both developed and developing countries that are characterized by robust state oversight and strong commercial media sectors.     

Private rental investment and socio-spatial disadvantage in Sydney,Australia

This article unpacks the connection between a growing cohort of small-scale but purposive property investors and urban socio-spatial restructuring. We analyse private rental housing as a tenure share to demonstrate its spatial correlation with the suburbanisation of socio-economic disadvantage in Sydney, Australia, between 1991 and 2016. Then, we show how investors drive this emerging pattern by reference to the geography of property owners’ stated investment objectives—low capital outlay, rental yields, and capital growth prospects. We contend that the link between their small-scale activities and the city’s changing socio-spatial structure is an overlooked consequence of private rental sector (PRS) housing financialisation. Importantly, our focus on behaviours exhibited by small-scale rental property owners in PRS financialisation transcends existing analyses that have concentrated on corporate entity activity in this space. That focus also contrasts with framings of private rental growth as a residual outcome of developments elsewhere in the housing market. Such work is significant because it demonstrates the impacts of real estate investment on urban form.     

Global finance and the German model: German corporations, market incentives, and the management of employer-sponsored pension institutions

Where there was a settled political geography of state power and responsibilities, the remarkable growth of global finance has put enormous pressure on national economic, political and social institutions. Furthermore, the looming crisis facing many continental European social security systems has raised many doubts about the long-term viability of the German model compared to its Anglo-American rivals. In this context, large German corporations have sought ways of sustaining their global competitiveness by, in part, restructuring their national and regional commitments. To illustrate, in this paper we concentrate on the nature and organization of German employer-sponsored pension institutions in relation to Anglo-American management practice. Two issues drive the analysis. One has to do with an emerging coalition between corporate management and shareholders with respect to the market value of the firm. The second issue has to do with the allocation of risk and uncertainty between the social partners when negotiating the financing and final value of promised retirement income. The institutional framework of collective decision-making common to many of Germany's largest firms is under pressure; three models of investment decision making relevant to pension assets and liabilities are used to illustrate this point. In doing so, we suggest that the German model is more fragile than commonly realized. We also suggest that Anglo-American management practices have penetrated and affected German corporate (national and regional) institutions and regulations. The social market lauded by advocates of stakeholder capitalism is changing rapidly, at least in the sphere of large firms and global finance.     

Pension Fund Capitalism: A Causal Analysis

Since 1980, UK individual pension and retirement assets have increased about twelvefold to around 1.5 trillion. Over the same period, US household retirement assets have increased about tenfold to more than US$7 trillion. High rates of asset growth have also been observed for Australia and Canada. Notwithstanding their current high standards of living, countries in much of continental Europe have not shared in these extraordinary rates of growth of pension assets. In fact, many analysts believe that their long-term prosperity is threatened (relatively speaking) by inefficient, institutionally cumbersome finance sectors. While saving now for retirement has significant advantages for beneficiaries, less recognized is the fact that the growth of pension assets in the Anglo-American economies has profoundly changed the financial structure of these countries. In this paper I explain how and why pension assets have grown so large in the Anglo-American countries, beginning with a historical account which helps to identify the reasons why German and continental European countries (excluding The Netherlands and Switzerland) have not shared the same rates of growth in pension assets. In doing so, the paper develops a causal model which discriminates between various causes of Anglo-American pension fund capitalism: structural determinants (institutional framework), second-order determinants (postwar conditions), and third-order determinants (the flow of contributions). The identified causal logic integrates structure with historical and geographical contingency. Implications are also drawn regarding the significance of Anglo-American pension funds for global capitalism.     

Infrastructure shortfall in the United Kingdom: the private finance initiative and government policy

Investment infrastructure is essential for long term economic growth, sustainable regional economic development, and the quality of urban life. Yet the available evidence suggests a significant shortfall in current UK government investment on infrastructure, and a long term pattern of low investment compared to other European countries. Given the pre-occupation of the Labour government with managing expenditures within the parameters set by the previous government, and the vulnerability of any government to financial markets' valuation of current spending plans in relation to interest rates and currency exchange rates, there is little likelihood of major new public spending on infrastructure in the near future. In this context, the Private Finance Initiative (PFI) is very important for the government's plans to make up the shortfall. Although inherited from the previous Conservative government, the PFI has powerful advocates within the Labour government. The PFI is the formal mechanism by which government departments, agencies and instrumentalities, like the National Heath Service, utilise private sector investment capital and, in particular, pension fund assets, to revitalise public services. This paper sets out the institutional history of the PFI, beginning with the Thatcher government's Ryrie Rules, the efforts of the Major Conservative government to make it a viable operational practice, and the reasons why the new government supports PFI and has made significant moves to improve its effectiveness. Still we are sceptical about the future of the PFI. We show that the PFI has foundered upon fundamentally flawed design and the politicians' obsession with control of public sector spending. Notwithstanding recent `reforms', PFI may only succeed if the PFI process is decentralised and linked explicitly with regional development programmes. In any event, given the difficulties posed by the PFI process for private investors, perhaps different institutional responses to infrastructure shortfall should be contemplated, including the introduction of traded infrastructure bonds.     

Access to capital markets and the geography of productivity leaders and laggards

This paper examines whether access to the capital market of convertible and nonconvertible bonds affects total factor productivity (TFP) for the population of Italian joint stock manufacturing companies, based in highly segmented local financial markets, between 2007 and 2017. The hypothesis, well grounded in the literature, is that long-term capital favors investment in intangibles and other risky assets necessary for productivity growth. To identify this effect, we exploit the exogenous shock of the Italian banking deregulation of the mid-1990s as an instrument for firm-level access to capital, interacted with distance from logistic networks. These reforms changed the distribution of the type of branches at the local level, increasing the share of joint stock banks, which have high connections to international capital markets. This geographical reallocation of banking activities ultimately affected firms' financial structure, favouring their access to capital, even when based in peripheral financial areas. Firms which issued instruments of market debt achieved higher levels of productivity and a higher probability to reach top percentiles of productivity distribution.     

Locating Neoliberalism in Dubai: Migrant Workers and Class Struggle in the Autocratic City

Abstract: In recent years, portrayals of neoliberalism in Dubai have often hinged on narratives about the hyper‐exploitation of migrant workers in the city. In this paper I interrogate these narratives by exploring the governance of lower‐waged construction migrants and their recent role in market‐led processes of urbanization. Through a focus on the recent growth of private worker welfare initiatives and dozens of illegal labour strikes led by migrant builders, I draw attention to the fraught and contradictory character of autocratic neoliberalism that operates in the governance of these workers, and point to workers’ bodily capital and the construction labour camp as two emergent sites in which these labour politics are unfolding. I argue that these social reproductive realms of the body and the mass‐worker household have offered a temporary spatial fix to the limitations of autocratic rule in a neoliberalizing city, while also conjuring moments of political possibility for construction migrants.     

Property Sector Financialization: The Case of Swiss Pension Funds (1992–2005)

Financialization is a major trend in Western economies. This paper shows, on the one hand, how it changes the management criteria and, on the other hand, the limits to financialization in the property sector. Between 1992 and 2004, about 15% of Swiss pension funds' wealth was invested in property. As far as their investment policy is concerned, pension funds have two choices. First, they can directly own, and have management responsibility for, the properties in their portfolios. Alternatively, they can buy shares in mainly Zurich-based investment vehicles. In the first case, pension funds require staff with the relevant expertise along with the knowledge of property markets. Investments have a regional focus and are assessed internally by the funds. In the second case, pension funds are merely investors and investment appraisals and comparisons are made on the basis of market criteria such as yield, diversification in relation to risk and liquidity. In this case, property investments focus solely on the country's main urban areas.     

From the State to the Shareholder: Rent and the Production of Shareholder Value in Real Estate

Following the 2008 global financial crisis, the use of real estate tax credits to generate shareholder value for investors increased significantly. While tax credits are lauded as crucial to the delivery of social goods like affordable housing, the multiplier effects they supposedly generate fail to account for the hollowing out of the state that occurs as public funds are transferred to shareholders. Through a detailed case study of the historic tax credit industry in the United States, this research shows how many of the banks and financial institutions investing in tax credits have come to rely on overly engineered forms of landownership, deeply discounted credit pricing, and a wave of stock buybacks to boost their corporate profitability. This paper therefore develops a theoretical framework to understand taxation as a financialised accumulation strategy where the state serves as an important—if not problematic—source of real estate profit.     

Conceptualising European Privatisation Processes After the Great Recession

A wave of privatisation is unfolding in Europe in the wake of the financial crisis, but it has yet to receive serious scholarly attention. This paper examines the case of Ireland, where an austerity strategy and European Union International Monetary Fund bailout conditionality have given impetus to the transfer of public assets to the private sector. Theoretically, the paper explains the roots of the phenomenon with reference to a reformulated concept of “accumulation by dispossession” whose usefulness lies in emphasising the politico‐economic drivers of privatisation, which have been neglected in the mainstream literature. A typology is presented that argues that accumulation by dispossession manifests itself, in practice, through four main processes: (1) private repossession of assets nationalised during the financial crisis; (2) restructuring of state‐owned enterprises; (3) commodification of assets and services hitherto located outside the market; and (4) privatised stimulus through public–private partnerships. The paper's framework should be useful to conceptualise ongoing privatisation processes in other European countries.     

Against Value: Accumulation in the Oil Industry and the Biopolitics of Labour Under Finance

Current theses on the financialization of capitalism postulate a shift from investment in material growth to financial channels, with the implication that the extraction of value from the labour process is no longer the central locus of corporate profitability and that the antagonism between labour and capital in the accumulation process has been displaced by the tension between corporate managers and financial markets. This article challenges both claims of financialization and its political implications. Using an analysis of the oil industry in the US, focusing particularly on layoffs, I argue that, instead of inhibiting material accumulation, financialization signals a change in the form of investment that has led to the intensification of labour and its deepening subsumption under capital, transcending labour exploitation and extending the sovereignty of capital over the life of living labour.     

Property developers and the robust downtown: the case of four major Canadian downtowns

By and large, the downtowns of Canada's largest cities have remained important business nodes within their metropolitan regions, even though they have experienced some dimensions of decline. This fact can be ascribed to political, economic and social factors. The focus of this paper is on the property dimension: the structure of property ownership and the role of property developers. Large and powerful property developers and owners (property development firms, banks, life insurance companies and, more recently, pension funds) control a substantial stake in downtown top-quality commercial properties. These agents attempt to reinforce the prominence of downtowns to keep the outstanding performance of their assets. Developers consider Canadian downtowns safe investment outlets in which they hold core assets. Through proactive measures they sustain the health of downtowns.     

‘A Remarkably Patterned Life’: Domestic and Public in the Aztec Household City

This article argues that the Aztec capital of Tenochtitlan should be understood as a ‘household’, a structure that gave powerful significance to binary gendered ideologies at every level of city organisation. Male and female roles were configured around ‘public’ and ‘domestic’ spheres, but these concepts were perceived in a broader and more flexible way than traditional public/private dichotomies suggest and might helpfully be understood in political terms as distinguishing between exterior/foreign and interior/domestic realms. Building on understandings of parallelism and complementarity, the article demonstrates that gendered pairings, based on distinctive masculine/public and feminine/domestic spheres, mirrored the household not only in social, economic and political contexts, but also in religious settings, providing space for both male and female power at every level of urban life. Just as a married couple provided the basis to a successful and productive home, so the parallel responsibilities of men and women, structured according to concepts of ‘household’ and reflected throughout the institutions and activities of the city, were believed to form the foundations of a thriving Aztec city.     

Multilevel (mis)governance of palm oil production

The palm oil industry exemplifies the ‘regionalisation without regionalism’ pattern seen in other industries in Asia: extensive, regionally concentrated transnational economic integration accompanied by a low level of formal regional institution-building. Production is concentrated in Malaysia and Indonesia, and Asian countries account for a major share of the market for intermediate products. The ownership structure of palm oil production reflects the dominance of transnational Malaysian and Singaporean firms. There is no authoritative regional institution governing production, investment standards or labour in the industry. A patchwork of both enabling and regulatory governance institutions supports the industry. These are formal and informal, public and private, and are situated at multiple levels: within, below and across the nation state. Although the governance structure surrounding the palm oil industry has supported it well in terms of production volumes and profits, large externalities—environmental and social costs—persist. This article argues that the governance failures associated with the industry stem from different stakeholders' competing interests in contexts of highly unequal wealth and power distribution. Misgovernance is not an unintended consequence of institutions failing to keep up with markets in scale and scope, but is embedded in the multilevel governance regime that supports, and partially regulates, the industry.     

Market Rules and Spatial Outcomes: Insights from the Corporate Restructuring of U.S. Food Retailing

In this paper a study of the corporate restructuring of the U.S. food retail industry, during and following the period of regulatory relaxation and high-leverage capital transformations of the 1980s, is used to interrogate the complex relationships between market regulation, investment regimes, corporate strategies, and spatial outcomes. It is shown that changes in the “rules” governing investment and competition in the United States in the 1980s triggered countervailing spatial processes in the food retail industry. Those processes took more than a decade to work themselves through, but by the late 1990s a radically altered corporate landscape was beginning to emerge. In particular, consolidation of the industry had finally gained momentum–creating an industry whose leading firms are likely by 2002 to have a market share double the level of the early 1990s. The paper concludes by considering the insights which a consideration of corporate restructuring and regulation in this U.S. industry offers for some important areas of conceptual debate in economic geography. In particular, it is argued that industries in which capital structure transformations of the firm must be confronted and treated as a central issue have an intrinsic, but until recently neglected, importance in theoretical debate in the discipline.     

The Eurozone crisis and Italian corporate governance: the end of blockholding?

This article explains the process of change in domestic corporate governance. An actor-centred coalitional approach is applied to the Italian case to show how the main features of domestic corporate governance are a product of behavioural patterns (i.e. informal institutions), rather than formal legislation. Leveraging their superior financial means, business elites act as institutional incumbents shaping these informal institutions according to their preferences. It is argued that a change in corporate practices is more likely to be triggered by a socio-economic crisis, which weakens the domestic elite’s influence, rather than a legal reform. These findings call into question the excessively formalistic approach of many corporate governance scholars, and are confirmed by the Italian trajectory. After having resisted 20 years of liberalising legal reforms aimed at eroding their power, Italian blockholders are now being forced, as a consequence of the Eurozone sovereign debt crisis, to dismantle their cross-shareholding networks.     

Bingo or fiasco? The global financial situation is not guaranteed

The 1998 Russian debt default following the Asian financial crisis sent a signal to global capital markets that no country from now on could be seen as 'too big to fail'. The concern which followed Russia's crisis raised two questions: first, with regard to the relevance of the interest rate in the presence of highly lever-aged securities; and second, over the question of the protection of a country or institution from bankruptcy while simultaneously making sure that any rescue would not encourage either further risk-taking from investors or more badly managed policies from emerging market economies. Moreover, the moral hazard question, coupled with the sheer size of private capital flows, led international institutions to consider involving the private sector in solving financial crises. This article describes why a situation has now been reached where no future guarantee can be given to countries or financial institutions, implicitly or explicitly, that their debts will be bailed out.     

The Costs of Exclusion: Gender Job Segregation,Structural Change and the Labour Share of Income

While women's share of employment has risen in many countries over the last two decades, gender job segregation has worsened, with women increasingly excluded from ‘good’ jobs in the industrial sector. In this article, the determinants of gender job segregation are assessed using panel data for a broad set of developing countries covering the period 1991–2015. The effect of gender job segregation on all workers, via the labour share of income, is also analysed. The results identify two major contributors to gender job segregation — the rising capital/labour ratio and the ratio of female/male labour force participation rates — indicative of ‘crowding’ and exclusion as economies move up the industrial ladder. The analysis further indicates that the crowding of women into lower quality jobs has a negative effect on workers as a whole by dampening the labour share of income. Those processes are influenced by global and macroeconomic conditions and policies that have circumscribed the expansion of high‐quality jobs relative to labour supply, intensifying competition for ‘good’ jobs and weakening labour's bargaining power.