THE FINANCIALIZATION OF PROPERTY AND THE DISECONOMIES OF

THE FINANCIALIZATION OF PROPERTY AND THE DISECONOMIES OF AGGLOMERATION Prof. Adam Leaver Co-Director SPERI University of Sheffield

AGGLOMERATION THROUGH PROPERTY-LED REGENERATION • Since early 2000 s Manchester pursued a strategy of property-led regeneration, against a backdrop of a strategically & operationally hamstrung past (Folkman et al 2016) • Explicit aim: to cultivate the forces of agglomeration; create urban density and scale & integrate cities economically w/their surrounds: • reduce market ‘frictions’; improve efficient allocation of labour & capital; create scale economies; create thick skilled labour markets & nurture high VA complementarities (Fujita and Rivera-Batiz 1988), create innovation spill-overs & specialisation etc. • Outcome = higher productivity within agglomerated cities and dispersal of economic growth & prosperity to surrounds; centrifugal effects • Embedded in 2009 Manchester Independent Economic Review, 2011 creation of the Greater Manchester Combined Authority, 2017 Greater Manchester Spatial Framework: embedded developer-led regeneration; but also increasingly financialized

BUILD TO RENT: STATE COCREATION OF A NEW ASSET CLASS • At the same time, a new asset class emerged, underwritten by the state: • Background 1988 Housing Act: deregulation of rents and tenancies; 1996 introduction of Buy-to-Let mortgages for small investors. • Attracting institutional investment to the sector became an explicit policy priority during the late 2000 s/early 2010 s: • Perception: Better quality of management, longer leases, scale efficiencies • 2012 Montague review: (pension fund) investors would benefit from index-linked rents in line with their liabilities; residential investment offers valuable diversification • Series of incentives to convert diffuse market of private buy to let landlords into a new asset class: 2012 HCA Build to Rent fund £ 200 m; 2013 HCA Build to Rent fund 2 £ 1 bn; 2014 £ 3. 5 bn debt guarantee scheme; Home Building Fund £ 3 bn

WHAT IS BUILD TO RENT? • Development of three phases: purchasing & consolidation of vacant units post-crisis; multi-use units purchased for the PRS in development phase; stock purpose built for the rented sector, sometimes using a forward funding approach. • Aggregators of PRS stock are increasing in numbers (eg Sigma): once developed and stabilised, these portfolios will be sold to the institutional market through large portfolio sales or corporate transactions

BUILD TO RENT UNITS BY REGION

THE PROMISE OF BUILD-TO-RENT • Immediately attractive to a property-led growth strategy • Bring homes to the market more quickly than traditional “housing for sale” schemes, build agglomeration more rapidly (Property Development Rights = faster planning due to S 106 concessions, no minimum unit size/affordable housing constraints etc, Silver 2018). • Diversify the mix: needs of low and middle incomes with market and discounted market rental homes accessible to many more than homes for sale (Mc. William 2018) • Solve a housing supply problem; also meeting unmet needs – young, mobile people who don’t want the responsibilities of ownership • Respond to central govt pressure to boost PRS sectors, to ‘provide longer-term ‘family-friendly’ tenancies’ – appeal to institutional money to capture a greater % of the generational spend.

BUILD-TO-RENT: CASH IDLING & REGIONAL EXTRACTION • Where does the rental income go? • Cash-idling: Manchester-based [anonymous company] (major Bt. R planning & construction arm): with a single shareholder • Modest returns, but cash generative: £ 20 m cash in the bank, but more going on – difficult to work out net assets when there are seven figure creditors (also owned by the same person). • Approx 40 active firms, £ 60 m cash, and that’s before we consider the undisclosed subsidiaries of each. • i. e the rents makes one individual very wealthy, but inhibits city multipliers: inefficiencies of property-led growth? • Regional extraction: complex financing arrangements of global financial capital, which suck money out of the region: eg Abu Dhabi United Group, routing investment through Jersey based Loom Holdings in NE Manchester (Silver, 2018).

RELATION BETWEEN SCALE/DENSITY AND PRODUCTIVITY IS WEAK

CENTRIPETAL VS CENTRIFUGAL CITIES • Something Soviet about Manchester’s growth model • Manchester = a centralised, regional state attempting to catch up with its major competitor by mobilising resources from its hinterland • Like Soviet system, unable to move from extensive to intensive growth (Harrison 2002); no reciprocal benefit for its hinterlands. • Extensive = centripetal: suck-in workers from hinterlands to (higher productivity) employment in urban sector. • In Soviet Union - volume to improve under-utilised factory capacity; in Manchester mobilise young as feedstock to maximise occupancy potential for under-utilised Brownfield housing development. • Intensive growth = productivity improvements from given factor inputs

GFC GMCA

CONCLUSION: DIS-ECONOMIES OF AGGLOMERATION? • Cash inertia and financial extraction mute the Keynesian multipliers which might otherwise stimulate patterns of consumption conducive towards regional productivity improvements • Property led regeneration may ’put the cart before the horse’ – it increases the price of land to a point which dis-incentivises/crowds-out start-ups and entrepreneurial activity; & crowds-in further property speculation • It may push up the price of infrastructure development & service provision, esp relevant if Bt. R becomes geared towards capturing longer generational spend & GMSF projections about 200 k new jobs • Bt. R also is a form of regressive wealth redistribution: if people rent longer, they build up less capital – and the higher the rent, the longer they have to rent before they can afford a deposit: implication for secured lending in future.