Urban Madness: Inequality and the Right to the City

The weekend edition of the Financial Times dated April 7/8 featured a story in the House and Home section under the title ‘Barcelona hits the Brakes.’ The story describes the negative effect of last October’s Catalan independence referendum on Barcelona’s real estate market. The Times cites data from the Spanish property website Idealista. During the summer of 2017 (Q3 2017) properties in the city gained an impressive 018 percent compared to the previous year. In Q4 2017, in the midst of uncertainty stemming from the referendum, the prices fell 1.2 percent, with the sharpest drop taking place in the priciest neighborhoods.

The most interesting nugget of the story reads like this:

Foreign buyers’ sensitivity to Catalonia’s uncertainty political situation bode ill for the city’s property market in the mid-term since they form an increasing share of the market. Years of steady appreciation has meant that much of the city’s stock has become too expensive for locals. Salaries have been stagnant says Encinar (founder of Idealista). ‘Today, when you ask local agents about business, they talk to you about ‘investors’ rather than ‘clients.’

Meanwhile in February the British Columbia Finance Minister Carole James announced measures targeting foreign buyers and speculators. Foreigners now have to pay a 20 percent tax on top of the listing value (up from 15 percent), and a levy on property speculators will be introduced later this year. Starting this fall foreign and domestic investors who don’t pay income tax in the province where the property is will pay a speculator tax of 0.5 percent of the property’s assessed value in 2018 and 2 percent thereafter. The government also vowed to crack down on the condo pre-sale market and beneficial ownership to ensure that property flippers, offshore trusts and hidden investors are paying taxes on gains.

The flashpoint for the legislation is Vancouver where foreign, particularly wealthy Chinese capital, has been driving double digit gains in property value. Media accounts report that Vancouver casinos and real estate have in recent years become vehicles for laundering proceeds for Asian high rollers and drug dealers with ties to the fentanyl trade. There were also two seasons of the very corny reality TV show Ultra Rich Asian Girls which followed the exploits of daughters of wealthy Chinese families as they shopped and partied around the city. With Chinese capital flowing housing prices in Vancouver have skyrocketed-in 2016 CBC reported that price of a single family home shot up 30 percent in one year to an average of $1.4 million even as the city claims that over the past decade the housing stock has grown by 12 percent and the population by only 9 percent. Toronto and Montreal appear to be on the cusp of similar transformations.

This kind of thing is happening in cities all over the world. In Lisbon a flood of foreign investment and financial deregulation has in the city center up 30 percent over the past two years. Yet the average monthly wage in Lisbon is about €850. Over in London research conducted for mayor Sadiq Khan revealed foreign investors are buying up thousands of homes suitable for first-time buyers. Of the 28,000 new homes built between 2014 and 2016 3600 were scooped up by foreign buyers with the majority from Singapore and Hong Kong followed by Malaysia and China. Last year it was revealed that an entire new 81 unit complex in Southwark (on the site of the former Heygate council estate) was bought by foreign investors while the same was true for 87 percent of Baltimore Wharf, a development on the Isle of Dogs where apartments started at £400,000. Accounts of Russian oligarchs living the high life have filled the press, at one point in 2016 campaigners connected to Russia’s opposition leader Alexei Navalny organized London’s first ever ‘kleptocracy’ tour. Charles Moore, a former editor of the Telegraph, said a few years ago that London’s property market has become ‘a form of legalized international money laundering.’

In New York, early numbers from the latest Census Bureau’s Housing and Vacancy survey show unoccupied apartments ballooned by 35 percent in the three years since the last survey. Over 100,000 units are occupied temporarily or seasonally (74,945), basically meaning investments and vacation pads for the wealthy, or for unexplained reasons (27,000), no doubt a good number of the latter fit the former description.

According to data compiled by the firm PropertyShark, cited in the June 2014 New York magazine article titled ‘Stash Pad’, since 2008 about 30 percent of condo sales in large-scale Manhattan developments have been to purchasers who either listed an overseas address or bought through limited-liability corporations (a method favored by wealthy international buyers). The marketing firm Corcoran Sunshine, which specializes in luxury buildings, estimates that 35 percent of its sales since 2013 have been to international buyers, half from Asia, with the remainder about evenly split among the rest of the world. Data from the Census Bureau’s 2012 American Community Survey revealed 57 percent of apartments in the three block stretch from East 56th Street to East 59th Street, between Fifth Avenue and Park Avenue, are vacant at least ten months a year. From East 59th Street to East 63rd Street the vacancy rate is almost 50 percent.  Stretching it out further the Bureau estimates that 30 percent of all apartments in the entire quadrant from East 49th to East 70th Streets are vacant at least ten months a year. This coincides with New York’s homeless population reaching an all-time high.

It is difficult to conceive a more absurd reflection of global inequality than the building of cities specifically for elite investors at a time when urban homelessness is spiraling. Indeed global inequality has reached absurd levels. According to Oxfam’s report An Economy for the 99%, since 2015 the world’s 1 percent has owned more wealth than the rest of the planet. The richest eight men own the same amount as the poorest half and over the next 20 years 500 people will hand to their heirs over $2.1 trillion- a sum larger than the GDP of India. While global development is slowly narrowing inequality between countries, inequality is rising within countries everywhere. The World Inequality Report 2018 reports the share of income going to the top 10 percent has increased somewhat in Europe, remained high in Africa, Latin America, and the Middle East and has exploded in the United States, Russia, and Asia.

The city-as-investment dynamic is also a logical consequence of neoliberalism. Neoliberalism, defined as an economic system of liberated markets, free trade, deregulation, privatization, and the withdrawal of the state, emerged from the economic stagnation of the early 1970s. Neoliberalism hasn’t been good at producing productive profits as the rate of profit has remained low. U.S. productivity growth is at its lowest level since the 1800s.However, if production is producing profits at a reduced rate where are capitalists to go to increase wealth? Get the state to cut your taxes. Break unions and freeze wages. Invent and expand creative financial assets. Buy back your company’s stocks. Build and invest in urban properties.

Since the mid-1980s corporations have become by far the most important buyers of their own stock. The dirty fact is that money cannot be made as fast by actually investing in production, meaning new plants, equipment, workers, etc., as it can by pumping up stock prices. The price-earnings (P/E ratio) measures a company’s current share (i.e. stock) price relative to its per share earnings. Since the mid-1930s the median P/E ratio for the Standard & Poor 500 stock index is 17. It currently stands at about 25. Another metric is the CAPE index, ‘cyclically adjusted price-earnings’. It measures real earnings per share over a 10 year period and corrects for inflation. The historic median is 16. Currently it is at just almost 33.

For the U.S. this has caused inequality to explode. The World Inequality Report 2018 breaks down American income growth by selected percentile from 1980-2014. Income for the bottom 20 percent of the population grew by a mere 4 percent over that period. The bottom 50 percent grew at only 21 percent, less than 1 percent a year. The top 10 percent grew 113 percent, the top 1 percent grew 194 percent, the top .001 by 423 percent, the top .0001 by 616 percent.

As the planet grows more unequal it grows more urban. For the first time in history the world’s urban population outnumbers the rural population. Cities have absorbed about two-thirds of global population growth since 1950. In 1950 there were 86 cities in the world with more than one million inhabitants. As of 2016 there were 512 such cities, by 2030 there will be an estimated 662. Urbanization spans a vast gulf from the very wealthy neighborhoods of ‘International’ cities such as Shanghai, London, and New York to teeming slums all over the global South. Around one billion people, or roughly 1 in 8 people worldwide, live in slums. In this period cities have emerged as a key part of capital accumulation, absorbing surplus capital and labor. Gentrification has transformed from a local process, even an exception to urban disinvestment, to the pillar of global urban planning.

This inevitably makes the Right to the City movement of paramount importance to the International Left. The struggle against gentrification in London and San Francisco is easily linked to the struggle against displacement, and for basic human needs, in the pueblo jovens of Lima and favelas of Rio de Janairo. At bottom is the right for people to exist in space and time. This goes far beyond just an individual right to the resources a city contains. Since the process of urban change is a collective one, thus is the right to the city. Geographer David Harvey was surely correct when he wrote that ‘the question of what kind of city we want cannot be divorced from the question of what kind of people we want to be, what kinds of social relations we seek, what relations to nature we cherish, what style of daily life we desire, what kinds of technologies we deem appropriate, what aesthetic values we hold.’

This never will be easy.  As inequality deepens and urbanization expands, state militarization grows with it. Stephen Graham, in his important book Cities Under Siege: The New Military Humanism, shows boomerang effect of the War on Terror on policing in Western cities. Drones are now involved in crime patrol. Security Zones, based on efforts to build Green Zones in Baghdad, are prominent in big cities. Temporary Security Zones are set up around sports events and political conventions. Since the 1990s over $5 billion worth of surplus military equipment has been transferred to police departments across the country.  During the Obama years, before limits were put in place which have since been rescinded by the Trump administration, police departments received tens of thousands of machine guns, thousands of pieces of camouflage and night-vision equipment, along with hundreds of silencers, armored cars and aircraft. The number of SWAT teams has skyrocketed since the 1980s. Originally established to deal with hostage situations and heavily armed criminals, SWAT teams are now deployed tens of thousands of times a year, mainly for drug searches (well glamorized by the CBS show S.W.A.T.). There was a glimpse of these possible confrontations with social movements during the protests against police brutality in Ferguson in 2014. There is no reason to expect these trends will cease and every reason to think they will expand.

Such is the specter that justice movements may have to confront in the future. Still, future social revolutions will be in cities or nowhere.

Joseph Grosso is a librarian and writer who lives in Brooklyn, New York. Read other articles by Joseph.