The institutional logic of property inflation

This special issue aims to shed light on the causes and consequences of several decades of property price inflation. That trend has certainly not gone unnoticed or escaped commentary. Indeed, there is a certain ‘Sydney sensibility’ to the origins of this special issue (where the editors of this special issue live and where the conference on which it was based was held), ¹ reflecting the degree to which house prices are a topic of constant commentary and endless media attention. An alarming number of casual social conversations include registration of the fact that even a decent middle-class wage no longer translates into an ability to purchase a home, and that for those who have not been able to square this circle at some point in time, the impossibility of purchasing a home only recedes further, with high rents eating up more and more disposable income. Many overseas academics find themselves a little surprised that so many local students like to live at home ‘because it is convenient’, but they quickly learn that it is code for not being able to afford to live independently.

Yet while property prices are a topic of constant discussion in Sydney, and elsewhere in Australia, much of this commentary has remained at the level of watercooler conversation and media reporting, inevitably attracted to the more spectacular manifestation of the phenomenon, as when uninhabitable houses sell for record prices. Such discourses are (understandably) oriented to the idea that property prices are ‘unsustainable’ – that at some point the bubble will have to burst and prices return to real values commensurate with the world of work and wages. Ironically, that conversational style of commentary, which depicts out-of-control property prices as a massive speculative bubble, closely mirrors a great deal of critical commentary on property inflation, which has sought to counter official assertions about the salutary effect of capital gains by pointing to the irrationality of believing in the indefinite growth of paper wealth (e.g. Gomez-Gonzalez et al., 2018; Keen, 2017; Teng et al., 2017). But such a vantage point cannot account for either the causes or the consequences of what we now have to acknowledge has been several decades of – precisely – ‘sustained’ asset inflation.

The aim of this Special Issue is therefore not simply to fill a gap in the literature, but rather to reframe the issue of property inflation, away from the ‘speculative bubble’ framing toward a perspective that is more alert to the social, financial, and urban policies that sustain it and the way these policies both reflect and maintain particular political constituencies and cultural priorities. In other words, this Special Issue positions property inflation not simply as a result of under-regulation that permits mindless speculation (as left-wing critics tends to argue) nor of overregulation resulting in low supply (as a mainstream economist might argue), but as a result of institutional strategies that have entailed particular kinds of policies and constellations of actors. To achieve the requisite level of institutional contextualization, we have brought together political economists, sociologists, and urban studies scholars along with a diverse suite of case studies spanning housing, finance, and urban development.

Even though this Special Issue aims to provide a critical reframing of the ‘speculative bubble’ perspective, it is of course important to acknowledge that this take is itself already a critical response to official and orthodox legitimations of the logic of the property market. That is to say, in mainstream economic accounts, one often looks in vain for any institutional factors and policy shifts that might be held responsible for several decades of steady increases of property prices, and official policy discourses often reproduce such accounts. This, however, is often not because policy makers literally believe in some version of the efficient market hypothesis but rather because citing such narratives allows them to stick with particular practices for more complex, often unacknowledged reasons. It is this configuration of forces that the critique of the housing bubble seeks to puncture by emphasizing the neoliberal deregulation of credit markets and the way this has engendered upwards pressure on housing prices. If we are engaging critically with that perspective in this Special Issue, it is not because the authors want to endorse existing policy frameworks or to suggest that there is a wholesome market logic at work here. Instead, we want to draw attention to the broader array of institutional factors and forces that sustain asset inflation, acknowledging the role of credit liberalization while also taking into account a wider range of factors.

In this sense, the approach adopted in this Special Issue can be seen as following the broad thrust of ‘neoliberalism’ studies, which evolved from an emphasis on deregulation and state retreat to more subtle interrogations of how market-driven logics of governance were constructed through a range of public policies (see e.g. Cahill and Konings, 2017; Peck and Tickell, 2002). These more subtle interrogations suggest that any assessment of property price inflation should situate credit liberalization as just one element within a policy configuration, that is, as one component within a complex institutional formation. The authors in this Special Issue contribute to this project by analyzing house price inflation in relation to fiscal policy (Ryan-Collins, 2021); shifting methods of urban planning (Weber, 2021); neoliberal narratives focused on supply shortages (Phibbs and Gurran, 2021); the ways in which new elite alliances have gained hold of urban policy and development (Rogers and Gibson, 2021); cultures and policies of tenure (Christophers, 2021); and the growth of specific constituencies that tend to lock in patterns of policy making (Adkins et al., 2021).

The papers by Phibbs and Gurran and by Ryan-Collins pick up most directly on the themes and concerns that dominate the established critical view on property inflation. The paper by Phibbs and Gurran, ‘The role and significance of planning in the determination of house prices in Australia: recent policy debates’, offers an analysis of how policy makers and politicians understand the housing problem and the official rationales that they cite in support of their decisions. It examines the extent to which urban policy making in Australia rationalizes its persistence with policies that have the predictable effect of pushing up home prices by repeatedly drawing attention to supply-side questions, implying that market inefficiencies in the production of housing are to blame for high property prices and that solving these is key to solving the housing problem. It is this kind of unprovable assertion about the efficiency of markets that diverts attention from the wide range of policies and institutions that support asset prices on an ongoing basis. The tight focus on supply-side analytics renders invisible the complex suite of factors that work to make housing unaffordable. The analysis offered by Phibbs and Gurran remains purposely ambivalent on whether this belief in a basic supply-and-demand explanation of the problem is born of naivety or represents a more strategic form of ignorance. In this way, their concern is not merely with disproving the relevance of such orthodox economic notions (although they do that too) but equally with what these mainstream economic notions are doing and how they work performatively as discursive elements in a broader regime of institutional narratives.

As mentioned, the concern with the liberalization of mortgage credit features centrally in the established critique of the property bubble. The paper by Ryan-Collins, ‘Breaking the housing-finance cycle: macroeconomic policy reforms for more affordable homes’, takes that focus as its point of departure and fleshes out a number of the institutional mechanisms through which it operates. In particular, he identifies a mutually reinforcing feedback loop between the extension of credit and asset values. The procyclical nature of financial leverage is a theme that has received considerable attention since the onset of the global financial crisis (GFC), especially among economists who have examined the logics of the shadow banking system that financed the expansion of mortgage credit during the early 2000s (see e.g. Adrian and Shin, 2014). As we saw in the GFC, this logic can flip over into its opposite, that is, a logic of financial deleveraging whereby credit volume and asset values decline in tandem. By looking at the broader policy regime of subsidies and tax incentives in which asset inflation operates, Ryan-Collins makes comprehensible why we should not expect to find a neat law of symmetry here, according to which each period of property inflation would be followed by a commensurate period of asset deflation to bring asset values back to a baseline level. Property inflation is a complex institutional construction that is maintained by a multifaceted configuration of policies, norms, and practices, and Ryan-Collins examines various elements of this configuration.

One way of summarizing the points of the two opening papers is to say that the ‘fictitious’ dimension of the property economy is socially and institutionally embedded (Beckert, 2016). Expectations of future capital gains are not simply irrational ideas about the value of land, that is, imaginary and speculative in the pejorative senses of these words. Instead, they are anchored in public policies and social norms that make some bets on the future far more viable than others (Adkins, 2018; Konings, 2018). The medium-term sustainability of asset inflation is not just an economic question related to fundamental values, but also a political question that revolves around constituencies and the way these are interpellated and translated into political coalitions, policies, and priorities. There is of course something obvious about the idea that there are social and political interests at play here (rather than just choices between rational and irrational policies); but that is nonetheless precisely what a ‘property bubble’ perspective makes so hard to conceptualize in a compelling way. Too often this perspective defaults to the idea that neoliberal policies remain in place because of the hold that economic elites have on politicians and policy makers. Yet it is not clear that such notions of ‘institutional capture’ can stand on their own as explanations: economic elites have always had privileged influence on public institutions and policymaking, and if there is something particularly unique about that in the present situation, that requires explanation before it can itself serve as an explanation. In other words, while at any time we are bound to find various patterns whereby capitalist elites shape public policy, the institutional logics that maintain such influence are far more complex and work in less mono-causal ways than suggested by the idea of ‘capture’.

To be sure, in recent years this way of thinking has been given a new lease of life as well as mainstream respectability with the impact of Piketty’s (2014) discussion of asset-driven wealth concentration at the very top, driven by growing returns from assets. This has been accompanied by a political theory of sorts, which essentially sees the growth of a plutocracy and explains the persistence with policies facilitating ongoing wealth concentration as a function of the authority and influence wielded by the ultra-wealthy in the public policy arena (Rehm and Schnetzer, 2015). This is premised on the argument that the asset inflation stressed by Piketty's analysis works to divide society into two key constituencies: an elite (‘the 1%’) comprised of the super-rich living off returns from assets and a majority (‘the 99%’) who live off stagnant and diminishing returns from labour or on no income from labour at all.

The concentration of wealth at the very top has similarly led to a fascination with the lives and lifeworlds of the super-rich across the social sciences (e.g. Burrows and Knowles, 2019; Dorling, 2014; Harrington, 2016). This has included work on how the super-rich have captured global cities, transforming them into what Atkinson (2020) has termed ‘alpha cities’, that is, cities that revolve around and are shaped by the super-rich and their enablers: political, corporate, property and planning systems, and wealth management elites. Alpha cities privilege and support the accumulation of wealth and property while doing little to support those dependent on (increasingly precarious) wage labour to survive and/or those in need, even as these segments of urban populations are likely to service the lives of the super-rich. Indeed, the flip side of alpha cities is in-work poverty, expulsions, evictions, displacements, austerity, neglect, disinvestment, and the collapse of public infrastructures (see also Soederberg, 2021; Wigger, 2020).

The concentration of private wealth at the very top is a very real phenomenon. That the Grenfell Tower disaster could take place in one of the wealthiest cities in the world should not be seen as an aberration or anomaly but as in line with the logics and dynamics of the alpha city. But we may well wonder whether the scholarly airtime devoted to the lifestyles of urban billionaires might not be driven primarily by the same kind of fascination that leads us to be far more interested in Leonardo DiCaprio's performance of a coke-snorting trader than the history of the mass misery experienced in the wake of the savings and loan disaster of the same decade. In the same way that celebrity culture is not best understood by studying the attributes of the celebrity her/himself but requires a wider lens on the society that makes such adulation possible in the first place, we need to adopt a wider perspective. As Rogers and Koh (2017) put it, a binary approach here may not be all that helpful, and it is more productive to think in terms of a spectrum of inequality. This is again of course not to say that the very wealthy have not benefited especially from these policies – it is entirely obvious that they have. Rather, it is to say that asset inflation is characterized by a degree of institutional complexity that is not captured by notions of policy and institutional capture.

The influence of elites on policy making has long figured as a central element in a variety of more sociologically oriented theory and analysis (Bourdieu, 1996; Mills, 1956; Scott, 2008). Such literatures have been less given to determinist understandings of the power of elites. Instead, straddling (even if avant la lettre) the divide between state theory and social network theory, they foreground how elective affinities and alliances across and between the economically powerful and the professional classes who occupy key strategic positions within institutions of public authority enable contingent alignments with regard to public policy to emerge. More recently, and fittingly in terms of the concerns of this special issue, Özgöde (2021) has suggested that it is not primarily ‘capture’ that can explain the apparent alignment of central bank policy with the interests of finance capital, including its elites, beneficiaries, and architects. Instead, at issue are the very logics of policy itself. Central bank policy makers subscribe to or promote certain policies not because they have been captured by external interests either in their totality or partially but because they subscribe to certain policy programmes and their paradigms. In the contemporary era this paradigm, Özgöde, suggests, is one of systemic risk: a conception of the financial system as a critical and yet simultaneously vulnerable economic system which central banks must work to protect. This paradigm has enabled and put in play many of the policies – the bailout of private banks, quantitative easing – that are routinely called up as evidence of ‘capture’. Other authors working in the political economy of financial markets have similarly stressed the infrastructural power of finance capital, which should be conceived not in a structural-functionalist sense as causally determining what the state does, but should rather be seen as operating through the way its rationality has penetrated into the logistics and pragmatics of governance (Braun, 2020; Walter and Wansleben, 2020).

The next two papers in this Special Issue show precisely how notions of capture cannot do justice to the logics of policy programmes and their paradigms and do so via a focus on urban governance and urban politics. Weber (‘Embedding futurity in governance: redevelopment schemes and the time value of money’) and Rogers and Gibson (‘Unsolicited urbanism: development monopolies, regulatory-technical fixes and planning-as-deal-making’) place emphasis on epistemic and institutional embeddedness, emphasizing the way in which the era of property inflation has been accompanied by a reformatting of temporalities in urban governance. Several decades ago, Agnew (1994) showed how a ‘territorial trap’ was constraining the way nation states were studied (Billé, 2020: 3). A similar bounded mode of territorial thinking had long constrained the way cities were studied too: a key limitation was the conceptualization of the city as a flat territorial plan. Ideas associated with ‘volumetric urbanism’, as recently formulated in this journal (McNeill, 2019: 850), have argued that ‘territoriality can be understood as being about the arrangement of more than just surface land plots, and the repertoire of state technologies that work to measure the qualities of land in a multidimensional way’. The papers by Weber and Rogers and Gibson bring an additional dimension to this theorization of the governance of land, real estate, and property: increasingly the entrepreneurial governance of the city takes place not only spatially but also temporally, backwards and forwards in the socially constructed times of history and the future. Thus, these papers identify, to extend Agnew's framing, a ‘temporal trap’ at the heart of our thinking about property. They argue for the need to take seriously the imperative to locate both where in time and where in space (imagined or actual) events and actors are located. In this way, they show how future, hypothetical asset values, customers, investors, and capital are key to the calculative practices that underwrite urban governance in Australia and the United States.

The temporal claims and representations of governments, developers and other urban actors, and the calculative techniques and practices they use to make these claims, have material effects. Pinnegar et al. (2020: 323), writing about the role of calculative devices and techniques with specific reference to the case of Sydney, have offered an insightful formulation of how we might locate such techniques theoretically: ‘If financialisation is the fuel of the housing densification process, “value-switching” – enabled through the planning system – [is] the trigger’. Government and developer calculations about the city, and capital lending and borrowing for urban development more generally, depend on land and real estate values. Growth coalitions and alliances are constantly seeking to raise the ‘value bar’, pushing up land and real estate values. These growth coalitions use urban site amalgamations, multi-sectorial partnerships, ‘and necessary sophistry associated with negotiating inclusionary zoning and other forms of value capture’ (Pinnegar et al., 2020: 323). There is increasing pressure to drive up land and real estate prices, to expand the number of customers on each new development or infrastructure project, or to increase the density profile of the next high-rise development (Troy et al., 2020). This pressure stems from not only real estate elites alone, but also from the fact that such developments increasingly feature as the condition of possibility for a whole range of public projects.

Imagining and marketing futures is key to this urban politics. It is through mobilizing particular images of the futures that a new suite of urban governance instruments can be organized. Urban governance in the neoliberal era is distinctive for the way in which it engages with, and is grounded in, the logics of uncertainty and speculation. Weber understands the time value of money as ‘a market device that allows professionals to telescope the future down to the present and project current values outwards toward the beacon on the horizon’. Building on her long-standing interest in the financial instruments underwriting urban development (Weber, 2002), she analyzes the logic of tax increment financing, a ‘variation of “land value capture” or “value uplift” strategies used across the globe’, showing how it allows for the performative conjuring of ‘future cash flows’ that can be discounted as present value. In other words, hypothetical future cash is drawn down into the present and mobilized through physical urban objects in the city such as land and real estate. Rogers and Gibson turn to a different planning instrument, the ‘unsolicited proposal’. They show how future casino customers and future cash flows were conjured up through the calculative practices in the unsolicited proposal process, and how these were ‘telescoped’ down into the present to justify the construction of a six-star casino on some of the most valuable land in Sydney, adjacent to Sydney Harbour. That the projected cash and customers never materialized, as predicted only serves to underline the general point that strategies of imagining particular futures can be highly profitable even when their predictions in fact fail.

The calculative practices discussed in these papers deal with how governments, consultants, and the private sector ‘come to know the future and render it actionable’, as Weber puts it. Here we find again that the link between asset-driven wealth and policy making is shaped primarily by the way in which policy proactively incorporates logics, rationalities, and imaginaries. There is of course nothing egalitarian or neutral about either the causes or consequences of that process, but, nevertheless, we cannot hope to grasp the role of the rationalities at work if we reduce them to the interests of those benefitting from them in the most visible ways. As Weber shows, governments actively use the forecasting tools of the private sector, relying on ‘financial feasibility modelling techniques borrowed from the private sector to speculate on the direction and degree to which property values will change over time’. In some cases, they outsource the forecasting process to private consultants who are connected to the industries that benefit from these calculations. In Rogers and Gibson's unsolicited proposal case, the government hired a consultancy firm, directed by a former corporate infrastructure financier and banker, to write their unsolicited proposal policy. This consultancy firm then pitched their services to would-be private sector unsolicited proposal bidders by offering to assist in the writing of unsolicited proposal bids.

If the papers by Weber and Rogers and by Gibson emphasize epistemic and institutional embeddedness, the next paper, by Adkins, Cooper, and Konings, ‘Class in the 21st century: asset inflation and the new logic of inequality’, highlights the social embeddedness of housing inflation. It considers the issue of property inflation in relation to questions of class, arguing that existing perspectives tend to obscure the extent to which property inflation has worked to shift the social logics of inequality production and to recompose class structures at large. Whereas work in the social sciences has tended to confirm Piketty's two societies model, Adkins, Cooper, and Konings instead highlight how asset appreciation has benefited large parts of populations through participation in residential property ownership. Focusing on the case of Australia, and especially property prices in Sydney, they track how a range of households have seen major gains in their wealth portfolios and argue that the ability of households to access capital gains has become so central to the logic of stratification that we now live in an asset-driven society (or, ‘asset economy’ (Adkins et al., 2020)), where people's relationship to assets is often more important than employment in determining life chances. Asset appreciation operating in tandem with wage depreciation has entailed a thoroughgoing transformation of the social structure such that class and stratification now increasingly follow asset-based logics. Although the downsides of this process are increasingly clear (for an ever-larger group, it is impossible to save for a down payment on the basis of income from work alone), the reluctance of politicians and policy makers to break with policies that fuel property inflation should be understood with reference to the sizeable constituency of homeowners who have a vested interest in the continuation of that trend.

Adkins, Cooper, and Konings’ paper, especially in their emphasis on the stratifying effects of asset-based wealth, is complemented by Christophers’, ‘A tale of two inequalities: housing-wealth inequality and tenure inequality’, which analyzes the way tenure policy works to prop up asset values. Focusing on the cases of the UK and Sweden, Christophers shows how through various measures, home ownership has been supported and subsidized, both directly and indirectly. Simultaneously, rental (both public and private) has been denigrated culturally, which has served as an additional force in bolstering the demand for owner occupancy. The effects of this should be understood as operating in a context where leveraged property ownership has become concentrated, and where it is consequently more normal than ever for renters to be the ones who effectively maintain the servicing of a mortgage on a property. According to Christophers, the dynamic of ownership and rent, and especially the inequalities that inhere between the two tenure types, should be recognized as one of the factors that has led to increasing inequalities of housing wealth.

Taken together, the contributions to this Special Issue take us beyond the idea that it has simply been the deregulation and liberalization of credit that unleashed house price inflation. They identify various elements of a complex, multifaceted institutional configuration that supports it – fiscal policy, monetary policy, supply-side policy narratives, housing tenure policies, the role of specific popular constituencies, elite strategies, urban planning techniques, and new temporal imaginaries. We hope that in this way, this Special Issue will make the ‘property bubble’ narrative less tempting and invite more complex, institution-focused perspectives on the persistent reality of property inflation in large urban centres. At least in Australia, just how crucial this phenomenon is to an understanding of social, economic, and political dynamics has been made abundantly clear by the COVID-19 crisis. During the pandemic, the relief and bailout packages were heavily oriented toward the financial pressures on middle-class homeowners. If renters were also given some temporary relief, this was largely according to a trickle-down logic. Even as the crisis has unfolded, property prices across major cities in Australia (especially in Sydney and Melbourne) continued to rise, returning yet further capital gains to the household wealth portfolios of residential property owners. And as Australia emerges from the lockdown, the wealth effect of property inflation is predictably proving to be the most readily available lever to rekindle economic growth.