Consuming Urbanism 2: Monetary Urbanism
(1) One of the more problematic aspects of recent urbanist debate is the focus on supply-side housing initiatives. A common version of a supply-side housing view is that when more housing is built, housing costs become more affordable. This is a problematic vision of housing because it typically abstracts the functions of a housing market from the institutions that actually create housing, and thus results in wishcasting about the type of market that housing units comprise.
Yet one does not even need institutional or behavioral (or heterodox! or leftist!) economics to understand that housing does not comprise a market; housing units are not homogenous goods, there is not easy entry into a housing market, there are considerable hazards entering and exiting a market (time being one of the major transactional barriers), and housing producers and providers (for many different reasons) are not “price takers” (ex., they do not enter a market to accept a prevalent price). This is all basic microeconomics.
At best, what many people call “the housing market” is very likely a constellation of many different pricing equilibria, and so there are numerous economic tools that are better equipped to assess a housing market (or housing markets) than supply & demand.[Note that this entire paragraph also sets aside the fact that literature about supply/demand in housing is extremely contested, and often inconclusive.]
(2) Lately I have wondered whether a crisis view of housing is the most illustrative narrative and analytical structure for assessing how housing actually functions. A hypothesis:
(a) Consider two major demographic concerns that are widely discussed in the USA: the USA is simultaneously an aging society with declining birthrates, and a society that does not feature a robust public sector safety net for retirees.
(b) Consider one major accomplishment of global uneven development, whereby the phenomenon commonly known as “gentrification” (in its many forms and definitions) is now recognized to be upgraded from a bizarre quirk of local sweat equity preservationist “back-to-the-City” movements to a global movement of capital itself.
In this area, a growing body of literature over the last two decades covers how the switching of capital between different asset classes corresponds with gentrification, and one of the most easily recognizable trends is capital consistently switching into lucrative real estate investment structures (which are now more readily able to accept massive investment formats thanks to the creation of the Real Estate Investment Trust [REIT]). [Some good reads on economic and occupational restructuring here, here, here, and here]
(c) From these basic institutional premises, we have a scenario in which folks desiring to one day retire face declining rates of return in commonly productive industries (especially manufacturing industries, as manufacturing is restructured over the last half of the 20th Century) have greater motivation to invest in real estate, which simultaneously diversifies their investment returns and stimulates capital sources available for REITs and other real estate institutions to flood the built environment.
A great concrete example of this phenomenon is the Lincoln Yards development in Chicago, whereby a Commingled Pension Trust Fund (Strategic Property) of JP Morgan Chase Bank provided the majority ownership share of the Planned Development (while Lincoln Yards is not typically viewed as gentrification in terms of displacement of working class residents, the development is certainly a prime example of the manufacturing to housing pattern capitalizing on artificially depressed land rents thanks to Planned Manufacturing zoning). The primary function of Lincoln Yards is to create a rate of return for a $700 million institutional investment.
(d) Historically, while the Federal government is creating Real Estate Investment Trusts in the middle of the 20th century, they also are perfecting bond securitization strategies that would eventually make their way to Wall Street in the cascading forms of mortgage investment tools that presaged the 2000s housing crisis (see Quinn).
Both of these tools eventually distort market functioning of housing by (i) creating investment strategies where housing itself seeks a rate of return first, and consumption rents or sale prices second, and (ii) inducing specific housing practices by creating new classes of housing consumption for the sole purpose of selling more bonds and derivative investment tools. In terms of (ii), the sub-prime mortgage practices of the early 21st century were the most egregious example of a market distortion, whereby two classes of people were tricked into unsuitable housing and lending products (specifically, the adjustable rate mortgage with artificially low teaser introduction rate): Congressional testimony following the housing crisis established that sub-prime lending primarily targeted Black, Latinx, and other people who traditionally were denied access to mortgage funds; and, sub-prime lending was a pivot by lending institutions once traditional (and arguably more secure) mortgages and home purchasing trends were dried up. If banks no longer have any good candidates for standard mortgages, or no need to lend, they can use bond and derivative investment structures to create new borrowers.
[Good reads on the crisis here, here, here, and here. On the regulatory aspects of the short-term debt side of the crisis, see Morgan Ricks The Money Problem; David Geithner’s book is also a fascinating first hand look.]
Essentially, I hypothesize that creating a crisis-oriented institutional lens to assess housing markets will be valuable to current debates about housing development because it will show that supply/demand equilibria cannot be achieved in housing markets. There are many reasons that increasing the supply of housing will not lower prices when one assess the institutional factors that drive those housing units. Pension, REIT, sub-prime, and mortgage securitization investment tools demonstrate that seeking a rate of return for institutions is the primary function of housing markets, and therefore housing will be created for the needs of those investors, rather than any consumer.
The perverse underside of these practices is that the market itself cannot “rest” once it reaches an equilibria (ex., as in the early-2000s, when the “traditional” housing markets were pretty much exhausted). A corollary benefit of this type of institutional view of housing is that one can understand that institutions themselves will create new markets, and so there can never be a housing market that achieves one grand equilibrium where demand meets supply.
(3) Alternately, if we are seeking a grand equilibrium whereby supply and demand may meet, the recent debates and publications regarding Modern Monetary Theory (MMT) may provide an interesting bedfellow for thinkers of urbanization. MMT is typically presented in laughable caricature form by industry opponents or writers who have some interest in maintaining the “respectability” of government-functions-like-a-household-politics, and so most people believe that MMT is a theory that states a currency sovereign government cannot run out of currency, and therefore may print as much currency to spend on programming, contracts, etc., as it pleases (and yes, the stakes are high here).
However, MMT historically is a heterodox macroeconomic theory that (a) uses both empirical and materialist accounts of how the Federal Reserve actually functions on a daily basis in order to build monetary theory, and (b) draws on those empirical and materialist accounts to assert that government spending (by a currency sovereign) precedes taxing or bond issuances (here and here). Thus, controversially, taxes are established to give consumers a reason to accept currency rather than other goods(in an absurd example, if I did not need to pay taxes with money or bank deposits, my boss could pay me in coffee, Whiskey, and housing), and bonds are essentially used to meet interest rate targets and meet legal banking clearing requirements. The account provides sharp empirical evidence that corroborates anthropological research that money is a creature of the state, and did not replace barter (Morgan Ricks, cited above, corroborates this from an economics standpoint).
The classic policy achievement of MMT is a Federal Jobs Guarantee, whereby the Federal Government can use its ability to issue contracts, currency powers, taxing powers, and ability to set interest rates to establish a prevailing wage that the market can either (i) choose to beat in goods times, or (ii) use as a safety net for workers during bad times. What is crucial is that these contractual powers must exist within the constraints of available labor and available resources, which keeps MMT from the absurd caricature of unlimited spending. A more apt description of MMT might be, “when the economy has additional labor and resources to spare, the government may spend accordingly to allocate those resources, without worry of levying additional taxes or issuing new bonds.”
Recently, there are numerous interpretations of MMT that are moving beyond its original work; even though Stephanie Kelton is one of the original researches typically associated with “classic” or foundational MMT, I would even include her Deficit Myth in this class, for Deficit Myth abandons much of the empirical and materialist firepower of assessing “how banking actually works” (a charitable take may be that since the book was intended for a widescale pop audience, the finer notes of the theory’s banking research need not be included, but I personally don’t buy that). An excellent essay demonstrates how certain limitations with MMT’s view of the state and its various political instantiations show that we may actually be better suited to reorganize our view of how society and money function together. Perhaps the most famous new policy to grow from the MMT tradition is “The Green New Deal,” although one might also one might also place “Medicare for All” in this branch.
I would like to pose an additional area for research involving MMT, which is to use MMT as a theory of urbanization within the USA. Specifically, if the Federal government can implement programs like The Green New Deal, Medicare for All, and a Jobs Guarantees within the current constraints of labor and materials (let alone actual infrastructure needs, pandemic response, and other concerns relating to climate change), these programs raise a question of how the Federal government itself can step in to “umpire” trends of uneven development around the USA, and more specifically, to use these programs to equalize the conditions that exist within lagging regions.
In this case, MMT could be an intriguing research counterpart to traditional literatures within the realm of economic development, of which literature about persistently lagging regions may be the most important. What is crucial on this view is to discern how expanded spending programs by a currency sovereign could be used to drive urbanization trends away from “elite cities”, and equalize urbanization patterns across the USA. These research programs could also determine how the USA could successfully implement degrowth strategies across its cities (in true preparation for climate change), and by equalizing lagging regions create massive incentive for population rebalancing and migration across the country. Crucially, by using the Federal Governments’ contractual powers, one can also conceivably use MMT empirical and materialist research tools to assess ways to “build” and “rehabilitate” our way out of the housing crisis.
I remain skeptical about whether an MMT-based research approach within the USA could actually implement Green New Deal, Medicare for All, and a jobs guarantee to end uneven development across the USA. The biggest reason for this is that uneven development is also a global phenomenon, and so the USA needs to bolster the aforementioned policies with effective foreign policies in such a manner as to “tame” uneven development on a global basis. I am specifically skeptical as to how this works outside of the typical structures of imperialist foreign policy.
However, I think this research is worth pursuing, because if the premise of a true Job Guarantee, Federal Wage of Last resort is successful, I believe that the labor market may actually achieve the supply/demand equilibrium that urbanists believe they have located within the sphere of housing. A key research question would be whether achieving a Jobs Guarantee could create affordable housing for all.
