This is a story about how the financial industry and governments turned a housing foreclosure crisis for everyday Americans into a financial opportunity for institutional real estate investors. And like all good stories, it involves the management of the new post-GFC housing asset class with digital technologies and algorithms. Say hello to The Automated Landlord.
We talk to Desiree Fields about a new housing asset class that emerged from other side of the GFC in the United States. The period leading up to the GFC saw the banks reducing their lending standards for home loans in the United States. The financial industry bundled up these loans into mortgages backed securities and sold them off to investors around the world. And in a now familiar tale, this eventually lead to the subprime mortgage crisis and the GFC.
When people could no longer afford to pay their mortgages, a lot of these properties wound their way through the process of foreclosure and finally settled on the balance sheets of the banks. The United States government famously bailed out some of the banks by buying up their so-called ‘toxic debt’. But according to Desiree, what emerged on the other side of the GFC was a new housing asset class that was underwritten by two opposing forces.
On the one side, the banks were sitting on a lot of property and financial institutional don’t like to own or manage physical assets, like family homes. On the other side, Americans were having a hard time getting mortgages after the crisis because of tighter mortgage lending standards, and many were turning to renting. This created the ideal conditions for property investors, who thought, “ah ha… we can buy these properties for a low price, we can rent them out to people, who are kind of locked out of the homeownership market”, says Desiree.
But before the institutional investors could bundle these houses up to create the new housing asset class, the government and the financial institutions needed to sell the idea of the single family rental to the public. Today, the management of this new post-GFC housing asset class is increasingly undertaken with digital technologies and algorithms.
Desiree Fields is an urban geographer who theorises the rise of financial markets, actors and imperatives as a contemporary process of global urban change. With a particular focus on housing, Desiree is interested in how the link between real estate and finance is being reconstructed since the 2007-2008 global financial crisis, how residents experience this process, and its implications for housing policy and advocacy.
Read more about Desiree’s work here: Constructing a New Asset Class: Property-led Financial Accumulation after the Crisis.