Note: This is not a Make Earth Sacred article. But it’s an important topic and people are cheering it on Medium, so I thought I would share it here — DS
In Park Merced, the large San Francisco residential complex where I live, 30% of the units are vacant. More would be vacant if not for Section 8 housing subsidies, with which government pays most of the rent for low-income tenants. Squatters live in some vacant units. Cars and homes are being broken into. The place is going downhill.
Last year, Park Merced ran a real life experiment on rents. A small courtyard one block from me has eight units around it, and six were vacant. Squatters were moving in, cars were being robbed. Management was asking about $3400 / month for a 2 BR apartment. In 2022, for some reason, they lowered the rents to the low $2000s. The units filled with working families; the squatters had to leave. It’s a much nicer place to live now.
As this story shows, all management would have to do to restore the neighborhood and protect their housing stock is reduce rents to reflect what people can afford to pay. But they won’t. As the time of this writing, their web site officially asks $3200/month for a 2 bedroom, a “special deal available only for a week.”
Whatever happened to supply and demand? When supply is low and demand is high, prices should rise. When demand is low, sellers lower prices to attract buyers (in this case, renters.) Isn’t that how capitalism works? If people can’t afford your rent, you lower it.
But here in America, home prices, apartment and office rents keep rising, even though people can’t afford them. What is going on?
Basically, the law of supply and demand has been repealed. Because finance capital has taken over most capitalist economies, capitalism as we knew it no longer exists. Modern finance capitalism isn’t about buying and selling goods and services. It’s about keeping money floating around, charging interest at every step.
It’s a system that, instead of directing money to where it’s most needed, which used to be capitalism’s strength, now sends it into the accounts of finance corporations that charge interest and rent.
The United Way reported in 2023 that there are 16,000,000 vacant homes in the US, while over 580,000 Americans sleep in the street. Yet, when authorities talk about the housing crisis, they always say “Build more housing,” or demand tougher laws against homelessness and drugs. They never demand lower rents, or confiscate unused housing, allowing people to live in it.
How does a financialized economy affect housing? Park Merced had been owned by JP Morgan Chase and Carmel Partners until 2005, when they sold it to Stellar Management and Rockpoint Group for $687,000,000. Rockpoint is a real estate investment company that buys and rents out homes all across the country and is worth over $18 billion, according to Wikipedia. 20% of Rockpoint is owned by Blackstone Inc, which has assets over $1 trillion and is partly owned by the Abu Dhabi Investment Authority. .
Trillion dollar corporations investing and trading all over the world don’t depend on monthly rental incomes to stay in business. They profit from bringing in investments, selling things, buying others, charging interest and fees . In their world, a vacant apartment with an asking price of $4000/ month may be worth more than a $2300 / month apartment where people actually live. Executives can make their plans, borrow more money, pay themselves well, and wait for a rebound in the rental market.
Park Merced has been touting their “Vision Plan”, in which they will tear down thousands of row apartments and replace them with 6–14 story apartment buildings in a “sustainable community of the future.”
It’s a big plan and would cost well over a billion dollars. They are still seeking investors. The Vision Plan was announced 14 years ago, and nothing has happened on the ground, but architects have been designing buildings and creating pretty pictures. Presentations keep getting made. Consultants help owners get the plans approved by San Francisco city government. Investors fly in from China and look the place over. The money is sloshing around, which is how the financialized economy works.
An economy based on debt
I got much of the information in this section from three of the leading economists in the English-speaking: world Ann Pettifor of England, Michael Hudson of the United States, and Radhika Desai of India.
Ann Pettifor points out that when capitalism becomes financialized, corporate well-being is more about creative bookkeeping than about actual income. Property owners like Rockpoint are indebted to banks. They manage payments by attracting investors because of the supposed value of their property. Lowering the rents will lower the reported value of their property, discourage investors and might collapse the whole system.
Traditional capitalism rapes the planet and exploits workers, but at least it produces real goods and services. Finance capitalism runs chiefly on rent and debt, producing nothing. Here are some categories of debt and the literally inconceivable amounts that are owed, all of which are reported as assets on one or another corporation’s balance sheets.
● American s owe $1.6 trillion in student debt. Because of punishing interest rates, many pay their whole lives and still owe as much as they did in the first place.
● According to New York Federal Reserve, total household debt in USA reached $17 trillion in 2023. Mortgages totaled $12.04 trillion; credit card balances were $986 billion. Auto loans and other borrowing accounted for the rest.
● Corporate debt other than financial corporations’ debt totaled about $17 trillion as of 2020, and it’s higher now.
● According to the White House, financial institutions’ (banks and investment companies’) debt stood at 24.252 trillion as of 2022.
The US Treasury department reported in 2022 that federal government debt reached $32 trillion.
Total of all these debts is about $92 trillion, about $275,000 for every person in the US.
● That’s just American debt. According to the Institute for International Finance, the world’s debt is over $305 trillion. According to the UN, world governments owe more than $92 trillion.
All that debt has interest attached to it, so the debt keeps growing. Nearly all of it is owed to big financial institutions, so they keep getting wealthier while the rest of us get poorer.
Michael Hudson explains that the debt economy is the reason why 65% of all new wealth created in the last 10 years has gone to the top 1%. It’s because little real wealth was created. We’ve just run up ever-higher debts, which appear as wealth on bankers’ quarterly reports. Our rents and debts owed are their profits.
Rent and Inflation
Are rising rents caused by inflation of the US dollar? It would be more accurate to say rents and debts are the main cause of inflation.
Failed debt instruments, like collateralized debt obligations (CDOs), which consist of mortgage debts packaged as assets and sold to bondholders, caused the worldwide financial collapse of 2008. The financial institutions that sold the CDOs were bailed out and profited hugely.
The bailouts never stopped. Now called the Bank Term Funding Program (BTFP), they reached $103 billion per week in June, 2023.
Most of this ongoing transfer from the Federal Reserve to banks and investment corporations winds up either in stocks or in real estate, because where else would it go? There aren’t enough profitable industries to invest in. CEOs can only buy so many luxury yachts.
According to economists Desai and Hudson, $9 trillion has been sent to banks and investment firms in the last 15 years. That’s what keeps stock prices and real estate prices up and delivers more land and housing into the hands of companies like Rockpoint and BlackRock.
Rising rents drive up the prices of everything, because everything sold has to be made and stored somewhere. All workers at every level have to live somewhere. Wages, which have been pretty flat, have nothing to do with rising prices.
Other causes of inflation include rising energy prices due to US sanctions on oil producing countries such as Russia, Iran, and Venezuela. All economic activity requires energy, so when its price goes up, everything gets more expensive.
But underlying everything is the financialization of the economy. Trillions of dollars sloshing around in unaccountable investments are easy targets for corruption and for what Desai and analyst Cory Doctorow call “greedflation,” in which companies exploit economic confusion to raise prices without any market-based reason.
Erecting huge structures of debt, rent, and interest in complicated multi-level investments on top of a shrinking real economy, all while spending trillions on military adventures, has eroded the world’s faith in the US dollar. When people don’t trust a currency, it loses value.
How did capitalism become this financial house of cards? It’s what late stage capitalism does. A century ago, Russian revolutionary V.I Lenin wrote, “Imperialism: the last stage of capitalism, describing the financialization process in Europe, which was eerily similar to what we’re seeing now. Then and now, financiers hide their wealth grabs in accounting and debt instruments that are increasingly hard for ordinary people to follow. The system becomes more corrupt, more monopolized, and less responsive to real world economic pressures such as competition,
supply and demand.
Bring back the real economy
Rents are up because a financier class — bankers and investment companies — control most of the real estate market. They’re not in the business of housing people; their only purpose is increasing their paper wealth.
To bring rents down, we might have to tear down the entire structure of finance capital. Turn all banks into credit union or savings and loan type operations, owned by state and local governments.
If this sounds revolutionary, lowering rents might require a revolution. I don’t see where we have the power to do that. However, we could start smaller.. We could support movements’ taking over unused housing, as happened in the Great Depression of the 1930s.
Short of a revolution, government could tax unrented apartments, as they are doing now in Vancouver and will start next year in San Francisco. The tax provides a strong incentive to landlords to rent their apartments, requiring more reasonable rents, which is why real estate corporations here are suing to block the tax.
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dear david