Icebergs, Zombies, and the Ultra-Thin

Architecture and Capitalism in the 21st Century

Matthew Soules

• Publisher: Princeton Architectural Press
• Year: 2021
• ISBN:
  9781648960291
• Topic: Architecture
• Subtopic: Urban Planning & Landscaping

"Soules's excellent book makes sense of the capitalist forces we all feel but cannot always name… Icebergs, Zombies, and the Ultra Thin arms architects and the general public with an essential understanding of how capitalism makes property. Required reading for those who think tomorrow can be different from today."— Jack Self, coeditor of Real Estates: Life Without Debt In Icebergs, Zombies, and the Ultra Thin, Matthew Soules issues an indictment of how finance capitalism dramatically alters not only architectural forms but also the very nature of our cities and societies. We rarely consider architecture to be an important factor in contemporary economic and political debates, yet sparsely occupied ultra-thin "pencil towers" develop in our cities, functioning as speculative wealth storage for the superrich, and cavernous "iceberg" homes extend architectural assets many stories below street level. Meanwhile, communities around the globe are blighted by zombie and ghost urbanism, marked by unoccupied neighborhoods and abandoned housing developments. Learn how the use of architecture as an investment tool has accelerated in recent years, heightening inequality and contributing to worldwide financial instability: • See how investment imperatives shape what and how we build, changing the very structure of our communities
• Delve into high-profile projects, like the luxury apartments of architect Rafael Viñoly's 432 Park Avenue
• Understand the convergence of technology, finance, and spirituality, which together are configuring the financialized walls within which we eat, sleep, and work Includes dozens of photos and drawings of architectural phenomena that have changed the way we live. Essential reading for anyone interested in architecture, design, economics, and understanding the way our world is formed.

CHAPTER ONE

FINANCE CAPITALISM AND ARCHITECTURE

In the free market, architecture=real estate.

REM KOOLHAAS, 2003

While architecture and capitalism have always been related, the ascent of finance capitalism since 1980 has uniquely implicated architecture because built space is a preferred operating medium of finance. As architecture has become finance and finance has become architecture, key aspects of both have changed. These changes involve how buildings are conceptualized, used, and managed and at the same time how they are designed, entailing everything from their proportions to their programmatic composition. The result can be experienced in the landscapes and cities that many of the world’s citizens inhabit.

The FIRE Economy

As Fredric Jameson recognized in the late 1990s, “One of the privileged forms of speculation today is that of land and city space.”¹ Indeed, some observers argue that real estate is now the single biggest component of certain economies. The American economist Michael Hudson wrote that the “‘postindustrial’ economy turns out to be mainly about real estate,” adding that, in Western economies, increases in property values are “the driving force in today’s financialized mode of ‘wealth creation.’”² Financial tactics and logics are increasingly interconnected with real estate. The fact that real estate investment is primarily debt financed conveys one important aspect of the tight symbiosis between the finance and real estate sectors.

To capture this symbiosis, the term FIRE economy emerged in the 1980s; it has come into more common economic parlance since. An acronym for finance, insurance, and real estate, it indicates the economic ecology connecting landowners, banks, insurers, mortgage brokers, investment brokerages, real estate developers, real estate agencies, and hedge funds. Not only are the finance and real estate industries tightly interdependent, but so is the insurance industry to them, since insurance corporations are among real estate’s largest investors. For example, in 2018, the largest investor in global real estate was Prudential, a multinational insurance corporation headquartered in London, with a reported $64 billion in real estate assets.³ The monthly periodical Institutional Investor reported in 2018 that insurance corporations account for 21 percent of institutions with at least $1 billion invested in real estate.⁴ A large portion of the FIRE sector’s revenue comes from fluctuating asset prices and interest on loans—making it an embodiment of finance capitalism.

As finance and insurance became increasingly integrated with real estate during the 1990s, the way that real estate had functioned for centuries fundamentally changed. It transformed from what had historically been a local endeavor into an asset class traded in various forms in global financial markets.⁵ While this recent financialization of real estate is widely recognized as unprecedented in scope and scale, it is important to note that just as finance capitalism is a constant feature of capitalism itself, so is real estate. Vladimir Lenin wrote in 1916 that “speculation in land situated in the suburbs of rapidly growing towns is a particularly profitable operation for finance capital.”⁶ Giovanni Arrighi described the earlier two of his four hegemons, the Renaissance Italian city-states and Enlightenment Amsterdam:

The profits that were being made in long-distance trade and high finance . . . could not be reinvested in these activities without jeopardizing their profitability. Then as now, a significant portion of this surplus capital tended to flow into speculation and into conspicuous consumption; and then as now, investment in real estate within the capitalist cities themselves were [sic] the most important means of combining speculation with conspicuous consumption.⁷

The role that real estate plays in finance capitalism is as integral and therefore as long-standing as finance capitalism is to capitalism at large.

One of the keys to understanding the important role that real estate plays in finance capitalism is the relationship between rent and fictitious capital. In Marxist economic geographer David Harvey’s analysis, when land is traded, it becomes a special type of commodity. It does not have any value in the Marxist sense, as it is not a product of labor, yet it can secure for the owner a stream of rent. Harvey states that the rent revenue on land is in principle no different from the revenue acquired through investments in such things as government debt and corporate securities. He writes, “The land becomes a form of fictitious capital, and the land market functions simply as a particular branch—albeit with some special characteristics—of the circulation of interest-bearing capital.”⁸ Therefore real estate finds its function as a vehicle of finance capitalism in the structural condition of capitalism and land rent.

The Central Role of Housing

While real estate takes many forms—including raw land and a variety of building types—housing plays an especially important role in the current era of finance capitalism. And while housing, like all real estate, is a long-standing site of finance capital, it has assumed heightened importance in contemporary capitalism. Costas Lapavitsas identifies three tendencies of accumulation that have given financialization its current character, one of which is that “individuals and households have come increasingly to rely on the formal financial system to facilitate access to vital goods and services, including housing, education, health and transport. The savings of households and individuals have also been increasingly mobilized by the formal financial system.”⁹ This unique distinction of current financialization is critical for real estate and housing, since housing is the primary way that individuals and households are financialized. The geographer and sociologist Manuel B. Aalbers demonstrates what he calls “the specificities of housing as a central aspect of financialization” in his 2016 book The Financialization of Housing. He writes:

Housing-based wealth, that is housing valued at current market prices minus mortgage debt, has risen to historically unprecedented heights, implying that real estate has become more important as store-of-value for households in the age of financialization.¹⁰

Aalbers identifies five mechanisms through which housing is financialized: the securitization of mortgage loans; the rise of subprime and predatory lending; rising mortgage debt for households; the entry of private equity firms, hedge funds, and publicly listed real estate firms in rental markets; and the reliance of housing providers on bonds and complicated financial derivatives.¹¹

It is hard to overstate the importance of housing to current capitalism. Market-based financing of housing has grown dramatically since the deregulation of financial systems.¹² The result is that, for instance, in 2010 in the United States, Britain, and Australia, 70 percent of all bank loans were real estate mortgages.¹³ In the United States, the total value of mortgages for one- to four-family residences climbed from around $900 billion in 1980 to almost $11 trillion by the end of 2019.¹⁴ Household debt, of which mortgages are typically the largest component, has risen significantly in the era of finance capitalism. In the United Kingdom, it has risen from 30 percent of GDP in 1980 to 87 percent in 2018, and over the same period from about 46 percent to 100 percent in Canada, 50 percent to 76 percent in the United States, and 38 percent to 120 percent in Australia.¹⁵

While financialization entails vast markets, complex transactional chains, and powerful intermediaries, it is important to remember that housing serves as the physical construct through which people become most heavily engaged with financing. In many economies, houses are the most widely owned asset, the biggest asset of the majority of households, and the asset that is simplest to borrow against.¹⁶ This engagement with finance typically occurs through a decades-long relationship with a bank. At the same time, the IMF observes that the rise and fall of housing prices are becoming more synchronized across the planet.¹⁷ This is because housing is no longer only a physical construct that is bought, sold, and financed locally but also a global asset class.

The Giant Pool of Money

The drivers of the financialization of housing and real estate are numerous and complex, but the growing magnitude of global capital is a critical basic backdrop of it. This large mass of capital has been referred to as the “giant pool of money” and the “wall of money.”¹⁸ There are a variety of methods to measure the total amount of global capital. One can consider global assets under management—the aggregate amount of capital savings in various forms of management funds, such as pension funds, mutual funds, or insurance funds. Different institutions offer varying statistics for assets under management, but all agree that growth in recent decades has been staggering. For example, PwC (formerly PricewaterhouseCoopers) issued a report in 2017 titled Asset & Wealth Management Revolution: Embracing Exponential Change, which states that global assets under management more than doubled from $37 trillion in 2002 to $85 trillion in 2016.¹⁹

Where is all this money coming from? A major source is “emerging market economies,” generally defined in mainstream economic discourse as markets—currently including those of Brazil, China, and India—transitioning from less developed to advanced. In essence, the productivity of global economic systems and their dramatic role in these emerging territories have resulted in a historically unprecedented amount of capital. Other factors such as loose monetary policy and the accumulation of profits by transnational corporations also play an important role in feeding the giant pool of money.²⁰ The relevance of this for architecture lies in h...