Housing, Neoliberalism, and Financialization: What REALLY Happens when the Private Sector Controls Public Assets
In this post we’re going to examine wealth and resources operating in Russell, particularly in terms of real estate, investments, and land use. The following economic systems and processes will be discussed:
Neoliberalism: an economic system in which the private market is given full control of our public and personal worlds, usually accompanied by liberal and progressive rhetoric.
Financialization: an economic system or process that attempts to reduce all value that is exchanged either into a financial instrument or a derivative of a financial instrument.
Urban Planning: a technical and political process concerned with the control of the use of land and design of the urban environment, including transportation networks, to guide and ensure the orderly market development of communities based on the logic of financialization in service to real estate capital.
The neoliberal real estate financial complex can best be understood by visualizing surplus capital constantly seeking to capture new territories for investment. In other words, some people just have too much wealth with no place to park it. The solution to this dilmena is always expansion in some form. With surplus capital, built space is used to open new frontiers of investment (i.e. gentrification). Poor and Black communities represent what is known as a “spatial fix” in real estate parlance, as the way built space is mobilized by finance to fix finance, by providing new space to park speculative capital with high potential returns. However, speculative investment in low income neighborhoods is risky and returns can take years, especially in small to midsize cities. Subsequently, neoliberal economic policy ensures the best return rate for investor capital by using public subsidies as collateral. The current urban policy of capturing new territory for speculative capital cannot happen without the role and support of local, state, and federal government, the police, and philanthropy.
But let’s go back to the late 1970’s, before the financialization and privatization of housing...before the idea of housing as a human right was replaced with the idea of housing as a wealth building, financial asset. In 1978, The Department of Housing and Urban Development’s (HUD) budget for public housing construction and maintenance was $83 billion. By 1983, it dropped to $18 billion and by the 1990s it was reduced to zero. Meanwhile, in 1993, the World Bank published a report called Housing: Enabling Markets to Work, where they recommended the full financialization of housing into private markets around the globe. And how do we enable housing markets to work? By getting the government out of the way while subsidizing and increasing the role of the private sector. According to the logic of financialization, all rent extracted from low-income people should go to private landlords, this is the logic behind the demolition of public housing. And according to the logic of the World Bank, if rents are high enough, low-income renters can be enticed into home ownership debt through predatory inclusion models that are presented as providing opportunities for economic progress but in the long term reproduce inequality and insecurity for some, while creating significant profits for dominant actors (see 2008 subprime mortgage crisis).
At this moment in the Russell neighborhood, St Louis developer McCormack, Baron and Salazar (MBS) has accessed the $30 million HUD Choice Neighborhood grant that demolished 730 units of public housing and displaced over 1,400 people. MBS now controls the site through a 30 year ground lease and will reap the benefits of redeveloping a site of mostly market rate units. The project is already $34 million over budget despite being in the early stages, so HUD recently awarded the Louisville Metro Housing Authority (LMHA) a supplemental $4 million dollar grant along with a two year extension for the replacement units. LMHA has said that they are willing to make up the budget shortfall from their internal funding, meaning MBS has virtually unlimited access to public funds until the project is complete with little to no public accountability.
The impacts of neoliberal urban policy, where private actors manage public contracts, are felt most heavily by public housing residents and those receiving Section 8 voucher assistance. According to the Metropolitan Housing Coalition, over ¼ of former Beecher Terrace residents have already abandoned the Choice Neighborhood process or were forced out, “...from the original 726 households, 199 Beecher Terrace households are no longer in the LMHA system. Of these, there were 107 'involuntary terminations' and 92 households who moved into the private housing market, died, left Louisville/Jefferson County, or left due to illness." That means that there now are roughly 200 families who couldn't afford market housing and are now at the mercy of a housing market that is under-supplied by over 60,000 units because of the Beecher Terrace demolition and LMHA mechanisms for eviction and dispossession.
With the public sector gutted by neoliberal policy, the role of providing a safety net for low-income residents now falls on nonprofits and philanthropy, which also benefits private capital in multiple ways (keeping in mind that nonprofits are designed to hide private capital to avoid taxation). At the suggestion of the Ford Foundation in the 1970s, MBS launched the nonprofit Urban Strategies to provide case management for public housing tenants. This enabled MBS to access philanthropic money as well as public subsidies, along with investment returns. “Affordable housing” developers have since adopted this strategy as standard practice. When MBS was awarded the Choice Neighborhood contract for Louisville, they hired Urban Strategies to provide case management for displaced public housing residents, even though Richard Baron is still the board chair of Urban Strategies. However, Urban Strategies doesn’t disclose this relationship to the community. So, when public housing residents have a complaint about the landlord, they file it with Urban Strategies, totally unaware that Urban Strategies is the landlord. Housing scholar Raquel Rolnik calls these scenarios, “private regimes of territorial control.”
McCormack, Baron & Salazar's Contract
with Urban Strategies for
Beecher Terrace Urban Strategies Leadership
Most of the land directly west of 9th street in Russell (where the annual median household income is below $10,000) is now owned or controlled by 3 out of state development companies: Henry Green Apartments by Allied Argenta (California), Beecher Terrace by MBS (Missouri) and City View Park by Telesis Corporation (Washington DC) and all 3 have received large public subsidies in Louisville for either the demolition or renovation of low income housing. In 2018, Allied Argenta received $1.27 million in TIF financing from local government to renovate over 100 units. Telesis Corporation has received over $2 million in forgivable and low-interests loans from Louisville Metro Government to renovate over 500 units. Although these projects are supposed to result in “zero displacement,” many residents believe that they are designed to push lower income residents out and recruit new tenants with higher incomes. In the Fall of 2019, the Root Cause Research Center met with Louisville Mayor Greg Fischer and his leadership staff. In discussing the implications of rents increasing in areas with extremely low incomes, the Mayor pointed out that they have worked on “improving the median income in that area,” meaning that lower income residents have been removed.
This blog series was written with assistance and contributions from Root Cause Research Center Accountability Council Members:
Mckenzie Eskridge Shannon Floyd Shemeaka Shaw
References
1. Rolnik, Raquel. Urban Warfare: Housing under the Empire of Finance, 2019.
2. World Bank, Housing: Enabling Markets to Work. World Bank 1993.
3. Taylor, Keeanga Yamahtta, Race for Profit, University of North Carolina Press, 2019
4. Jones, Michael, Future of commercial development project hinges on Beecher Terrace redesign, 2019.
5. Metropolitan Housing Coalition, 2019 State of Metropolitan Housing Report, 2019.
6. LMHA, Open Records Request, 08.22.2019.
7. Jackson, Kyeland, Officials Say Beecher Terrace Redevelopment Is On Time, But Over Budget, WFPL, 2019.
8. Jackson, Kyeland, Louisville Awarded $4 Million Grant To Boost Beecher Terrace Project, WFPL, 2019.
9. Metropolitan Housing Coalition, 2019 State of Metropolitan Housing Report, 2019.
10. Shelterforce, Interview with Richard Baron, CEO of McCormack Baron Salazar, 10/1/2015