This was an essay that I wrote in the northern summer of 2021 in an online paper that I did via Amsterdam University (I thoroughly recommend this University) as we were locked down and the cycling infrastructure course that I had enrolled in was cancelled.
Housing in many urban areas around the world is becoming an increasingly expensive resource and unattainable for many. In this essay I’m going to compare various cities of the world, in the first instance international cities which may be called 'first tier’ cities and compare them to what many would call ‘second tier’ cities. What I expect to find is that the first tier cities are now international cities with prices reflecting the incomes of the top tier of the international workforce and that the second tier cities are where the former top tier of national residents have fled to in a kind of ‘whiteflight’ if I am allowed to use such a term in this woke world of ours. As Saskia Sassen states “Globalization can be deconstructed in terms of the strategic sites where global processes materialize and the linkages that bind them. Among these sites are export processing zones, off-shore banking centers, and, on a far more complex level, global cities“ (Sassen, 2000). It is further my contention that these international cities make up a ‘State’ so my case study is on this ‘State’. The unaffordability of housing was the first wave of this State’s raising. Are we in its second stage now? Unfortunately, for I wish not to war, I think so. But it was also seen before now too, for example in Arundel (2020) there is this observation “Labor markets across advanced economies have been characterized by a “hollowing out of the middle classes”.
There is at least one organisation trying to network cities from around the world together, possibly in doing so bypassing the Nation State. Whether they are focused on buying up housing stock or allied to others that are is possible in the first and likely in the second if only because there are so many recognisable billionaires involved. The Strong Cities Network (SCN) is what it calls itself and it is a Rockefeller and George Soros backed initiative, with strong support from the US & UK Governments. It also has the backing of Bill and Melinda Gates Foundation, Mercador Group, Omidyar Group, various Government institutions from Europe and Australasia along with the United Nations and several of the largest IT companies such as Google, Facebook and Microsoft. SCN initially had, and still has, a climate change focus but press releases at its origins made it clear that the main focus was violent extremism (DOJ, 2015). One does wonder what the connection is. It is stated that it is run by the Institute for Strategic Dialogue (ISL) which has strong spook connections into the United Kingdom and United States governments and a large focus on Islam as well as having a board that is peculiarly full of bankers. Both groups (SCN & ISL) are the subject of various conspiracy theories, mostly right wing, on the web but this should not distract us from the fact that they do exist.
The cities I have chosen, before spying two of them on SCN’s list, are New York, London & Tokyo. These are all cities associated with banking. They also come to Saskia Sassen’s attention and she states (Sassen, 2000 p. 82) “Financial services produce superprofits while industrial services barely survive. The most powerful of these new geographies of centrality at the global level bind themajor international financial and business centers: New York, London, Tokyo, Paris, Frankfurt, Zurich, Amsterdam, Los Angeles, Sydney, Hong Kong, among others”
Only Tokyo as already noted is missing from the Strong Cities Network and in fact there are no East Asian cities on the Stronger Cities Network and further its network of cities is very noticeable for its lack of Asian and African cities overall. I could have just as easily chosen Toronto, Munich & Hong Kong as their housing prices are considered to be the largest ‘bubbles’ by UBS and in real prices are easily amongst the highest, in fact maybe even higher than the three cities that I have chosen. This is likely related to the IT sector in part, for example Munich has twice the number of IT workers as Frankfurt does (Zero to one, 2021) and the most IT workers in Germany. Toronto has also been in the throes of attracting immigrants to its IT sector somewhat due to the fact that emigration there is less restrictive than it is in the United States. Of course without an IT or banking salary housing can be very difficult to access in such cities and indeed it is a major issue for equity all around the industrialised world including many cities which are not centres of either banking or IT such as Auckland and Vancouver. There are no easy answers for the insanity of these house prices. And it should be noted that none of Toronto, Munich or Hong Kong makes it onto the Strong Cities Network. One does wonder why, and could equally ask why the Francophone Montreal or the German capital Berlin are part of the network. There’s some patterns there to be fleshed out at a later stage. Another question could be who has the upper hand of the Banking and IT industries in 2021, Artificial Intelligence maybe being the elephant in the room. Also with the push on, why are these workers not working from home?
The SCN is maybe also a little noticeable for the lack of Christchurch which disappeared from SCN’s website sometime after its beginnings on 29th September, 2015. As the SCN’s main focus is on violent extremism this is a bit odd and in a press release of 3rd April 2019 (SCN News, 2019) addressing the murder of 51 muslim worshippers (BBC, 2020) in Christchurch Rebecca Skellet of SCN seems to acknowledge Christchurch as a member of their network. But it’s nowhere to be seen now, seemingly it has been removed for the bad publicity it might give SCN, a network possibly focused on violent extremism of, rather than against, Muslims.
The most notable cities on the network currently are London, New York, Los Angeles, Paris and Berlin. There are 147 cities in total on this list (Strong Cities, Cities) but it could also be noted that very large cities such as Tokyo, Shanghai, Istanbul, Toronto, Moscow, Rome, Cairo, Rio De Janeiro & Mexico City are nowhere to be seen. Melbourne is notable for making the list as the State (Victoria) that it resides in which may indicate a State Premier (Labor) has overruled a City Mayor (Liberal). Buenos Aires is also a part of the network but maybe both Melbourne and Buenos Aires are not as high in status as the above cities that are and therefore can be perceived as somewhat junior partners. Melbourne though certainly doesn’t consider itself to be particular junior and was somewhat presumptuous in negotiating directly with China on ‘Belt and Road’ initiatives (Victorian Government, 2021) and bypassing the Australian Government in doing so. This fight between Victoria and Australia is still playing out with the Victorian Premier, Dan Andrews, looking to be fairly intent on getting revenge on the Australian Government for putting a stop to the “Belt and Road” agreement that Victoria had with China1.
You can’t move in 2021 (sometimes unfortunately literally), take notice of your surroundings and not notice Blackstone. Blackstone is one of the two largest corporates in the world, the other one being Vanguard and they’re both very much related to each other. Blackstone (along with Vanguard and State Street) is alleged to hold a 5% stake in every company in the S&P 500 and although I have not been able to check this it does not sound like hyperbole either.
Blackstone features in the movie ‘Push’ (WG Films, 20192) by the then UN Rapporteur on housing Leilani Farha3. Joseph Stiglitz manages to call the Blackstone Group evil4 towards the end of the movie and it’s hard not to disagree. After all it’s not a Korean Pension Fund that owns or runs them but the elites of the Western world whoever they may be as it’s rather difficult to get down to the nuts and bolts in their government filings with all the different companies in all sorts of different jurisdictions. For example in 2007 according to the US Government there were 250 subsidiaries of The Blackstone Group L.P (SEC, 2021). In their own report of 2019 (The Blackstone Group, 2019) there are over 900 subsidiaries listed. You can guarantee though that there are subsidiaries of these subsidiaries, so good luck finding them all. Blackstone has been active in buying up housing stock around the world over the last decade, from New Zealand to the United States to Sweden (WGFilms 2019) and they seem to have become even more active during the COVID-19 pandemic5. In the Push movie (ibid) Saskia Sassen notes that “the value of all real estate that functions as an asset is 217 trillion dollars” that this is “more than global GDP” and that this therefore “exits the domain of what we would call money”. It’s impossible to disagree, in fact it sounds very much like an asset bubble, a coming crisis, an illusion. It is undoubtedly driven in large part by ‘Quantatative Easing’ which has seen trillions of dollars basically just printed, all over the western world, over the last 12-13 years since the Global Financial Crisis (GFC) of 2008 and just given to the banks, who still held a very large percentage of this cash at the start of the COVID-19 pandemic. A war booty maybe.
What is Quantitative Easing? Investopedia’s (The Investopedia Team, 2021) definition is “Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment”. In other words it’s basically printing money. The dangers are obvious, inflationary ones mostly. It has been used, it could be said excessively, in the United States since the Global Financial Crisis, but they’re not the only ones who have made use of this ‘instrument’. In their article on Quantitative Easing, van Lamoen, Mattheussens & Droes state that “Monthly purchases under the QE programs amount to €80 billion on average. The sheer volume of these purchases raises the question to what extent the Eurosystem (ECB and National Central Banks) is distorting market prices and is causing overvaluations or bubbles.” (van Lamoen et al, 2017). Their study was focused on bonds but there’s no reason to suppose, especially with the likes of Blackrock et al who to a very large extent have been the beneficiaries of this money printing, that the same issue does not apply in the housing market. In fact according to van Lamoen et al this was indeed the case as found by Huston and Spencer (2017) who stated that “They find that prices inequities and housing increased following Federal Reserve intervention, but do not find indication of explosive price behavior for these asset classes. However, their results show some evidence ofexplosive corporate bond prices.” So although explosive price behaviour was not detected at this time it may nevertheless be evident in the last 12 months as prices have ‘exploded’ in many housing markets around the world often reaching close to or beyond 20% in that period of time. But this is not a general rise, and in some cases there were falls. When you look at statements such as “By this June, the US Federal Reserve’s balance sheet had doubled in size since the pandemic began, and has now swelled by 800 per cent since 2007.” (Pettifor, 2020) you may indeed wonder why housing un-affordability is not worse, but I guess the class that received all these government handouts must be exceptionally efficient at wasting capital. But let’s look at where some of it has gone.
London house prices increased by a factor of 1.135 between January 2017 and November 2020 (Cheshire et al, 2021). There was a significant drop in the early Covid period and significant rebound from June 2020, but still the increase from January 2017 is a lower overall increase than Manchester, Birmingham and in fact England and Wales in its entirety. It should also be noted that flats and maisonettes dropped in price during this period and the demand was mostly for detached and, to a lesser extent, semi-detached housing (ibid). The high end prices for a detached house within 10km of London rose a staggering amount from June to November 2020, going from an average of 2.5 million GBP to over 5 million GBP (ibid). As Cheshire et al note “the number of detached houses transacted in central markets is small, and they are likely bought by the seriously rich” and it needs to be noted that these purchases have a strong influence on the average prices. The median price for a house (all types) in London is now £507,702 as of May 2021. This is up from £473,283 in the previous May (UK House Price Index, Land Registry). In Euros as of May 31st, 2021 this £507,702 is equal to €579,167. The increase is not ‘explosive’ but it is nevertheless large in such a short timeframe.
In the United States, according to Zillow, the increase in the last year for the typical home value hasbeen 15% overall. There is no doubt that some of this can be attributed to Blackstone who has been active in the market, buying up in some cases whole towns, and really the craziness of house prices increasing in the current environment does otherwise seem somewhat insane and illogical. But it is nevertheless occurring. The average price in New York is now (June 30th, 2021) $USD 662,000 which is, wait for it, equal to €541,979. For all intents and purposes these two very different cities of London and New York based in completely different countries, probably with quite different housing stock and likely average square meterage, having a currency rate of USD/EUR that has shifted between 0.92 and 0.82 in the past 16 months, share in common their average house price. New York average housing prices have gone up 3.5% in the last 12 months (but 12% in the last quarter). Just outside of New York, in New Jersey and the State of New York (rather than the city), prices have increased at a higher rate than New York City itself, at 12.1% and 12.3% respectively. This though looks like it’s now changing, the market at the high end in New York City, like London, seems to be ‘exploding’ (Peters, 2021). The largest annual increase otherwise has been in the sunbelt in cities such as Phoenix where increases have been above 15%. And despite the rhetoric of President Biden6 in the last few weeks the vacancy rate for rentals has increased from 2% to 11% in Manhattan which indicates quite a lot of evictions for whatever reason (Santarelli, 2021). One could also ask is such desirable housing stock (at least on a location basis) being left deliberately empty? Another story of the pandemic in the United States has been the smaller landlords basically having the screws applied to their business model due to non-payment of rents over the last 12 months or more now selling out to the cashed up corporates. This is not business7, it’s a scandal and it’s been enabled by a pandemic that has increased the wealth of the billionaire class by massive amounts for as Pettifor (2021) notes “During lockdown, the total wealth of billionaires rose by $5 trillion to $13trillion in 12 months, the most dramatic surge ever registered on the annual Forbes billionaire list.”.
The wider Tokyo area has a fairly significantly lower average housing price than both London and New York, albeit it’s still high. The figure according to Real Estate Japan (2021) was ¥62,100,000 which is equal to €464,722. This is about 20% lower than the other two cities above. But this comes with the proviso that Tokyo is a very large city, larger than both New York and London. The wider population is approximately 38 million. But if we were to go to the 23 prefectures of inner Tokyo with a population that is very similar to New York and London (at just over 10 million) then the price goes up to ¥77,010,000 which is equal to €576,206 which is practically indistinguishable from the average price from London being only €3,000 cheaper and an amount that probably disappears multiple times a day on the currency market.
The prices are remarkable in comparison to each other. I have not been able to ascertain if Tokyo’s market for upmarket detached or semi-detached (to use the UK terms) has ‘exploded’ as it has in London & New York as my Japanese is restricted to a few words and the English language resources on this are hard to find, although I’m sure they exist somewhere. This correlation of housing prices of course doesn’t in itself suggest membership of a pan-national city based state, but it is interesting that the SCN now exists and that cities like Melbourne have started negotiations. with foreign powers as if they were a sovereign State, instead of an Australian city which would normally allocate such a role out to the Federal Government of Australia. It would seem though that Quantitative Easing has had a significant impact on house prices, but is this deliberate or just a kneejerk reaction of failing economies where manufacturers have long absconded to cheaper locations. Conspiracy here in the wrap-up is not (yet) proven, but I think the circumstantial evidence and the rather nasty intent obvious even to those who still wish to deny the danger currently about at this particular point in time, makes it obvious. Why is Tokyo missing from the SCN? I think a look at a map could tell you why. They’re hedging their bets.
I have long thought of what an alternative could look like. If only I was a billionaire, or maybe, much more democratically, if only there were no billionaires.
Please note: the original intention was to compare to secondary cities in each of the countries associated with the cities chosen in an attempt to show flight of the middle classes, but I’ve run out of both space and time.
Personal opinion, it seems to be playing out in the COVID sphere at the moment which involves arguments on who pays for the lockdowns. I’m normally a Labor voter but I cannot tolerate (the Victorian Labor Premier) Dan Andrews.
The movie has funding from the Omidyar Group mentioned above in the Stronger Cities Network.
It was filmed in the pre-covid year of 2019 & Leilana is no longer in that role.
A taste of this in two comments under an Financial Times article are “Vast wealth to be transferred from boomers, up to 30 trillion” and “The people without mortgages were also the first to get two doses of vaccine” see - https://www.ft.com/content/491a245d-4af7-4cad-b860-6ba51b86b45f?shareType=nongift
I don’t believe for a second the narrative of this Pandemic hence the italics. In fact studying for this essay any residual belief that I had that it may exist has evaporated. Cui bono.
Many of these cities have major problems with water, drawing to a large extent on the resources of an increasingly under pressure Colorado river system.
In this case maybe we can give the small rentiers some slack.
Bibliography
All currencies have been exchanged using the online service at https://www.investing.com as of 31st May, 2021.
Arundel, Rowan & Hochstenbach, Cody (2020) Divided access and the spatial polarization ofhousing wealth, Urban Geography, 41:4, 497-523, DOI: 10.1080/02723638.2019.1681722BBC (2020)
Christchurch mosque attack: Brenton Tarrant sentenced to life without parole,accessed 9th August, 2021 from; https://www.bbc.com/news/world-asia-53919624
Cheshire, Paul, Hilber, Christian, Schöni, Olivier (2021) The pandemic and the housing market: a British story
Huston, J. and R. Spencer (2017) “Quantitative Easing and asset bubbles,” Applied Economics Letters, http://dx.doi.org/10.1080/13504851.2017.1324604.
Land Registry UK (2021) UK House Price Index, accessed 9th August 2021 from; https://landregistry.data.gov.uk/app/ukhpi
Peters, Frederick, New York City Real Estate In Q2 2021: One Of The Hottest Springs On Record https://www.forbes.com/sites/fredpeters/2021/07/01/new-york-city-real-estate-in-q2-2021-one-of-the-hottest-springs-on-record/
Pettifor, Ann (2020) Quantitative Easing: how the world got hooked on magicked-up money https://braveneweurope.com/prime-ann-pettifor-quantitative-easing-how-the-world-got-hooked-on-magicked-up-money
Real Estate Japan (2021) Sales prices for new apartments in Tokyo cool, falling YoY for 2 consecutive months, accessed 9th August, 2021 from; https://resources.realestate.co.jp/buy/sales-prices-for-new-apartments-in-tokyo-cool-falling-yoy-for-2-consecutive-months/
Santarelli, Marco (2021) New York Real Estate Market is Reviving With Rising Demand in 2021 noradarealestate.com/blog/new-york-real-estate-market
Sassen, Saskia, The Global City: Strategic Site/New Frontier American Studies, Vol. 41, No. 2/3, Globalization, Transnationalism, and The End of the American Century (Summer/Fall, 2000), pp. 79-95
SCN News, A message from Rebecca Skellett, Head of Strong Cities Network, 3 April, 2019 https://strongcitiesnetwork.org/en/a-message-from-rebecca-skellett-head-of-strong-cities-network/
SEC, retrieved 10th August from; https://www.sec.gov/Archives/edgar/data/1393818/000119312508053079/dex211.htm
Strong Cities, Cities, accessed 9th August 2019 from; https://strongcitiesnetwork.org/en/cities/
The Investopedia Team, Reviewed by Thomas Brock(2021) Quantitative Easing (QE), accessed 9th August from; https://www.investopedia.com/terms/q/quantitative-easing.asp
van Lamoen, R., Mattheussens, S., & Dröes, M. I. (2017). Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB’s Expanded Asset Purchase Program. (Tinbergen Institute Discussion Paper; No. 2017-080/IV). Tinbergen Institute. http://www.tinbergen.nl/discussionpaper/?paper=2809
Victorian Government (2021) Belt and Road Initiative - Framework Agreement, accessed 9thAugust from; https://www.vic.gov.au/bri-framework
The Blackstone Group Inc., (2019) Annual Report.US Department of Justice, 28th September 2015, Launch of Strong Cities Network to Strengthen Community Resilience Against Violent Extremism, accessed 9th August from; https://www.justice.gov/opa/pr/launch-strong-cities-network-strengthen-community-resilience-against-violent-extremism
WG Film, (2019) Push, Director - Fredrik Gertten.
Zero to one search (2021) Six Largest Cities in Germany for Work in IT, accessed 9th August 2021 from; https://zerotoonesearch.com/6-largest-cities-in-germany-for-work-in-it/
The West Bank (Palestinian Territory) may not be recognised as a ‘hot’ property
market. Surprisingly, a three bedroom Villa there is much sought after as it is
situated near a holy site, “Cave of Patriachs” where Jews, Christians and Muslims
believe significant religious people are buried, including Abraham.
Seven generations of the Al-Mohtaseb family have lived here operating a
Souvenir shop on street level and two floors up a roof terrace gives sweeping
views towards the old city’s religious sites.
In 2000s two men came to the front door and offered the family $US6 million
for the property on behalf of a wealthy Jewish buyer.
Later, the offer was increased to $US30 million, then $US40 million and
finally the offer is $US100 million. He says the family is not selling.
There is a well known saying in Real Estate, repeated three times:
Location, Location, Location.
(Source: various media outlets)
https://m.youtube.com/watch?v=yLZUVsmUwZY