There’s a growing body of academic literature out there on the economic sociology of financial and real estate markets. Most of the writers tend to come from planning and geography backgrounds and apply pretty dense social/urban postmodernist theory to analysing real estate markets. I struggle to distinguish whether some of it is, in the words of Sokal, “fashionable nonsense” or whether it is wrapping some fairly straightforward but reasonable points in heavily jargonised frameworks or maybe it is providing valuable new insights into real estate markets. I suspect the middle one.
I’ve often find that when ‘outsiders’ from geography departments write on real estate they tend to present well-established real estate knowledge in high falutin terms. It tends to get published too. Perhaps I’m being harsh. Maybe they’re not massively over-interpreting and are actually placing, what might seem obvious to ‘insiders’ such as real estate professionals and academics, in its wider theoretical, conceptual, socio-political and cultural – but mainly postmodernist theory – context. Isn’t this what many academics in the humanities and social sciences are supposed to do? So I have my self-doubts – like many students who get frustrated by the impenetrability of some of the language in post-modern. Writing about post-modern theory, even Richard Dawkins writes
No doubt there exist thoughts so profound that most of us will not understand the language in which they are expressed. And no doubt there is also language designed to be unintelligible in order to conceal an absence of honest thought. But how are we to tell the difference?
He’s not alone. I suspect that it can get pretty divisive. I think I might now understand why it was agreed that they wouldn’t teach planning theory at UCL. I didn’t delve too much but I’m guessing that they couldn’t agree what theoretical perspectives should be taught. I remember at the wonderful Sir Peter Hall’s memorial service how many non-academic speakers pointedly praised the clarity and accessibility of his writings.
I’d like to read more alternative perspectives on the structures of real estate markets. It would be interesting to have a sociologists’ and/or anthropologists’ perspectives on the operation of real estate brokerage markets, psychologists have probably a lot to teach us about real estate investment decision-making, management theorists could help us to understand the structure of the real estate management sector a lot better etc.
After one of our coffee break chats this time about whether we should be broadening our real estate students’ horizons into more academic, theoretical perspectives (see above) on real estate and away from vocational, professional knowledge, a colleague asked me to read Brett Christophers “On voodoo economics: theorising relations of property, value and contemporary capitalism” to see what I thought (We really need to get out more). It was published in 2009 in Transactions of Institution of British Geography – a highly rated journal. I’ve been in some brief correspondence with Brett about work that we were doing on viability modelling. He seems a nice guy. However, I did notice in his paper on the origins of viability modelling in the English planning system) that he focussed (fixated?) on the fact that developer’s profit should be taken into account in the viability modelling process. I thought that he was really overplaying this point. In a market economy, it would be strange to assess the viability of a business without assuming that the workforce was being paid. However, this morning John Humphreys on Radio Four seemed also to fixate on the fact that housebuilders wouldn’t build where it wasn’t profitable. It could be me.
I admit that I find most academic journal articles to be a tough read whether the focus is statistical, economics, management, geography etc. Brett’s paper is eminently more readable than the work by Derrida, Lacan, Baudrillard, Latour etc. coolly ridiculed by Sokal (but warmly worshipped by others). The paper starts off re-iterating the bane (sometimes the inspiration) of nearly every urban geography student’s life – David Harvey and his Marxian point that property does not create wealth but effectively involves a transfer of value. Most mainstream economists would not quibble with the point that the (exchange) values of real estate assets are mainly dependent on supply and demand conditions generated in the wider productive economy. Given the fixed supply of land and locational monopolies, owners of real estate can extract rents. I’ve even heard a few real estate professionals in their existential moments of self-doubt bemoan the fact that they don’t actually produce anything.
Brett then builds a lengthy analysis of how real estate has become ‘financialised’ on case studies of the activities of the Tchenguiz Brothers and de Soto’s idea’s on the formalisation of property rights. To me it seems like there’s a lot of over-interpretation. For a while, the Tchenguiz Brothers were successful in doing what many, let’s call them, capitalists are trying to do – make money. They spotted ways to do this by buying something in one market and selling it in another at a higher price. Basically they were exploiting arbitrage opportunities – it’s something that happens in most imperfect markets (which most are to a degree). Efficient markets tend to eliminate such opportunities pretty fast but real estate markets are considered by many to be far from perfect. The Tchenguiz Brothers called it value creation – again often financial engineers tend to use this phrase when they’re usually just adding risk. Different people can use language to mean different things.
The core argument of the paper is that such financial engineering did not create value in the Harveyian or Ricardian sense of the word. Fine – I agree but I doubt that anyone would argue that the Tchenguiz brother’s financial activities contributed to the productive economy. They just meant something different to Harvey when they said adding value. The fact that the Sainsbury’s board (the Tchenguiz Brothers had built up on substantial shareholding) were able to recognise that the opco/propco model proposed by the Tchenguiz Brothers was (and has proved to be) risky in terms of the core business and shareholder value is framed in terms of ‘resistance‘ to financialisation. Hmmm.
Similarly, I think that de Soto’s basic point would be agreed by many development economists. Since they can act as a form of collateral, secure property rights can enable individuals to obtain capital and to fund investment in the productive economy. Many start-ups here are funded from re-mortgaging. It’s a reasonable point that this changes the perception of housing and land and, of course, reflects marketization of land and housing. But, I’m not sure what the new insight is.
I don’t really get it. Maybe I’m missing something. It feels like I’m being presented with a beautifully wrapped gift box with lovely bows etc. but when I eventually get to the actual gift through lots of complex, difficult-to-open and intricate packaging, it’s just a pair of socks from Primark similar to ones that someone had given me already. Possibly it’s illustrating Karl Popper’s analogy of a theory as a searchlight that only highlights specific issues and facets of a phenomenon. To me, it’s more like the specific theory is a hammer to which everything looks like a nail.