unless they mended their ways)? That the end of the Japanese boom in 1990 corresponded to a collapse of land prices (still ongoing)? That the Swedish banking system had to be nationalized in 1992 because of excesses in property markets? That one of the triggers for the collapse in East and Southeast Asia in 1997–98 was excessive urban development in Thailand?5
Where were the World Bank economists when all this was going on? There have been hundreds of financial crises since 1973 (compared to very few prior to that), and quite a few of them have been property- or urban development–led. And it was pretty clear to almost anyone who thought about it—including, it turns out, Robert Shiller—that something was going badly wrong in US housing markets after 2001 or so. But he saw it as exceptional rather than systemic.6
Shiller could well claim, of course, that all of the above other examples were merely regional events. But then so, from the standpoint of the people of Brazil or China, was the housing crisis of 2007–09. The epicenter was the US southwest and Florida (with some spillover in Georgia), along with a few other hot-spots (the grumbling foreclosure crises that began in the late 1990s in poor areas in older cities like Baltimore and Cleveland were too local and “unimportant” because those affected were African-Americans and minorities). Internationally, Spain and Ireland were badly caught out, as was Britain, though to a lesser extent. But there were no serious problems in the property markets in France, Germany, the Netherlands, or Poland, or at that time throughout Asia.
A regional crisis centered in the United States went global, to be sure, in ways that did not happen in the cases of, say, Japan or Sweden in the early 1990s. But the S&L crisis centered on 1987 (the year of a serious stock crash that is typically and erroneously viewed as a totally separate incident) had global ramifications. The same was true of the much-neglected global property market crash of early 1973. Conventional wisdom has it that only the oil price hike in the fall of 1973 mattered. But it turned out that the property crash preceded the oil price hike by six months or more, and the recession was well under way by the fall (see Figure 1). The property market crash spilled over (for obvious revenue reasons) into the fiscal crisis of local states (which would not have happened had the recession been only about oil prices). The subsequent New York City fiscal crisis of 1975 was hugely important because at that time it controlled one of the largest public budgets in the world (prompting pleas from the French president and the West German chancellor to bail New York City out to avoid a global implosion in financial markets). New York then became the center for the invention of neoliberal practices of gifting moral hazard to the investment banks and making the people pay up through the restructuring of municipal contracts and services. The impact of the most recent property market crash has also carried over into the virtual bankruptcy of states like California, visiting huge stresses in state and municipal government finance and government employment on almost everywhere in the US. The story of the New York City fiscal crisis of the 1970s eerily resembles that of the state of California, which today has the eighth-largest public budget in the world.7
The National Bureau of Economic Research has recently unearthed yet another example of the role of property booms in sparking deep crises of capitalism. From a study of real estate data in the 1920s, Goetzmann and Newman “conclude that publically issued real estate securities affected real estate construction activity in the 1920s and the breakdown in their valuation, through the mechanism of the collateral cycle, may have led to the subsequent stock market crash of 1929–30.” With respect to housing, Florida, then as now, was an intense center of speculative development, with the nominal value of a building permit increasing by 8,000 percent between 1919 and 1925. Nationally, the estimates of increases in housing values were around 400 percent over roughly the same period. But this was a sideshow compared to commercial development which was almost entirely centered on New York and Chicago, where all manner of financial supports and securitization procedures were concocted to fuel a boom “matched only in the mid-2000s.” Even more telling is the graph Goetzmann and Newman compile on tall-building construction in New York City (see Figure 2). The property booms that preceded the crashes of 1929, 1973, 1987, and 2000 stand out like a pikestaff. The buildings we see around us in New York City, they poignantly note, represent “more than an architectural movement; they were largely the manifestation of a widespread financial phenomenon.” Noting that real estate securities in the 1920s were every bit as “toxic as they are now,” they went on to conclude:
The New York skyline is a stark reminder of securitization’s ability to connect capital from a speculative public to building ventures. An increased understanding of the early real estate securities market has the potential to provide a valuable input when modeling for worst-case scenarios in the future. Optimism in financial markets has the power to raise steel, but it does not make a building pay.8
Figure 1 The Property Market Crash of 1973
Clearly, property market booms and busts are inextricably intertwined with speculative financial flows, and these booms and busts have serious consequences for the macroeconomy in general, as well as all manner of externality effects upon resource depletion and environmental degradation. Furthermore, the greater the share of property markets in GDP, the more significant the connection between financing and investment in the built environment becomes as a potential source of macro crises. In the case of developing countries such as Thailand—where housing mortgages, if the World Bank Report is right, are equivalent to only 10 percent of GDP—a property crash could certainly contribute to, but not likely totally power, a macroeconomic collapse (of the sort that occurred in 1997–98), whereas in the United States, where housing mortgage debt is equivalent to 40 percent of GDP, it most certainly could and did generate a crisis in 2007–09.
Figure 2 Tall Buildings Constructed in New York City, 1890–2010
THE MARXIST PERSPECTIVE
Since bourgeois theory, if not totally blind, at best lacks insights in relating urban developments to macroeconomic disruptions, one would have thought that Marxist critics, with their vaunted historical-materialist methods, would have had a field day with fierce denunciations of soaring rents and the savage dispossessions characteristic of what Marx and Engels referred to as the secondary forms of exploitation visited upon the working classes in their living places by merchant capitalists and landlords. They would have set the appropriation of space within the city through gentrification, high-end condo construction, and “Disneyfication” against the barbaric homelessness, lack of affordable housing, and degrading urban environments (both physical, as in air quality, and social, as in crumbling schools and the so-called “benign neglect” of education) for the mass of the population. There has been some of that in a restricted circle of Marxist urbanists and critical theorists (I count myself one).9 But in fact the structure of thinking within Marxism generally is distressingly similar to that within bourgeois economics. The urbanists are viewed as specialists, while the truly significant core of macroeconomic Marxist theorizing lies elsewhere. Again, the fiction of a national economy takes precedence because that is where the data can most easily be found and, to be fair, where some of the major policy decisions are taken. The role of the property market in creating the crisis conditions of 2007–09, and its aftermath of unemployment and austerity (much of it administered at the local and municipal level), is not well understood, because there has been no serious attempt to integrate an understanding of processes of urbanization and built-environment formation into the general theory of the laws of motion of capital. As a consequence, many Marxist theorists, who love crises to death, tend to treat the recent crash as an obvious manifestation of their favored version of Marxist crisis theory (be it falling rates of profit, underconsumption, or whatever).
Marx is to some degree himself to blame, though unwittingly so, for this state of affairs. In the introduction to the Grundrisse, he states that his objective in writing Capital is to explicate the general laws of motion of capital. This meant concentrating exclusively on the production
