Geographies of Housing Finance: The Mortgage Market in Milan, Italy

Abstract

The geography of financial exclusion has mainly focused on exclusion from retail banking. Alternatively, and following the work of David Harvey, this paper presents a geography of access to and exclusion from home mortgage finance. The case of Milan shows that capital switching to the built environment is partly a sign of economic crisis and partly a sign of the intrinsic opportunities that the built environment provides. A major factor in both is the deregulation of the mortgage market that has enabled the loosening of historically stringent lending criteria, leading to a tremendous growth of the mortgage market, while leaving the co-evolution of family and home ownership intact. In addition, capital switches within sectors of the economy and between places. In Milan, once "unattractive" but currently gentrified nineteenth-century districts underwent cycles of devalorisation and revalorisation. Even though access to mortgages has increased throughout Milan, geographical disparities in mortgage lending persist: at present, yellowlining (differential access, based on less favourable terms) is common in parts of the Milanese periphery. The creation of boundaries makes the realisation of class-monopoly rent possible; while the subsequent redrawing of these boundaries creates new submarkets in which surplus value can be extracted. Based on the Milan case, one cannot explain the timing and geography of formation and reformation of submarkets in other cities, but it helps us to see how Harvey's abstract ideas of class-monopoly rent, submarket creation, and capital switching take place in the real world. Copyright 2007 Blackwell Publishing.

Real Estate Risk Exposure of Equity Real Estate Investment Trusts

“…In a causality framework, capital switching expects a negative correlation between lead-lag returns of the sectors (Liziere and Satchell 1997). King (1989a, b, c), Haila (1991), Aalbers (2006) further argues that capital not only switches between different sectors of the economy, but also within sectors of the economy, between forms of property and between places. 5 Linneman (2000) and Clayton and MacKinnon (2002) suggest that liquidity plays a key role in capital switching between REITs and private properties.…”

“…Following Marx's view of financial markets, Harvey speaks of "capital switching" when capital (investment) flows from a less profitable sector to a more profitable one (a sector taking in cash flows and acting as a substitute for the capital out-flowing sector) (Aalbers 2006). Thus, falling returns in one sector should be reflected in rising returns in the competing sector under a capital-switching scenario (Liziere and Satchell 1997).…”

Creating Liquidity out of Spatial Fixity: The Secondary Circuit of Capital and the Subprime Mortgage Crisis

“…spatial switching). More recently, Aalber's (2007) examination of the Milan, Italy mortgage market suggests that capital switching does not necessarily reflect a post hoc response to economic crises per se. Capital switching can represent a proactive and consciously planned strategy taken by capital to exploit the lucrative opportunities that the built environment provides.…”

The Globalization and Europeanization of Mortgage Markets

“…The insignificant presence of foreign mortgage lenders in most countries does indeed not constitute the globalization of firms, but it does result in a globalization of non‐state regulation and also in the restructuring of national institutions, despite the fact that foreign mortgage lenders in most cases only have a small market share, do not control vital resources, do not necessarily come predominantly from one kind of business system and are not substantially independent of local institutions. In Italy, for example, British and Dutch mortgage lenders only possess a small market share, are dependent on local intermediaries and nationally defined rules of the game; yet they have brought about the restructuring of the Italian mortgage market in many ways: mergers and acquisitions, changes in the state regulation system, changes in the rules of the game and in rules of thumb, and changes in the mentality of lending and the related increased use of credit scoring techniques (Aalbers, 2007). Whitley (1998) argues that weakly standardized and regulated, less cohesive, relatively poorly integrated and peripherally linked characteristics of business systems are more prone to the effects of capital market internationalization, but in Italy these changes took place in a highly regulated, state‐controlled, cohesive, strongly integrated and centrally linked banking sector.…”

“…Second, in Italy, where the mortgage market is traditionally characterized by constraints on mortgage lending, the last 15 years have seen dramatic changes (see Aalbers, 2007), partly as a result of regulation induced by the European Union and European Monetary Union (EMU). Most importantly, the LTV‐cap was abolished, resulting in higher LTV‐ratios; banks were allowed to grant mortgages (while this had been the exclusive terrain of specialized credit institutions until 1990); and both European and national regulation forced bank restructuring leading to increased competition and the entry of foreign players in the Italian mortgage market.…”