Managing fictitious capital: The legal geography of investment and political struggle in rental housing in New York City

Abstract

Since 2001 investors have purchased rent-regulated housing in New York City with heightened expectation for financial performance, placing pressure on tenants and communities through increasing rents, harassment, eviction, and when financial targets are not met, physical deterioration of buildings. At the heart of this investment strategy is fictitious capital, the extension of credit based on assumptions about future events. This paper shows that beyond assessments about the “truth” or rationality of the expectations underlying fictitious capital, the management of value as a problem is at stake. When the expectations underlying fictitious capital are not realized, a network of actors engage in a set of legal–financial practices to manage the value of rent-regulated multifamily buildings, including banking regulation and its exception, mortgage securitization and special servicing, distressed debt markets, rent stabilization, and foreclosure law. The breakdown of the assumptions of fictitious capital reveals new challenges and opportunities for tenant activism and policy to intervene in preserving rent-regulated housing. The paper focuses on how this financialization of housing not only serves as a moment for the increasing role of financial actors and imperatives, but also how it drives tenant activism and policy to engage legal–financial practices to redefine the tenant–landlord relationship and to tie financial expectations more closely to the material reality of tenants and communities.

Urban struggles with financialization

“…One reason is that the organizations behind urban movements are rooted in their own histories and those of the urban contexts with which they engage; these circumstances do not necessarily impart the capability to contend with financialization. For example, in the case of U.S. cities, many present‐day community organizations emerged in response to “disinvestment and mortgage market exclusion” rather than “economic expansion and flows of capital into property markets” (Teresa, , p. 476). These circumstances may require gaining new technical knowledge and familiarity with a new set of actors (Clapp, ; Fields, ).…”

“…The case of a wave of highly leveraged private equity buyouts of affordable rental buildings in New York City undertaken during the mid‐2000s real estate boom demonstrates how the failure of speculative investments creates space to make finance knowable. When the 2008 financial crisis led private equity owners to default on unsustainable mortgage obligations, properties deteriorated rapidly, exposing tenants to hazardous living conditions (Fields, in press; Teresa, ). Community organizations mobilized public data on housing code violations and property liens to develop a new indicator of housing distress (Teresa, ).…”

“…When the 2008 financial crisis led private equity owners to default on unsustainable mortgage obligations, properties deteriorated rapidly, exposing tenants to hazardous living conditions (Fields, in press; Teresa, ). Community organizations mobilized public data on housing code violations and property liens to develop a new indicator of housing distress (Teresa, ). Activists used this data tool to identify overleveraged buildings experiencing the highest levels of distress and the bank financing the lion's share of speculative deals, shaping a subsequent organizing campaign against the bank and helping get its rating downgraded by financial supervisors (Fields, ; Teresa, ).…”

“…Reviewing this emerging body of literature, this essay found that a distinguishing characteristic of urban struggles with financialization is how they contend with the dynamic of distance that allows financial actors to operate in urban space from afar and shield themselves from the on‐the‐ground consequences of their actions. A key aspect of contesting financialization is thus collapsing this distance, as eminent domain plans targeting mortgages in negative equity have done (Christophers & Niedt, ), and cutting through abstraction and complexity to make finance knowable, for example, by undertaking militant research connecting financial accumulation to its impacts on the urban landscape (Teresa, ). Moments of crisis have also afforded radical reimaginings of the production of space through, for example, occupying vacant and bank‐owned properties (Di Feliciantonio, ; García Lamarca, in press; O'Callaghan et al, in press).…”

The Financialisation of Rental Housing 2.0: Releasing Housing into the Privatised Mainstream of Capital Accumulation

“…; Beswick et al. ; Fields and Uffer ; García‐Lamarca ; Teresa ) . Yet, these studies focus primarily on financialisation 1.0 and have only hinted at the rise of the next phase: financialisation 2.0.…”