The Real Estate Financial Complex in the Netherlands and Belgium

During the credit crunch in 2007 the global financial system was close to a meltdown, setting in motion a wave of state rescues of domestic financial institutions. The credit crunch also revealed that the deep motivation of financial actors to liquify illiquid activities and assets (such as real estate) in order to further enlarge the financial sphere can be extremely destructive. The Netherlands and Belgium (i.e., the Low Countries), where states were saving large bank(insurers) such as Fortis and SNS, were no exception. As part of the Eurozone, both countries also followed the general cure for the following Great Financial Crisis prescribed by the European Central Bank of loose monetary policies which thus stimulated a debt-fueled recovery, especially through capital intensive activities such as real estate. However, in the Netherlands urban development halted and real estate markets crashed, but Belgian urban development experienced only a minor hiccup and prices increased steadily.

            This dissertation aims to explain this difference. It argues that ‘financialization’—i.e., the increasing dominance of “financial actors, markets, practices, measurements and narratives” (Aalbers, 2017a, p. 3)—is a crucial concept. Scholars have shown how finance and real estate have become both increasingly dominant (within domestic and urban political economies) and increasingly interconnected with each others’ changing “accumulation dynamics”. They have also demonstrated how various state agencies and context specific conditions play crucial roles in shaping these processes reconfiguring “regulation dynamics”. Studying urban development puts analysing the changes between these three domains central: it requires analysis of the changing behaviour of non-financial corporations (e.g., real estate developers), financial actors (e.g., banks and institutional investors) and their interaction with state agencies in order to better understand contemporary capitalism.

Although the dominance of finance over urban development in Anglo-American countries has been studied extensively, comparative studies on continental European “variegations” and case-studies showing the limits of financialization processes are scarce. More in general, the financial dimension of urban development is often neglected in urban studies literature. To fill this gap, this dissertation presents two multi-level, comparative in-depth case studies based on both financial/quantitative analyses and 55 elite-interviews that demonstrate how financializaton processes have interacted differently with urban development of Belgium and the Netherlands. It therefore offers a better understanding of barriers towards financialization and a more thorough understanding on how financialization reshapes urban development.

In the Netherlands, urban development is highly financialized: this is because relevant actors are, to varying degrees, very open and quick to adopt financialization tools and use them opportunistically. Also, Dutch state agencies have a directive role in urban planning, thereby not only enabling the creation of large scale, capital intensive projects in which private and public actors cooperate closely, but also facilitating more market-oriented planning policies that underpin financialization prioritizing investment logics over the use value of the built environment and fueling debt production. The resulting prominence of ‘impatient’ capital providers leads to capital flowing into new, compact urban districts in large sums, as “cataclysmic money” of which the providers have an abstract vision on cities that is primarily based on financial parameters. Consequently, urban development and debt-fuelled real estate markets have become important engines for economic growth: a real estate finance driven growth regime has been established.

Thus, financialization structurally changes urban development through a massive influx of ‘impatient’/financialized capital including, but not exclusively, through the take-up of debt by all actors involved, ranging from the developers to the buyers of real estate. This increase of fictitious capital, i.e. marketable claims “on the production of surplus value and on the perceived value of the underlying asset–both of which are relationally produced in time and space” (Pani & Holman, 2014, p. 218) makes the pace of urban development dependent upon volatile, global financial markets and puts financial actors/markets in control, rather than urban planners.

Unlike the Netherlands, Belgian urban development is financialized to a low degree: this is a result of how actors relevant for urban development are much less open to adopting large amounts of financialization tools. To the contrary, many development projects are of a relatively small size and usually, for a considerable part, financed by individuals and investors that have a local orientation. Thus, these patient capital providers–i.e., long-term equity and debt provided by actors who emphasize on enduring relations  and  long-term  goals  that  include  non-financial objectives—act as an important barrier against financialization, as they are hesitant towards the adoption of financialization tools because of how these decrease their influence. Moreover, the fragmented, regionalized Belgian state has established a less pronounced ‘neoliberal turn’, e.g., Belgium already had an extensive history with private (real estate) ownership and private actors, who were and are dominant in shaping its built environment. Combined with the long duration of (sub)urban projects and the piecemeal approach, patient capital flows gradually into the production of a sprawling, built environment. Accordingly, the pace and form of urban development relies less on global financial markets and more on locally-oriented, private firms and individual real estate desires. Within the Belgian political economy real estate is conceptualized as individual investment that needs protection: financializing it in order to spur economic growth seems to not be a priority.

In line with many recent studies, this PhD thesis takes the financial dimensions of urban development seriously, thereby offering new insights on what drives urban development and showing the powerful role of financialization processes in a wide range of contexts. However, these other studies are still skewed towards showing the presence of financialization and thereby neglect the variation of capital providers. To overcome this, this PhD thesis suggests that future research should put the different time-horizons of capital providers (i.e., the patience of capital) central in analyzing urban development.