A significant portion of hidden wealth touches down to earth in the form of real property and luxury real estate. Across the world, skyscrapers and mansions are rising in globalized super-cities, a form of “wealth storage” for the world’s wealthy who are seeking to diversify their asset holdings. These are not people looking for homes so much as wealth parking spots.
This is leading not just to gentrification, but to a “plutocratization” of urban neighborhoods. As Richard Florida observes in The New Urban Crisis, “Some of the most vibrant, innovative urban neighborhoods are being turned into deadened trophy districts, where the global super-rich park their money in high-end housing investments as opposed to places in which to live.”
New York City was an obvious first destination in the U.S. for global capital. In 2015, The New York Times published a rigorous work of investigative journalism, “Towers of Secrecy.” The series documented the impact of anonymous buyers on Manhattan’s luxury market. They traced multiple shell company owners to criminal activity and money laundering by foreign buyers.
In 2014, 54% of real estate purchased in New York for more than $5 million was acquired in the name of anonymous shell companies. In the six most expensive condo projects in the city, the owners in a majority of units were hidden by shell companies, including 77% of the units in One57 and 69% of the units at The Plaza. The value of the 900 condominiums in these buildings was equal to the value of 20,000 average American homes.
Many U.S. cities, especially coastal markets, are experiencing similar trends, with thousands of new luxury residential and rental units in different stages of development. A decade from now, the skylines and population demographics of many US cities will be transformed by decisions being made today for the benefit of the ultra-rich, not the residents of those cities.
The affordable housing crisis is not driven primarily by foreign investment. Both domestic and foreign capital are surging back into cities, as wealthy people have a renewed interest in living in center cities or holding a pied-a-terre apartment. As Richard Florida observes, “Gentrification and inequality are the direct outgrowths of the recolonization of the city by the affluent and the advantaged.”
Florida writes, “It’s not so much an incursion of super-rich plutocrats that is transforming many of the world’s great cities as an incursion of the much larger numbers of merely well-off people, including the growing ranks of startup entrepreneurs, venture capitalists, and well-paid techies who are trading in their houses in the suburbs for condos, apartments, and townhouses in superstar cities.”
Wealthy workers moving into central and walk-able neighborhoods are more classic forces of gentrification. But global capital is supercharging these gentrification dynamics by injecting additional cash and disruption into the market.
In my hometown of Boston, thousands of units of luxury housing are rising around the central city, with over 5,000 high-end units in the permitting and construction pipeline. High-end rental and luxury condos have transformed the Seaport area into a neoliberal neighborhood, with virtually no public space, coastal access, or services such as schools and libraries. In an analysis of eight luxury buildings, with condos starting at $2 million, over 35% were owned by shell companies or anonymous trust entities. In one building, Millennium Tower, anonymous ownership makes up closer to 80% of the units.
Miami has historically been a magnet for foreign investment from all over Latin America and the Caribbean. “Foreign investors have driven home prices out of whack with local incomes,” wrote Miami Herald reporter Nicholas Nehamas. Between August 2015 and July 2016, foreign nationals accounted for 39 percent of total residential real estate purchases in South Florida, or over $6.2 billion.
Los Angeles is experiencing an empty homes crisis alongside acute homelessness. One report found more than 103,000 vacant units in Los Angeles with over 41,000, not on the market. There are an estimated 36,000 homeless families in the city.
Tens of thousands of housing units are being withheld from the market by speculators and anonymous ownership entities (including trusts, LLCs, and shell corporations) that are simultaneously overproducing luxury housing and fueling displacement, homelessness and a crisis in housing affordability. Of the 25 luxury condominium buildings profiled in the report, 2,399 of 3,244 units, or 71% percent on average, are sitting effectively vacant—they are not anyone’s primary residence.
“Knowing that our city is failing so dramatically to house people, it’s shocking to find tens of thousands of units are sitting empty, many just to fill the pockets of investors. People deserve to know who owns their city and who benefits from this injustice,” says Alex Ferrer with Strategic Action for a Just Economy in Los Angeles.
Chuck Collins directs the Program on Inequality and the Common Good at the Institute for Policy Studies. This commentary originally appeared in the Progressives Institute for Policy Studies.