Financialisation is one of four scans that forms part of The Economics of the Built Environment theme for RIBA Horizons 2034.
A defining challenge for the architectural profession in the 21st century is how to position itself in relation to financialisation. Buildings have always been to some degree ‘financial’ – physical embodiments of wealth necessarily connected to economic systems. Yet, it is a relatively recent transformation that has embedded them squarely at the centre of vast and complex financial systems.
It is not a stretch to say that buildings are now not only dialectically informed by and informative of finance, but an integral and primary medium of finance itself.
In the forthcoming decade to 2034, emerging trajectories of financialisation, such as the expanding scope and scale of property technology and the entrenchment of the spatial politics of crisis, will pose significant implications for buildings.
A sharper awareness of buildings’ role in relation to financialisation has the potential to empower architects, professional membership institutes, and the wider public. Understanding how financialisation works reveals opportunities and constraints for how to create a more just and beautiful built environment.
The FIRE economy
While finance is integral to capitalism, its prominence has risen and fallen over time. In 2024, it is very prominent. Indeed, there has been a near-consensus of an unprecedented rise in finance’s scope and scale since approximately 1980.
American sociologist Greta R. Krippner defines financialisation as “a pattern of accumulation in which profits accrue primarily through financial channels rather than through trade and commodity production. ‘Financial’ here refers to activities relating to the provision (or transfers) of liquid capital in expectation of future interest, dividends, or capital gains.” [1] Real estate occupies a central position in financialisation. The extent of its symbiotic integration has even spawned its own term: FIRE economy, where FIRE stands for finance, insurance, and real estate.
The extent of this economic ecology can be measured in a myriad of ways. In most euro area countries, bank mortgage loan portfolios exceed 200% of the core capital of banks. [2] Americans have over $12 trillion USD in mortgages, accounting for 70% of consumer debt. [3] US commercial banks alone hold approximately 5.5 trillion USD in real estate loans, a 22-fold increase in constant dollars since 1980. [4]
Multinational insurance companies are among the world’s largest real estate investors. Buildings and their subdivided increments are integrated into a vast and interconnected financial network like never before.
The giant pool of money and asset architecture and urbanism
An important driver of financialisation is the ‘giant pool of money’ - the aggregated and growing amount of worldwide capital savings that are held in a variety of forms such as pension funds, mutual funds, or insurance funds. In a process that David Harvey describes as the “perpetual need to find profitable terrains for capital-surplus production and absorption”, the built environment has provided a primary site for the giant pool’s absorption. In so doing, it has changed to suit the logic of financialisation. [5]
The resulting finance capitalist architecture and urbanism are inherently unstable and create spaces in perpetual crisis. This is seen in the increasing unaffordability of housing in most major cities and the large swings between various forms of growth and decay that pulsate across cities, regions, and continents. Buildings increasingly function as physical sites to store wealth speculatively. From mega-basements in Aspen to hyper-tall and thin condominium towers in Dubai, buildings are mutating, literally changing shape and scale to soak up capital.
Perhaps most significantly, financialisation challenges real estate’s position as one of the best examples of an illiquid asset - that is an investment that cannot be quickly or easily turned into cash. The slow friction wrapped up in the saying “all real estate is local” has been ground away. Today, real estate is a smooth, radically expanded market of maximum liquidity where large amounts of self-similar architectural assets are exchanged with relative ease.
Transforming buildings and their subdivided increments into more liquid assets necessitated shifts in finance, law, business, technology, and physical form. Inherently more liquid financial instruments were invented and tethered to built space, including mortgage-backed securities (MBS) and shares in Real Estate Investment Trusts (REITs).
Condominium laws that emerged in the 1960s and gained widespread popularity in the 1990s, facilitated for the very first time in many jurisdictions the direct ownership of housing units separated from the ground. Owning a condominium unit high in the sky literally removed it from the messy unpredictability of the public ground plane.
International real estate brokerage firms that first emerged in the mid-1970s, and radically expanded in scope and scale in the 21st century, helped individuals and entities to purchase real estate in far-flung locations. All of this was supercharged with the rise of so-called proptech (property technology), a subset of financial technology devoted to real estate, that started in the 2000s and continues to gain momentum.
The forms of finance
At the beginning of the 21st century, architect Rem Koolhaas wrote: “In the free market, architecture = real estate.” [6] While buildings have acquired heightened liquidity through new financial instruments, laws, and business practices, their physical form and function are also at play. There are four primary design strategies for making built assets more liquid:
- simplifying space
- maximising the number of assets
- facilitating remote ownership
- adding superficial complexity to compensate for the negative consequences of the first three strategies
Common tactics to simplify spaces include deploying design characteristics that minimise the possibility of meaningful social interaction. The unpredictable and unique nature of the human life that unfolds in and around buildings is time-consuming to account for as an investor, and so makes buildings less liquid.
Reducing the chances of social interaction standardises space and converts it into something more abstract and easily exchangeable. Maximising the number of assets means repeating standardised units in large numbers. Facilitating remote ownership centres on adjusting the siting, massing and organisation of buildings to reduce maintenance demands and security concerns and thus the need to be on hand to deal with problems as they arise.
Units that comprise the entire floor of ultra-thin towers; vast horizontal expanses of tightly spaced and almost identical single family homes; residential towers severed from the public realm because they sit atop private podium landscapes: these are all avatars of architectural assets optimised for liquidity.
Paradoxically, while applying the first three strategies heightens built assets’ liquidity, it also damages their appeal. The diminishing ‘real’ in ‘real estate’ threatens to undermine its very capacity as a unique asset class. To resolve this inherent tension and compensate for what has been lost, designers invent conditions that merely seem complex. The obsession with views, recreational leisure space, complex surface geometries, and manufactured natures in the guise of sustainability are all manifestations of this compensatory complexity.
The strategies apply to many different segments and geographies of financialisation: they are as prevalent for middle class housing in ex-urban Spain as they are for luxury flats in central Beijing.
Variegated, localised, and global [7]
Even though the forms and logic of financialisation are global, they differ from neighbourhood to neighbourhood, city to city, and country to country. Financial instruments such as REIT and MBS may not have a direct presence in low income countries, but the buildings produced in these contexts can often be equally financialised.
For example, housing micro-finance has dramatically expanded in the Global South where it is now deeply enmeshed with informal architecture and urbanism. [8] In Latin America, it is common for large construction material companies to provide self-builders with consumer loans, allowing transnational finance to flow through low income spaces. [9]
Proptech in the form of new mobile apps is expanding the micro-financing of housing across Africa. [10] And sometimes financialisation connects the architecture of high income and low income countries in surprisingly direct and perverse fashions. Take, for example, Bjarke Ingels Group’s Vancouver condominium tower that included the world’s first “one-for-one” home gifting program, in which each condominium purchase funded the creation of a housing unit in a “slum” in Phnom Penh. [11]
Ongoing financialisation, instability, and emerging implications
In the aftermath of the 2007-2008 global financial crisis, which started in real estate, numerous policy changes were meant to mitigate the risks of a repeat. However, financialisation itself has continued apace and accelerated during the pandemic.
All manner of risk remains. What was once the world’s largest real estate company, Evergrande, was ordered to liquidate in early 2024 amid the ongoing real estate crisis in China. At the same time, regional banks in the US were experiencing real estate-related losses, fueling worries of a new financial crisis.
It’s anyone’s guess what will happen, but financialisation’s continued march and associated instabilities are certain. Two likely trajectories that pose significant implications for architecture are, first, the expanding scope and scale of proptech and second, the entrenchment of the spatial politics of crisis.
Expanding scope and scale of proptech
The expanding scope and scale of proptech is likely to accelerate financialisation in the coming years. Digital twins of built space, designed to facilitate smart buildings and city planning, operations, and maintenance, are also being used to streamline real estate transactions.
During the pandemic, virtual home tours became commonplace, and this practice will likely become widespread and more varied. Virtual home staging is already touted as a way for sellers to save money and time, and generative artificial intelligence (AI) is poised to become fully synthesised with the effort. At the same time, crowdfunding real estate platforms (such as Fundrise) that allow real estate investment for as little as 10 US dollars are gaining momentum.
While it will be full of fits and starts, dead ends, and failed ventures, the convergence of digital twinning, generative AI, and digital real estate investment platforms will almost certainly expand the limits and character of financialisation in the built environment.
The spatial politics of crisis
The prevalent opinion in public discourse around the world is that housing is in a state of crisis marked by widespread unaffordability, too little space per person, precarity, and homelessness. While almost everyone agrees that housing is not faring well, the reasons for the crisis are hotly contested. To what degree is it a result of financialisation? To what degree is it the result of an undersupply?
The scope and scale of this highly politicised crisis have no easy answers or quick remedies. However, it seems certain that financialisation is involved to an important degree, and that built environment professionals will be operating within the crisis for the foreseeable future. The implications for architectural practice are significant.
Implication 1: digital twin feedback
When the use of digital twins becomes widespread in the buying and selling of housing, a peculiar phenomenon occurs: digital twin feedback.
This is how it works. Certain spatial characteristics are easier than others to represent in a digital twin that is navigated on a mobile or desktop application. Indeed, certain characteristics become paramount to the liquidity of the architectural asset within this medium. Because these virtual characteristics are easier to represent, they become ubiquitous, with the result that they begin to infect the real world.
Kate Wagner, architecture critic for The Nation and creator of the McMansion Hell blog, has written about the omnipresence of the colour ‘greige’ – grey-beige – in actual residential interiors. She brilliantly describes this as a byproduct of the “reorganisation of the real estate industry away from traditional vectors – television and magazines – toward the internet”.
The way that “neutral gray colors are integral to [the] new post-digital kind of unreality’ of virtual staging". [12] The point here is that greige is so important in the housing market’s digital marketplace that it entrenches the colour in physical, built space. It might even be possible to say that greige is the colour of financialisation.
Online real estate platforms and all manner of mortgage lenders now use Automated Valuation Models (AVMs) for the valuation of real estate. In fact, AVMs are one of the most widespread existing uses of artificial intelligence, and their use is spreading globally. [13] As a 2023 Brookings Institute report states, AVMs “are among the most established, ubiquitous, complex, and impactful algorithmic systems in the United States”. [14] With providers like CoreLogic UK and Hometrack/Zoopla, the UK appears to be the most active European country using AVMs.
As these systems become more central to the valuation of buildings, a major challenge for architects is the limitation in what AVMs can ‘see’. The systems are most accurate when working with generic architectural space. They don’t possess the means to value design elements beyond basic real estate metrics like proximity to schools, size, and number of bathrooms.
In the near future, these systems will likely be able to assess digital twins, allowing them to ‘see’ more aspects of architectural design and thereby factor them into valuations. There is a tremendous possibility that this will result in greater simplification and standardisation of buildings in the service of greater liquidity.
Proportions, spatial relationships, circulation and window placement, will all be algorithmically maximised to perform optimally for machine vision algorithms. The omnipresence of greige is only the beginning of this digital twin feedback loop.
Implication 2: alternative forms of practice, from activism to the developer-architect
As financialisation continues, the potential for meaningful and spatially just architecture within the dominant economic paradigm will be further constrained. This is likely to result in more architects searching for alternative modes of practice, ones that extend beyond the most common and well-understood bounds of the profession.
The intensity of the spatial politics of crisis, which is driven at least in part by financialisation, may see more architects involved directly in activism, operating overtly to challenge the political economy of the built environment. Witness the rise of The Architecture Lobby as a case in point. Chris Luebkeman and Jonelle Simunich’s Engagement and Activism horizon scan demonstrates how this activism works. [15]
At the same time, project delivery models that operate outside the common strictures of the private market are already flourishing and may see increased growth on the horizon. A renewed interest in housing co-ops, co-housing, co-living, and community land trusts all open avenues for architecture that are resilient to the limitations imposed by financialisation.
Architects may increasingly become actively involved in the financial context of their projects, designing creative and critical forms of finance that operate synthetically with physical form. John Portman, perhaps the most renowned developer–architect, said back in 1976 (just as financialisation was taking shape) that he had learned “to think of real estate architecturally.” [16] German Baugruppen, Catalan housing co-ops, and developer–architects like Melbourne’s Nightingale Housing can all be understood as contemporary and relevant manifestations of thinking about real estate architecturally.
Implication 3: affordability versus design
Housing crises and the intensity of the political discourse around them are generating a patchwork of new policies at all levels of government (local, regional and national) that will continue to evolve into the foreseeable future. This results in a dynamic and diverse terrain for architects to navigate.
Perhaps somewhat paradoxically, some of the new measures aimed at addressing affordability will accelerate financialisation and housing alienation. This all stems from the widespread argument that today’s housing crises are primarily the result of low supply.
A harbinger of what may be in store occurred in late 2023 when the Canadian government announced plans to introduce a catalogue of government-sanctioned and “pre-approved” housing plans to “unclog the housing pipeline”. [17] Shortly after its announcement, Allan Teramura, past president of the Royal Architectural Institute of Canada, called it out as a misconception. He wrote: “The … concerning implication of this initiative is that somehow the time spent on the design of housing is a major impediment to lowering its cost. This is a fallacy … The housing industry is already based on a model of the absolute minimum of time spent on design”. [18]
Fighting the negative impacts of financialisation: activist architects and critical finance
Financialisation will be central to the built environment sector for the foreseeable future up to and beyond 2034. It will continue to inform everything from the design of floor plans to the political environment within which architects operate.
Practitioners, professional institutes, and non-governmental organisations can respond with activism to blunt its impact, or by promoting new modes of practice that involve adaptive collaboration with critical and creative financial consultants. Either way, they will be well-served to self-consciously position themselves concerning its ongoing constraint of architectural potential and its de-socialising consequences.
Author biography
Matthew Soules is Associate Professor of Architecture at the University of British Columbia’s School of Architecture and Landscape Architecture, and founder of Matthew Soules Architecture. He has been visiting faculty at the Southern California Institute of Architecture and visiting associate professor at the Harvard University Graduate School of Design.
His most recent book is Icebergs, Zombies and the Ultra-Thin: Architecture and Capitalism in the Twenty-First Century (Princeton Architectural Press, 2021). He is co-founder of Architects Against Housing Alienation (AAHA), an activist collective that represented Canada at the 2023 Venice Biennale of Architecture.
RIBA Horizons 2034 sponsored by Autodesk
Resources
[1] G. R. Krippner (2005). The Financialization of the American Economy. In Socio-Economic Review 3(2), 174
[2] European Central Bank - J.H. Lang, M. Behn, B. Jarmulska, M. Lo Duca (2022). Real estate markets, financial stability and macroprudential policy. Macroprudential Bulletin 19
[3] Center for Microeconomic Data (2023). Household Debt and Credit Report (Q4 2023). Federal Reserve Bank of New York
[4] Board of Governors of the Federal Reserve System (US) (10 April 2024). Real Estate Loans, All Commercial Banks (REALLN), retrieved from FRED, Federal Bank of St. Louis
[5] D. Harvey (2008). Right to the City. In New Left Review 53, 24
[6] Wired - R. Koolhaas (1 August 2004). Beijing Manifesto
[7] M. B. Aalbers, R. Rolnik and M. Krijnen (2020). The Financialization of Housing in Capitalism’s Peripheries. In Housing Policy Debate, 30(4), 482
[8] M. Grubbauer and P. Mader (2021). Housing microfinance and housing financialisation in a global perspective. In International Journal of Housing Policy, 21(4), 465
[9] Ibid, 469
[10] A. Scheba (2023). Financializing Africa’s urban peripheries: the rise of housing microfinance. In Urban Geography, 44(5), 1050–1058
[11] New Yorker - B. Newman (13 February 2014). TOMS for Houses
[12] The Nation - K. Wagner, (13 March 2023). Liberating Our Homes From the Real Estate-Industrial Complex
[13] University of Oxford Saïd Business School - A. Baum, L. Graham and Q. Xiong (2022) The future of automated real estate valuations (AVMs). 11
[14] Brookings Institute - S. Brown and A. C. Engler (2023). Governing the Ascendancy of Automated Valuation Models: Regulating AI in Residential Property Valuation (Governance Studies at Brookings 2)
[15] RIBA - C. Luebkeman and J. Simunich (2024). Engagement and activism: choosing to matter
[16] J. Barnett and J. Portman (1976). The Architect as Developer, 4. McGraw-Hill Inc.
[17] CBC News - The Canadian Press (12 December 2023). Ottawa to launch pre-approved home design catalogue, bring back post-war effort
[18] The Globe and Mail - A. Teramura (18 December 2023). The revival of pattern home designs will do little to solve the housing crisis
