STATE-LED FINANCIALIZATION: IMPLICATIONS FOR URBAN STUDIES

Abstract

It is known that financialization is a multi-scalar phenomenon and process with implications for state institutions that both influence and are influenced by financial dominance. The incorporation of investor logic in the formulation and implementation of urban public policies, from both the supply and demand perspectives, is one of the constitutive features of a state-led financialization. However, before impacting the formulation and implementation of public policies, the so-called state-led financialization established constitutional guarantees for creditor payments, the imposition of spending ceilings for social policies and state financing, and profound changes in the functioning of the state itself.

In the realm of housing and urban public policies, the most visible aspect of this state-led financialization occurred through changes in the credit and financial structure of these policies and programs. Therefore, analyses of real estate financing systems are necessary to understand them considering their alignment with accumulation patterns expressed in the global system. Overcoming this gap requires analyzing from the implicit political assumptions in its theoretical framework and the results of its implementation.

In this context, financial discourse emerges as a neutral discourse, asserting that a financialized model, when structured on balanced foundations, would be capable of supporting any public policy. Changes made by national governments affecting transaction costs in the real estate market, creating a secure business environment for private investment, mitigating so-called market failures, and substantially reducing economic inefficiencies in real estate were conducted in several countries based on the diagnosis of a so-called entrepreneurial state.

This is not simply about new normative provisions regarding housing and real estate financing. What state-led financialization achieved was the replacement of a financing model based on extensive state participation with a "market-oriented" financing model that aimed to elevate the market to a central position in the system.

In the case of the real estate sector, building institutions for the market meant reorienting existing institutions and establishing new arrangements that allowed the private sector to take a leading role. From the perspective of the World Bank, the construction of new financial arrangements for the system should begin with a new source of funding. The process of globalization, which connected financial markets in real time, would be the driving force behind the real estate sector.

In this context, various financial instruments were developed, notably those aimed at raising funds for the real estate sector. However, in emerging countries, a series of institutional barriers hindered the introduction of these new financial arrangements, including the securitization process. For instance, there was a lack of stable regulatory frameworks capable of offering minimum guarantees to private investors and little attractiveness of traditional securities for primary fundraising. Additionally, the mortgage market has always been very limited in these countries, with little risk segmentation and little attractiveness compared to safer and much more profitable investments, such as government debt securities and so-called fixed-income funds. It was essential for the state to structure the markets, create investment rules, stimulate the demand of public and private agents, and, above all, implement an institutional environment capable of instilling confidence in investors.

From this perspective, what can be understood as state-led financialization sought to ensure conditions for the emergence of primary and secondary mortgage markets that included housing financing in the process of financial market liberalization. State intervention in this context facilitated the provision of guarantees for bonds issued by private agents, promoted liquidity through government purchases, and provided incentives for the issuance of real estate-based or property-backed securities (especially through tax breaks, impacting public budgets).