Abstract

The financialization of housing has become a key concern for policy-makers, real estate analysts, and residents in the current context. While initially describing changes in mortgage markets and the home ownership sector, recent work has highlighted the broadening of financialization to the rental market, through the entry of institutional investors to the sector. Systematic empirical evidence on the role of institutional investors in rental housing on the property level is, however, still scarce. A rigorous measure based on reliable data is needed, though, in order to

1. estimate the relevance of financialized actors on the housing market in a precise and disaggregate manner
2. provide a basis to systematically explore the impacts of financial actors on housing markets and
3. design effective policy responses. 

This project breaks new ground by developing the first comprehensive analytical framework for a property-based measurement of the scope and scale of rental housing financialization, drawing on a unique combination of datasets on property ownership, business registers, and real estate valuation. It demonstrates the value of this approach by applying it to Vienna, Austria. 

We (1) build a multilevel identification scheme for financialized property ownership based on land registry data and international company databases to gain a comprehensive overview of the city-wide financialized ownership shares in rental housing in 2011 and 2022. Drawing on both descriptive and inferential statistics, we (2) test the hypothesis of increasing financialization of rental housing after the global financial crisis 2008 and analyze the spatial patterns of financialization across the city. We (3) investigate the sensitivity of the results to our operationalization of the real estate quantity. While we use floorspace as the baseline reference, we further draw on housing units and market value estimates to, for the first time, compute the financialized shares in monetary terms, drawing on a large-scale property evaluation. Finally, we (4) compare the obtained financialization measures for the residential sector with similar measures for commercial real estate, testing whether there is a higher share of institutional investors in this market compared to the residential market, due to the latter’s comparably fragmented and regulated nature. 

While empirically focused on the Vienna case, the innovative conceptual and methodological framework developed in the project will be applicable to other cases and contexts in future research.

Central research questions

FINRENT adresses these research gaps, contributing to, and extending, the literature on housing financialization through a comprehensive and quantitative empirical approach. This will be done by focusing on one main research question that is broken down into sub-questions:

How can rental housing financialization be measured and is there evidence of increased relevance on the Viennese real estate market following the Global Financial Crisis (GFC)?

• How can financialized property ownership be properly identified?

• How can the scale of rental housing financialization be quantified drawing on data on property market value?

• Is there evidence of significant rental housing financialization on the Viennese market following the GFC? 

• Is there a difference in the magnitude of financialized property ownership between the residential and the commercial real estate sector?

Hypothesis

Based on the identified gaps in the literature and the resulting selection of the case study,  the following hypothesis are to be empirically tested within the project. 

• First, while we overall expect modest levels of rental housing financialization in Vienna, following the fairly regulated institutional setting, we nonetheless expect a substantial increase of the market share in financialized property between 2011-2022, following deregulation as well as relevant price developments, existing research, and media reports. The spatial distribution of financialized ownership is not expected to be randomly distributed but concentrated in a few areas of the city. This is because different sectors on the housing market are not evenly distributed over the city, and particularly the private rental sector, where financialized property is likely to be expected, is concentrated in areas close to the inner city. Furthermore, we expect CRE financialization levels to be substantially higher when compared to the residential housing sector, given comparably stricter regulation in the residential sector comped to the CRE sector. 

• Second, financialized rental housing providers are predicted to enter at the end of comparatively long ownership chains, i.e. as indirect and not as direct property owners. Holding real estate through shell companies is generally beneficial as it facilitates real estate transactions easier and might also allow for tax evasion strategies. Furthermore, takeovers between listed real estate companies are quite common (for example Vonovia taking over both the Deutsche Wohnen and BUWOG) which again leads to prolonged ownership chains. As Financialization 2.0 suggests a longer-term strategy of institutional investors on rental real estate, it is reasonable to assume they want to exert control over the operations, thus predominantly emerge as the ultimate beneficiary owners.

• Third, we expect rental housing financialization estimates to be substantially higher if evaluated in monetary terms compared to housing units, which is the current standard in the literature, because investors can be expected to hold property with higher market value. Although rental housing financialization is distinguished from a short term “buy-fix-sell” approach, financialized actors will still aim for the highest possible value gains. At the same time institutional investors often have more capacities to identify possibly attractive investment opportunities compared to smaller investors.

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