The rental 'industry': the case of Barcelona

Last November I spent almost twenty days between Portugal and Spain. A quick trip, more for support and sightseeing than for observation. But, in a period like that, of great transformations in the world, nobody goes to other places without setting aside their researcher's instincts.

In my studies of financial funds and their managers, I always try to follow in greater detail how "venture capital" investors capture high-yield, short-term opportunities with real economy assets that are transforming the way financial intermediation is done.

In this movement, certain sectors and spaces (territories) alternate in their attractiveness to these investors seeking gains and capital accumulation. Digital platforms and app-based companies are increasingly becoming instruments that assist and expand this capture.

It is in the midst of this process that land rent, briefly described as "real estate rent," becomes an even greater attraction for capturing economic surpluses in different parts and regions of nations, especially the capitals and metropolitan areas surrounding them.

It is in this direction that some researchers have been talking about the rent-seeking nature of the rental 'industry' (yes, in quotation marks). This is an increasingly strong attraction, even if segmented and organized within this sector, among real estate investment trusts (REITs), but also for hybrid funds, multi-market (hedge) funds, and others.

In Brazil, this also includes FIPs (Investment Funds in Participations, a pool of resources intended for investment in publicly traded companies, privately held companies, or limited liability companies), which also involves the infrastructure sector and is directly and indirectly linked to real estate rent-seeking, a well-known phenomenon since the beginning of capitalism.

The rising cost of living for residents of metropolitan cities like Berlin, Paris, and even Lisbon and Madrid in southern Europe has been widely discussed, stemming from the increased cost of housing (apartments) in more central areas, pushing residents to the outskirts, further and further from their workplaces and the city center.

This is, among other things, linked to the migration of higher-income individuals from other nations, but also to the allocation of housing for short-term rentals through apps like Airbnb. This is already being seen in Brazil, especially in São Paulo and Rio de Janeiro, attracting investors and fund managers seeking these above-average returns.

Investors are always looking for high returns in the short term. Therefore, they attract savings account holders (surplus) who, as investors, become fund shareholders. These fund holders acquire older buildings, renovate the buildings and the residential units, especially one- or two-bedroom apartments, which gain both in market value and increase their rental income, contracted through apps, but with high profitability and cash payments. And one reason feeds the other. If they generate good rental income, they also gain market value for sale.

These facts are already known and well-studied by researchers investigating the financialization linked to the housing sector. Medium- or short-term rentals guarantee large volumes of income extraction and surpluses in these cities, which retain very little or none of the gains from this process, except for the consequences.

Municipalities and regions are taking action, imposing taxes on these short-term rentals, but these reactions do not change the overall picture of a near-industry of vampirizing local income that negatively impacts regional economies and their residents, yet continues to bring extraordinary profits to those investors at the top, especially after the pandemic.

Profits today are already higher than they were in 2019, before the impacts of the reduced flow of people worldwide. Today, people want to and are circulating more than before the pandemic.

The rental income of these funds in the short-term rental sector depends heavily on this stimulus to tourism (TV programs and newspaper sections about travel that seem neutral), another sector that sells itself as an 'industry' and that is very dependent on the precariousness of services and labor relations.

Given this situation, I used these rental options—via apps—in some of the cities I passed through, rather than hotels (because accommodation for three people with a wife and daughter is better), and that allowed me to understand a little more about what is happening.

The case of real estate rent-seeking in Barcelona

The overall perception of this situation sharpened my perspective. I saw and heard people (young people working in the workshops) who help the REITs manage this rental service relationship, and I was fortunate enough to read an article in a café in the Barcelona regional newspaper La Vanguardia, and later in El País, Catalonia section, on November 19, 2002, p. 20, on the subject, whose title was: “36% of rental floors are from large tenants” (36% of rental apartments are owned by large landlords). [1] [2] [3] [4]

The report presents data from the third edition (2021) of the study on "Structure and concentration of housing ownership in Barcelona" which was carried out by the Metropolitan Observatory of Housing in Barcelona.

The data is striking: a) the percentage of residents living in rented accommodation in Barcelona has risen by about 40% since 2000, when it was around 30%, and the majority of rented dwellings (51%) are owned by landlords who have three or more dwellings; b) 38,5% of dwellings in Barcelona are currently rented, which in absolute numbers amounts to 290 dwellings out of a total of 754; c) The majority (more than ¾) of large landlords with ten or more dwellings are in the hands of legal entities (77,3%), possibly, in large part, investment fund managers who see in the real estate sector excellent possibilities for good returns on cash in the short term.

The researchers estimated that 720 people in Barcelona are living in rented accommodation, a figure that puts the region on par with Berlin and Paris, which are experiencing similar problems and have already implemented some form of rent price regulation.

As can be seen, the study provides clear indicators of the reasons for the large number of rental dwellings at a time of local housing crisis resulting from high prices, which would be leading the provincial government to propose a law on the issue, as has been done in some northern European metropolises, especially Berlin and Paris.

In most European countries, the government does not grant ownership of public housing to lower-income residents, as is the case in Brazil. These properties remain public, and lower-income residents enjoy the right to housing. In Barcelona, ​​publicly owned housing comprises only 12 units, 1,7% of the total, while 4,4% of those currently rented are located in peripheral neighborhoods.

Real estate income fueling funds, investor logic, and social inequalities.

This data reinforces the interpretation of the rental 'industry' as being driven by demand during the off-season, especially from tourists willing to pay higher prices for shorter periods. Digital platforms and rental and accommodation app companies have become indispensable tools for the growth of this reality.

Thus, investors win twice. First, with the appreciation of the property and its surrounding area, where they typically own and invest in other buildings and apartments, but with its high profitability, exempt from most taxes. Local residents lose out, ultimately impacted by tourism.

This gives rise to a set of social and political problems. Various feelings of unease and discomfort arise from this, helping to explain the reactions and emergence of far-right (fascist) movements that present themselves as anti-establishment.

It's a paradoxical and contradictory movement, especially since those who benefit most from all this are the ones who control this sector, the investors at the top, precisely those who profit the most from these processes and strategies. However, that's another topic altogether, although strongly linked.

References:

[1] Article in the newspaper La Vanguardia, Barcelona, ​​on November 18, 2022. 36% of rental floors in Barcelona are owned by large owners. HOUSE: The rental park represents 38,5% of three quarters of a million homes in the city. Available at: https://www.lavanguardia.com/local/barcelona/20221118/8611837/36-pisos-alquiler-barcelona-son-grandes-propietarios.html

[2] Article from El País, Madrid, November 19, 2022, Catalonia Section, p. 20. (Online Edition November 18, 2022). El 365 de los pisos de alquiler son de grandes tenedores. Available at: https://elpais.com/espana/catalunya/2022-11-18/el-36-de-los-pisos-de-alquiler-en-barcelona-son-de-grandes-tenedores.html

[3] Barcelona City Hall (Ayuntamiento) responds to study and newspaper article. Available at: https://ajuntament.barcelona.cat/ciutatvella/es/noticia/los-grandes-tenedores-son-propietarios-del-36-de-los-pisos-de-alquiler-habitual-de-la-ciudad_1229148#:~:text=de%20la%20ciudad-,Los%20grandes%20tenedores%20son%20propietarios%20del%2036%20%25%20de%20los%20pisos,alquiler%20habitual%20de%20la%20ciudad

[4] Link to download the summary of the presentation of the results of the study Estructura i concentració de la propietat d'habitatges a Barcelona. Set of the logger segment 2021. Available at: https://www.ohb.cat/wp-content/uploads/2022/11/O-HB-Presentacio-Laboratori-Propietat-2022.pdf