Expanding the Terrain for Global Capital

© 2012 Blackwell Publishing Ltd. Published 2012 by Blackwell Publishing Ltd. Beyond its social and political role, housing has long been a critical ec onomic sector in all developed societies. There have historically been three ways in which it played this economic role: as part of the construction sector, as part of the real estate market and as part of the banking sector in the form of mortgages (see Aalbers 2008; Wyly et al. 2004; Gotham 2006, among others). In all three sectors it has at times been a vector for innovation. For instance, in the early stages of development solar energy was largely applied to housing rather than offices or factories. Mass construction has used housing as a key channel to develop new organizational formats, and so has the industrial production of prefabricated buildings, which has mostly been about housing. Finally, mortgages have been one of the key sources of income and innovation for traditional-style banking. The 30-year mortgage, now a worldwide standard, was actually a major innovation for credit markets. Japan earlier and China today have instituted, respectively, 90and 70-year mortgages to deal with a rapidly growing demand for housing finance in a situation where it takes three generations to cover the cost of housing in a boom period – the 1980s in Japan and the 2000s in China. Today, housing has become the instrument for yet another innovation: a financial instrument that has lengthened the distance between itself and the underlying asset (housing) to an extreme that is usually associated with high-risk innovative finance. This is not the first time the financial sector has used housing for such an instrument: the first residential-mortgage-backed securities were produced in the late 1970s. The original intention was quite reasonable: to generate an additional source for funding the mortgages of 3