But how does this financialization of the city play out in the urban built environment?

We examine two
major geographical outcomes here – urban governance and neighborhood decline. First, financialization
has major implications for urban governance in terms of the ways in which municipal governments seek
to grow and/or regenerate their cities. As cities throughout the world embarked on massive projects to
develop or transform their urban assets in the 1990s and the 2000s, more municipal governments were
attracted by the promise of global finance as a major alternative to their existing funding through local
taxes and national redistribution. They turned to debt‐financing in global capital markets and bought
into ‘innovative’ financial instruments, such as municipal bonds, ABS, and even private equities, to
finance their entrepreneurial projects such as public infrastructure, urban amenities, social housing, and
so on. To service this debt financing, municipal governments relied on future property taxes and other
forms of earnings such as anticipated future income from user fees on these urban assets. In the United
States alone, the amount of outstanding debt in the municipal bond market was valued at $3.7 trillion
by 2012, with 44,000 state and local issuers (Peck and Whiteside 2016: 244).

In their study of Detroit’s recent bankruptcy, the largest municipal bankruptcy in US history, Peck and
Whiteside (2016) argue that financialization led to the rising power of financial gatekeepers and
creditors in urban governance. By the time Detroit filed for Chapter 9 bankruptcy on 18 July 2013, its
municipal government owed $18 billion to its creditors comprising large corporate bond holders and
insurers (e.g. Bank of America, UBS, Syncora Guarantee, and Financial Guaranty Insurance), municipal
pension funds and commercial banks. Its Water and Sewerage Department debt alone made up one‐
third of this massive long-term debt. The other two‐thirds comprised unfunded retiree health care
liabilities (32 per cent), unfunded pension liabilities (19 per cent), and government debt (16 per cent).
Confronted by dwindling local tax bases and deindustrialization since the 1980s, Detroit first went on a
drive to develop new growth sectors and to renew its urban infrastructure in the 1990s. During this
initial period of urban entrepreneurialism, the municipal government and its broader coalition of actors
retained much of its governance power.

However, the transition towards financializing the city since the 2000s has led to the power shifting in
favour of creditors’ privileges. The rise of privately financed public–private partnership projects, such as
the Riverwalk and Campus Mauritius projects, the Woodward Avenue M‐1 rail project, and the new
Windsor–Detroit bridge, has given bond holders and private capital much more say in urban
governance. After Detroit’s file for bankruptcy in July 2013, these creditors compelled the city
government to sell public assets and to introduce massive cost‐cutting measures in other areas of public
interest (e.g. reducing municipal services in some suburbs). While cities and municipalities worldwide do
not often go bankrupt, Detroit’s experience is not the only one and it will not be the last. As such,
financialization is not only taking place via financial elites in global cities but is also operating as a
transformative urban process reshaping what municipalities in ordinary cities can and cannot do in an
era of debt‐financed urban development.

Second, financializing the city has major geographical implications for suburban transformations at the
neighbourhood scale. Prior to the 2008 global financial crisis, geographically uneven closure of bank
branches in different countries had already impacted on low‐income and/or racially marginalized
neighbourhoods by excluding them from the financial system. Ironically, these same neighbourhoods
were also targeted for bad mortgage‐related financial products such as subprime loans. This twin
phenomenon of financial exclusion and subprime lending in the housing market tended to be prevalent
in US and, to a certain extent, UK cities. However, the 2008 global financial crisis and its subsequent
economic recession and austerity measures have affected many North American cities and some
European cities (e.g. Iceland, Ireland, and the United Kingdom) through much of the 2010s, resulting in
uneven mortgage foreclosures, growing unemployment, and rising poverty in geographically specific
areas. Coupled with other country‐ and city‐specific factors (e.g. weaker economy, lower quality housing
stock, and less government involvement), the effects of financial crisis and recession on neighbourhood
decline can be disastrous.

There are four main ways in which the 2008 financial crisis can lead to neighbourhood decline (Zwiers
et al. 2016):

• Austerity programs and budget cuts result in a weaker social safety net for vulnerable groups and to
more limited options on the social housing market, leading to increasing concentrations of low‐income
groups in particular neighbourhoods.

• The effects of the crisis are stronger in cities that have actively stimulated homeownership at high
loan‐to‐value rates. Vulnerable groups such as racial or ethnic minorities, low‐ to middle‐income
households, and first‐time buyers are especially affected by the crisis. When these groups are over‐
represented in particular neighbourhoods, they are often most affected by rapid processes of decline.

• Low‐ to middle‐income groups and first‐time buyers have been increasingly excluded from the
mortgage market since 2008. This new round of financial exclusion has created a large group in need of
affordable rental housing, leading to increasing inequality between renters and owners in specific
neighbourhoods.

• The crisis has led to an increase of corporate investment in the private rental sector (e.g. Australia,
Japan, the United Kingdom, and the United States). Converting more properties into rental units might
lead to neighbourhood instability and negatively impact on surrounding property values. These effects
will be the strongest in neighbourhoods most hard hit by recession and are likely to have negative
spillover effects on surrounding areas.

To sum up the above discussion, financialization since the 1990s has clearly turned all kinds of things
into ‘asset classes’. Real estate and housing are certainly no exception, partly because the global reach
of finance is often most visible in these spatially fixed assets. Next, however, we should perhaps
examine more closely who these global investors are and where they come from. Apart from the big
banks and private investors, there is indeed another ‘investor class’ that has very deep pockets because
of their funding by national wealth – sovereign wealth funds (SWFs).