Key points
- A fund buys homes as assets that must yield; when thousands enter that logic they stop being shelter.
- Madrid captured more than half of Spain's foreign investment and posted the strongest price growth in the UBS index.
- The housing problem is not a market failure but its intended function; the plan sets the legal form, the market the real one.
The city is written by speculative funds rather than by planners when the decisions that order the territory, which neighbourhoods empty, which buildings change hands and where prices rise, are taken in the offices of investors with a spreadsheet, while the plan keeps drawing streets and heights. A fund does not buy a home to live in it but as an asset that must yield a future rent, a higher exit price and a low risk, and when thousands of homes enter that logic they stop being shelter and become a financial product. The geographer David Harvey called this the urbanisation of capital: land is where money seeks refuge and gain, and the real form of the city follows the money rather than the plan.
Madrid: half of Spain's foreign investment and the fastest price growth
Madrid is the clearest recent case. In a single year the Madrid region captured more than half of all the foreign investment that reached Spain, one of every two euros of foreign capital choosing the same territory, and that capital seeks offices, land, housing and urban rents. When so much money chases so few square metres, prices move in one direction. The Swiss bank UBS, which each year analyses property risk in the main cities of the world in its Global Real Estate Bubble Index, recorded in its latest report the strongest housing price growth of all the cities studied in Madrid, ahead of Miami, Tokyo and Zurich, with prices rising faster than wages: housing valued for its profitability, not its use.
Public housing sold to funds: the financialisation cycle
The third case makes the cycle tangible. In 2013 the Madrid regional and city governments sold nearly five thousand public rental homes to investment funds and their partners at low prices, and years later those homes were resold for several times what was paid, with tenants facing rent rises and evictions in between. Cheap purchase, rent extraction over years and sale at a profit is what the geographer Manuel Aalbers describes as the financialisation of housing, and the geographer Ricardo Méndez called cities for sale. Planning can zone land and set uses, but it does not control who buys, at what price or with what intention: the legal form is set by the plan, the real form by the market.
The counterargument: capital fills the gap planning left
The opposite argument deserves a fair hearing. Funds bring capital that finances new construction, refurbishes buildings and revives stalled markets, and without private investment many cities would build almost nothing. Much of the problem lies in regulation rather than capital: land is scarce, red tape abundant and public housing barely exists, in Spain around two or three percent of the stock against a European average near nine. From that reading, capital does not overrun planning but fills the gap planning left empty. It is a solid counterargument, and it means that pointing at the funds does not explain everything.
Not a market failure but its function: In Defense of Housing
Even so, an uncomfortable idea holds. The housing problem is not a market failure but the market's intended function: a system designed to maximise the rent of land produces, by design, high prices and expulsion, and it does not break down when people cannot pay but works exactly as expected. David Madden and Peter Marcuse put it plainly in In Defense of Housing (2016): housing is at once a need and an asset, and when the asset role wins, the need goes unmet for those who cannot compete. The question for a city is which of the two roles its rules serve.
The lesson is that planning without control over ownership, price and use is drawing on paper that money redraws. Cities that have recovered part of the pen, Vienna with its public and limited-profit stock, Berlin with its referendum on expropriating large landlords, Barcelona and Amsterdam with limits on tourist rentals and purchase, show that the map of the city can be written again by public decision. Until then, the most important urban document is not the master plan but the portfolio, and the most effective urban policy is deciding who is allowed to own the city.
Frequently asked questions
What does it mean that the city is written by speculative funds?
That the decisions ordering the territory, which neighbourhoods empty, which buildings change hands and where prices rise, are taken by investors treating homes as assets that must yield, while planning zones land and sets heights without controlling who buys, at what price or with what intention.
Is the counterargument that funds finance construction valid?
Partly: funds bring capital that builds and refurbishes, and in Spain public housing is only two or three percent of the stock, so capital fills a gap planning left; but a market designed to maximise land rent produces high prices and expulsion by design, as Madden and Marcuse argue.
