When it comes to the benefits of speculation, remember Paris
Investors, speculators from 19th century were pivotal in building awe-inspiring city, Murtaza Haider and Stephen Moranis say
What good could possibly come out of speculation in housing markets?
If you guessed Paris, you guessed right.
The dominant discourse in Canada right now holds a pejorative view of speculation in property markets. Foreign and local investors are dubbed as speculators and are held partially or wholly responsible for the worsening of affordability, especially in and around Vancouver and Toronto. Even the governments are convinced speculation is bad. Ontario, for instance, introduced a new tax last year and branded it as the Non-resident Speculation Tax. At the same time, Canadian urbanists never tire of singing the praises of all things Paris. They are not alone. We are all in awe of the boulevards, the courtyards, the façades, the monuments and the parks.
But while Paris’s built form is there for all to admire, what is not at all apparent is the critical role played by investors and speculators in erecting thousands of residential buildings a little over a century ago, when Paris grew by a million residents in a matter of decades.
If it were not for the ingenuity of architects-turned-financiers, Paris would have been much smaller in size and possibly grandeur. The city builders in late-nineteenth century Paris realized that the demand for urban housing far exceeded the supply and the only way to catch up was to create new financial channels to funnel money into the new housing projects.
In a meticulous study of the city builders of the late 19thcentury Paris, Alexia Yates, a professor of economic history at the University of Manchester and a native of Pouch Cove, N.L., reveals the financial underpinnings of a building boom that was unprecedented at the time and has few parallels in modernday Europe.
Her book, Selling Paris: Property and Commercial Culture in the Fin-de-siècle Capital, broadens the conversation from the city’s urban design to the financing tools and institutions that helped make Paris what it is today.
While Haussmann dominates the usual discourse about the City of Light, Prof. Yates introduces us to others whose buildings are scattered across the city, but whose names have “not come down to posterity.”
In 1875, just past the site of the under-construction Sacré-Coeur Basilica, the Montmartre Real Estate Company had established the largest work site in Paris where hundreds of workers were busy erecting new roads and 88 apartment buildings on a 32,000- square-metre site. Between 1879 and 1885, no fewer than 13,500 buildings were erected across Paris, which increased the rental value of the housing stock by at least a quarter.
Most new housing in late 19thcentury Paris was built for renters. Hence most of those who invested in construction had no plans to live in the buildings they helped finance.
The new rental stock had become part of investment portfolios. Between 1870 and 1900, 253 real estate companies were established in Paris to fund real estate development.
As is the case today in Canada, there were detractors who found everything wrong with the credit-financed construction on the industrial footing. What they couldn’t foresee was the adverse impact of not being able to house the ever-increasing number of new urban residents who were moving to Paris from all over. Parisian architects and engineers embraced not just finance, but also “big data,” analytics, marketing and media to prepare the ground for a boom in housing construction. The architects became newspaper columnists in Le Figaro with weekly columns on marché immobilier starting as early as in 1881. The engineers published comprehensive stats on property transactions and generated choropleth maps to demonstrate trends in property markets and demographics.
In Canada, city building remains a conflicted affair. Construction depends upon risk capital that investors bring at the early planning stages when buildings and neighbourhoods are nothing more than sketches on a piece of paper. They invest — call it speculation — in the idea of future buildings and neighbourhoods. Investors, foreign and local, can end up financing great cities. Just look at Paris if you are not convinced.
Financial Post
Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.