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A New York Times investigation is looking at the purchase of New York real estate by wealthy buyers from other countries. There’s something about citizens of other countries buying land and homes in the U.S. that can be unsettling to some Americans. That goes for both the purchase of $15 million condos and the conversion of mortgages to hugely complicated paper assets sold on international markets.

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It’s also something that can seem inevitable. People with more money tend to buy valuable things, regardless of where in the world they are. But a 2006 paper by Tulane University sociologist Kevin Fox Gotham argues that the globalization of U.S. real estate is driven more by deliberate government policies than most people realize. Gotham was writing at the height of the real estate bubble. Now that we know about the implosion of mortgage-backed securities that followed, and the disastrous consequences for the global economy, there are even more reasons to be interested in his argument.

Gotham notes that all kinds of cross-border exchange depend on “an elaborate and complex set of rules, regulations, and institutions that are established by the state.” Governments, in other words, make it possible for a home to become an impersonal asset ripe for investment by anyone with money, anywhere in the world.

Even in an economy where just about anything can be bought and sold, real estate stands out as something different. Houses and apartment buildings can’t be shipped overseas, of course, and they’re rarely standardized like widgets in a factory. If you’re buying a house for yourself, you’ll probably spend time looking around the rooms, checking the pipes for rust, and finding out about the local schools.

Gotham writes that the U.S. Agency for International Development has helped develop international real estate standards that make the quirks for individual homes less worrisome for investors. With international trade groups and real estate industry organizations, USAID has helped establish appraisal standards, licensing laws, lending practices, mortgage finance systems, and regulatory institutions—making real estate a more standardized, transparent commodity.

Quasi-public agencies Fannie Mae and Freddie Mac also played a role in turning real estate into a more marketable commodity. Their basic function involves funneling capital into mortgages, making it easier to buy a home. Together with lawmakers who pushed favorable legislation, Fannie and Freddie helped create a market for mortgage backed securities by making sure there were standardized documentation and underwriting guidelines for mortgage-backed securities. Federal laws also did something similar for commercials real estate by encouraging the development of real estate investment trusts, or REITs.

Today, the global economy continues to suffer from the repercussions of the 2008 financial crash, and politicians continue to debate the wisdom of putting restrictions on global markets. As they do, it’s important to remember that government actions play a big role not just in regulating the free flow of money and property but also in allowing it to exist at all.



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American Journal of Sociology, Vol. 112, No. 1 (July 2006), pp. 231-275
University of Chicago Press