Specialty: Sociology, Economics e Politics | Contribution of Responsible Real Estate Investment

The durability of properties as a universal necessity refuge makes them susceptible to speculation. Socially Responsible Property Investment (SRPI) involves considering not only financial returns but also the social, environmental, and governance impacts of properties. This approach seeks to promote practices that benefit both investors and the wider community. In the context of socio-spatial segregation in Spain, responsible investment can play a crucial role in various aspects.

Implementation

The global shift towards sustainable development is tied to the leadership of real estate developers, asset managers, and investors in terms of mitigating socio-spatial segregation in cities. However, the lack of effective valuation indices and practices increases uncertainty about investment in sustainable and responsible properties. The implementation of new indices could reveal whether SRPI contributes positively, neutrally, or negatively to returns. In any of these cases, the discussion could focus on public incentives to counteract negative effects and promote spatial distribution equity within cities. Consequently, establishing SRPI indices is imperative for effectively addressing socio-spatial segregation.

To implement this, regulations aimed at public and private real estate developers, at all scales, are proposed to establish minimum standards of environmental, urban, and social quality solutions. Perhaps the most important aspect to consider is the long-term goal of eradicating real estate speculation. Responsible real estate investment in the coming decades aims to eliminate the assignment of properties to merely speculative financial assets and base its business on value contribution through constructive interventions and services.

Currently, a number of investors are starting to set minimum SRPI standards for all assets within a fund. They are doing this by using independent third-party rating systems, such as the internationally used Leadership in Energy and Environmental Design (LEED) and the Building Research Establishment Environmental Assessment Method (BREEAM) rating systems and more country-specific systems such as the Comprehensive Assessment System for Built Environment Efficiency (CASBEE) in Japan and the National Australian Built Environment Rating System (NABERS) in Australia. None of these systems prioritize the social aspect.

However, the current trend of responsible investments follows a criterion within its business model that seeks to encompass - among other issues such as environmental and fund management - social matters such as commitment to urban revitalization and affordable housing, support for public and private community development programs, health and safety rating and audit, evaluation of unaffordable commitment, local hiring and training, access to multi-modal transportation plans and facilities, urban investment focus, and design, engineering, and service awards. A good starting point could be the implementation of standards based on the Delphi Method, a structured communication technique, to gather and synthesize expert opinions. The study aims to establish a set of criteria for evaluating the responsibility of property investments, encompassing both financial and social dimensions. The research’s methodological basis involved multiple rounds of surveys with a diverse panel of experts, resulting in the identification of ten underlying dimensions for responsible property investment.

Strategies

Comparing European welfare systems (social democratic, corporatist, familistic, and liberal) can provide data for designing strategies that improve social welfare. In this sense, familistic systems should tend to adopt corporatist universalist policies to reduce the degree of social segregation and avoid increasing spatial segregation. This would be a fundamental transitional step towards long-term decommodification of housing. Responsible investment business models should align with this trend through appropriate policies and practices.

State Intervention in Housing

Policies that promote greater supply of affordable and quality housing through the construction of social housing projects could be considered. This could help reduce segregation by offering more equitable housing options in different areas of the city. In this regard, the state should provide incentives to investors that allow them to achieve better benefits through construction rather than development gains.

Mixed Housing Policies

Encouraging diversity in community composition through mixed housing policies can help avoid excessive concentration of ethnic or socioeconomic groups in specific areas. This could be achieved through the planning and development of projects that combine different types of housing, such as social housing, rental housing, and owner-occupied housing.

Rental Market Regulation

Instead of relying solely on the housing market, countries could implement regulations that control rental prices and prevent tenant exploitation. This could facilitate more equitable access to housing and reduce segregation. Furthermore, a universalist strategy requires transitioning from owner occupation to a single rental market that integrates competition between private and social rentals. Investors should base their business models on these principles and be monitored through SRPI indices. It is worth noting that balancing tenures by reducing the owner-occupation rate in these countries is complicated, as there is a marked negative correlation between the owner-occupation percentage and GDP per capita in Europe, making this ratio closely tied to each country’s economic development.

Improvement of Housing Quality

Investing in improving the quality of housing in marginalized or disadvantaged areas can help break segregation patterns and improve residents’ living conditions. This could include the rehabilitation of existing housing, construction of basic infrastructure and services, and promotion of quality standards in construction. Instead of solely focusing on profit, investors can consider the importance of providing affordable housing options with good quality standards in their portfolios. This could be achieved through partnerships with nonprofit organizations or through collaboration agreements with local authorities.

Urban Rehabilitation and Regeneration

Focus could shift towards the rehabilitation and urban regeneration of degraded or marginalized areas. By revitalizing these areas, a more attractive and accessible environment is created for a variety of socioeconomic groups. Responsible investors can collaborate with local governments and community organizations to develop rehabilitation projects that prioritize inclusion and improve residents’ quality of life.

A noteworthy point is the risk of potential imbalances between rent increase in rehabilitated areas and the stagnation of tenants’ purchasing power, making a comprehensive government plan crucial to align minimum wages (IPREM in Spain) with economic revaluation.

Community Engagement and Sustainability

Implementing education and awareness programs about the importance of diversity and coexistence in the city can contribute to changing attitudes and prejudices that perpetuate segregation. This could include awareness campaigns in schools, media, and the community at large. Investors can involve local residents and stakeholders in the decision-making process, ensuring that projects respond to the needs and aspirations of the community. Additionally, the incorporation of sustainable practices, such as efficient resource utilization and ecological construction, can contribute to the creation of healthier and more equitable environments. The mandatory implementation of quality and comfort guarantees must be respected from the outset of any project.

Negative Effects to Avoid

To avoid these negative effects, it is essential that the private real estate sector collaborates with local government, communities, and other stakeholders to develop projects that promote inclusion, diversity, and the overall well-being of the city. Comprehensive urban planning and consideration of social, economic, and environmental factors are crucial to mitigate potential harm from the private real estate sector. An irresponsible investment and development stance can trigger gentrification, raising housing prices and living costs in previously affordable areas, resulting in the displacement of low-income residents and the loss of identity in historic communities. Excessive speculation in the real estate market could generate price bubbles and financial crises by artificially inflating property values. Touristification and Airbnb have transformed the city by focusing on tourists as the primary consumers, but despite the distortion of rental prices in surrounding housing, the control of Airbnb by professional economic actors has contradicted promised benefits, generating resistance and conflicts between urban movements and municipal administration to counteract the negative effects of gentrification. If the private sector’s focus is on luxury properties, this could concentrate wealth in certain areas, exacerbating socioeconomic segregation and limiting low-income groups’ access to quality housing and services. The lack of affordable housing, destruction of cultural heritage, environmental impacts, and social exclusion are also potential risks associated with unplanned real estate development and lack of consideration for population diversity.

Conclusion

The fight against socio-spatial segregation in familistic welfare countries requires a comprehensive and collaborative response involving both the public and private sectors. In this context, Socially Responsible Real Estate Investment (SRPI) emerges as a fundamental strategy to counteract the negative effects of segregation and promote greater equity and diversity within cities.

The complex interaction between dualistic welfare regimes, self-housing provision, and socio-spatial segregation patterns underscores the need for innovative policies and practices. Responsible investment in real estate offers an approach that goes beyond financial returns, also considering social, environmental, and governance impacts. By adopting this perspective, investors can play an active role in promoting more integrated and cohesive communities.

It is crucial for real estate developers, asset managers, and investors to take on a leadership role in mitigating segregation, collaborating with local governments and communities to create inclusive and equitable environments. Basing the business model on value creation rather than speculation is critical. Although challenges such as gentrification, speculation, touristification, and exclusion persist, responsible investment offers a hopeful perspective by seeking a balance between financial returns and social well-being. The implementation of specific indices to measure the impact of responsible investment, along with the adoption of standards based on expert opinion, can guide decision-making and foster more responsible practices.

Responsible investment in real estate stands as a powerful tool to transform the urban landscape, promoting diversity, inclusion, and social cohesion. By adopting a holistic and collaborative approach, the real estate sector can play a pivotal role in creating fair and sustainable urban environments, thus contributing to progress towards equitable and harmonious development in Latin Rim welfare countries and beyond.