“As soon as the land of any country has all become private property, landlords, like all other men, love to reap what they never sowed, and demand a rent even for its natural produce” as said by Adam Smith, The Wealth of Nations (1776). As said by Leilani Farah in 2017 at the Human Rights Council, financialization of housing means that it is valued as a commodity rather than a human dwelling. Housing is no longer considered as a universal human right, rather it has become a means to accumulate wealth, a security for financial instruments and a safe haven to park excess capital.
Global real estate had a total value of $217 trillion in 2015 accounting for 60% value of all assets. Residential real estate accounted for $163 trillion, which is 75% of this total.
There are several adverse effects of financialization of housing. It has resulted in an increase in construction projects where the developers under the veil of development end up destroying already established houses causing tremendous displacement of locals who are given only a meagre compensation. There are a number of homeowners who face the consequences of market volatility without participating in the markets themselves (as we had seen during the Global Financial Crisis which had resulted in 9 million households being evicted in the US itself).
With the financialization of housing, the very concept of democracy is undermined as governments are more likely to respond to what the financial institutions demand rather than what human rights require. Further, it has also resulted in an increase in social inequality by increasing wealth for the wealthy and depriving the poor of the basic necessity of housing. The worst part about the financialization of housing is that many rich people buy houses and keep it as a status symbol, while innumerable people remain homeless.
We see that the effects of financialization of housing are not confined to any particular country. Japanese asset price bubble was an economic bubble in the last 1980s in which real estate and stock market underwent inflation. By 1991, commercial land prices rose by 302% compared to 1985.
Before the Global Financial Crisis of 2008, the real estate prices in the United States had skyrocketed. Housing price in cities such as Hong Kong, London, Vancouver, Munich and Sydney has increased by over 50% since 2011. Price for urban land in the top 100 cities in China has increased on average by 50% in the year 2019.
Talking about India, according to the RBI, housing affordability has worsened over the last four years. House price to income ratio has increased from 56.1% in 2015 to 61.5% in 2019, implying that it has become more unaffordable for the common man.
Numerous surveys have shown that out of a population of 1.3 billion people residing in India, about 58.6 million household do not have adequate housing, and this does not even include the houses which are in a dilapidated condition and lacking basic amenities such as water and electricity.
A lot of countries have, after realizing the gravity of the situation, taken steps to ensure that housing is available to all. The Indian government has introduced an ambitious Housing for All Scheme, the aim of which is to build approximately 20 million houses in urban areas, potentially housing 100 million people by 2022.
In Vancouver, 1% tax is levied to foreign and domestic investors on vacant homes. In London, builders are required to ensure that 35% of new houses that are built are genuinely affordable. A step in the right direction was the decision taken by the Supreme Court of India in reaffirming the right to housing through the Constitutional provision of the right of life (Article 21), however the people who are in dire need of this are the ones who are oblivious about this.
Strict regulation of markets, amendment of laws related to foreclosures and housing development, illegalization of no cause eviction and taxation of luxury properties enabling the revenue to be used to subsidize housing for low income households are steps that will help in making housing available to all.
The Sustainable Development Goals and the New Urban Agenda provide an important opportunity to engage financial regulatory bodies and actors in the goal of adequate housing for all by 2030 as a human rights obligation.
If there are so many negative aspects to financialization of housing, why is it still so important? Housing adds tremendous value in diversified investment portfolios. Housing represents the health of the economy. If the prices of housing are low, a decline in housing sales lowers the value of homes.
It reduces the number of home loans available to owners which reduces consumer spending. This leads to falling employment, income, and consumer spending and creates a downward spiral in the economy. Financialization of housing has also resulted in an increase in demand for the same thereby incentivizing the corporates to enter this industry.
We do not have a framework to evaluate whether the benefits of financialization exceed the cost. For those who care about the poor, the costs are higher whereas for those who believe in the power of markets, the benefits are more. In the words of Leilani Farah, what we need “is a significant change – a shift in paradigm away from prioritizing financial interests and the commodification of housing in order to retrieve what housing means in terms of human dignity and security, as a lived experience, as a HUMAN right.”
Written by- Nishka Ganeriwala
Nishka Ganeriwala is a student of B.Com. (Hons.) at Shri Ram College of Commerce.