The Financialization of Housing: Is housing a human right or a commodity?

What is homelessness? Most people will say it’s the inability of an individual to afford a roof over their head. But, is homelessness really an individual failure? Homelessness is an ever-prevailing substantial issue that is so common that it is simply overlooked. Why is an issue so big and impactful such as this, ignored? The mere existence of homelessness or unaffordability is caused by the over-financialization of the housing market.

The financialization of housing is a deterioration rather than a development. The decision to divest housing of its social value and supplement the commodification of housing is not just a policy decision but also a rejection of the government’s international human rights obligations. Around 1.6 billion people in the world are homeless, which is frightening and unsustainable. Housing is overly financialized and has become more like gold. Housing is a human right, a very primal one, whereas gold is not. Residential real estate is the biggest market in the world with a valuation of 106 trillion dollars, almost double the entire world's GDP.

In the ’60s and ’70s, housing was viewed as a security rather than a commodity, contrary to now. Governments were involved, they enacted legislation and policies. They created a diverse range of housing options for households of different income levels through home ownership, rental apartments, subsidized housing, and public housing. The extent of unaffordability of housing that we see presently barely existed in that distant day. The government has receded from the position that it had adopted before and is closely aligned with the investors. They give tax breaks to investors, lure foreign investors and sell off social housing stock. By doing this, they leave housing to the unregulated private sector. Who or what is causing this crisis? Banks, pension funds, private equity firms, stockbrokers, shareholders, and other such financial actors are invading the housing sector, viewing housing as a place to park excess capital.

Private equity firms prey on the financial ruin of families. For instance, Blackstone is the largest private equity firm in the world. They manage real estate worth 100 billion dollars. They have been buying thousands of foreclosed homes in the US, the UK, Spain, and Ireland. This is worrying because foreclosure creates a population that is still in need of housing. Such firms turn them into rentals and put them in the stock market. They have to increase their rents exponentially to satisfy their investor clients. This creates a lot of money for the private firms and the investors, but it’s a crisis on a national and global scale. The focal way that these private equity firms make money for their investors is called unit turns using vacancy decontrol: They can take units and vacant them then raise the rent up, all of this because of the lack of regulation. Billionaires act in a similar pattern. Millions of houses owned by such investors stand vacant worldwide, with their owners having no intention of actually using the property. We are relying on investors to supply rental units to a population that is seeing the highest levels of rental demand that we have seen in this generation.

Housing prices are rising more quickly than wages, which indicates the state of the housing market is unsustainable when there is no or less than needed control over these prices. The average income of these investors (renters) is rising faster than the average income of tenants. However, Average wages don’t tell the whole story. The issue is not only housing prices but the widening income gap. There is a threatening mismatch in the labor market where income inequality is actually being transparently revealed in the real estate market.

What is causing this high demand for real estate investments at the cost of homelessness and unaffordability? low-interest rates are the main factor why the demand for real estate investments is rising. Since the interest rates are low and big financial players are looking for returns on investments, they look for alternative investments, which is real estate. For the past 20 years, interest rates have been going down for many reasons. A case in point is the prevailing negative interest rates in Japan and Europe. Inflation expectations went down ergo interest rates are going down. Given the financial opportunities of real estate investments, penalizing it ultimately can have negative consequences too. Therefore, regulation to a certain extent is needed, where both humanization and financialization are supported, the former being the priority. Homelessness is not caused by individual failure, but by governmental or societal failure. The government needs to evaluate the housing needs of its citizens, and regulate the exploitation of real estate property in a way that doesn’t severely affect low-income families and hence work towards wiping out homelessness instead of enlarging the real estate market further. A couple of years ago, national-level governments convened, and they committed to ensuring adequate affordable housing for all by 2030. It needs to be a political commitment that is upheld, not a broken promise.

If we want to restore human rights, we need a seismic shift, where housing is valued as a home first, not equity. As George S. Clason said in this book- The Richest Man in Babylon, “Our prosperity as a nation depends upon the personal financial prosperity of each of us as individuals”, We need to invest in people rather than capital. We need a shift in paradigm away from prioritizing financial interests and the commodification of housing to retrieve what housing means in terms of human dignity and security, as a lived experience, as a HUMAN right. An economy should their a relationship with the financial sector to enable markets to contribute to the social function of housing. Housing policies should be treated as insurance, whereas developing economies focus on policies favoring human rights. In order to achieve national and global economical and humanitarian prosperity, the bare minimum needs of society should be fulfilled, otherwise, income inequality will persist and prevent economic growth in the long run.

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Aditi Solanki

Aditi Solanki

A 19 year old undergraduate economics student who writes about multidisciplinary and explorative ideas