The substantial growth in Financialization of Housing around the globe, especially in developed and emerging countries, has resulted in the creation of wealth and financial success for a minority but unfortunate displacements, evictions and homelessness for many. This essay aims at highlighting the good, the bad and the ugly side of Financialization of Housing.
The Good side discusses the positive aspects of Financialization that enable an Individual to raise his/her standards of living, benefit from financial innovations and instruments and ultimately lead to prosperity in life.
The Bad side discusses how Financialization empowers a small minority of powerful and wealthy individuals to trade real estate and housing as a mere commodity on Global Financial Markets, unfair displacement of wealth, crooked regulators and policy-makers and rising exploitation of the financially ignorant.
The Ugly side shows how it impacts the common low-income households, violation of human rights and rights to adequate living, upsetting conditions of evictees and the rise of homelessness.
Finally, we will discuss some points regarding how Financialization of Housing can be turned into a boon for every household and group of individuals, not just the elite and how strict regulations and laws can protect the common man and his rights to adequate housing.
If we think of finance, most people will not consider the incredible amount of positive change that financialization and financial innovation has brought about in society. Finance has helped people insure themselves against life-threatening illnesses, property damage inflicted by natural calamities or just human negligence and even unexpected lay-offs and unemployment. From the invention of inflation-indexed debt (first established in Massachusetts in 1780, which protects investors from the devaluation of government-issued debt due to inflation) to Mortgage-backed securities (that have ensured a higher supply of capital to potential lenders, making housing more affordable. Although they have a bad name now due to the Financial Crisis of 2008, it is apparent that their invention was in the interest of common people), financial innovations have always paved the way for tremendous growth and national economic development.
When a graduate leaves his city to find a job and settle elsewhere, it’s the financialization that helps the young adult buy a house at a price that he can afford. Financialization of Housing has helped millions, but, the vulnerabilities in the system and lack of regulations has resulted in the exploitation of some financial products and inventions leading to wide-spread crisis and emergence of public disbelief in the Financial System.
The financial crisis of 2008, as most believe and recite, was the result of crooked financial institutes, exploitation of mortgage-backed securities by issuing tons of subprimes loans and arranging for them, false ratings from credit rating agencies. What does all this depict? Is it the financialization of housing that is to be blamed? or is it the ones who exploited the system and found ways of misusing financial innovations for personal interests?
“The financial crisis is a stark reminder that transparency and disclosure are essential in today’s marketplace” — Jack Reed.
It is when the corrupt regulators and policy-makers ease the regulations favouring the few who have the power and wealth of making enormous investments, the normal people suffer. It is a question to you, would there have been any crisis, if the lenders did their due diligence and made sure that people could actually afford the mortgage? or, if the credit rating agencies made full disclosure of their analysis and ratings? or, if high bonuses and employee commissions had not lured them into selling as many mortgages as possible without caring about the substantial amount of defaults that may take place?
It is NOT the financialization of housing that leads to corruption and violations of human rights and adequate rights of living, it is the lousy regulations, government negligence and exploitations of weak housing/real estate policies/laws that lead to distress and damage to one’s Human Rights.
Financialization of Housing has resulted in massive evictions and wide-spread homelessness in many parts of emerging as well as developed countries. A report from the US Dept. of Housing and Urban Development has found that just under 553,000 people are homeless, with approximately 65% staying in sheltered accommodation. Out of ever 10,000 people in the US, 17 experienced homelessness on a single night in 2018. In developing countries like India, Vietnam, China, etc, the percentage of homeless people is even higher. The challenges are daunting: over 58.6 million households do not have access to adequate housing in Urban and Rural India, and there is an extensive need for repair of rundown housing stock and the provision of essential services such as electricity, water, sanitation and waste management. This not only leads to poor health conditions but also forces people to settle down in awfully unhygienic shelters and slums.
Challenges are many but proper regulations, policies and government housing projects can prove to be helpful in providing people with their basic human rights and restoring faith in the financial systems.
The need of the hour is not to criticize the financialization of housing but to strengthen the housing policies, enforce strict laws that may restrict the wealthy from trading real estate as commodities, establish government-sponsored housing projects and propose laws that may make it hard for wealthy individuals and investment companies to invest in luxury real estate endangering the rights of common man.
- Commit to ending homelessness as a priority, in keeping with the Sustainable Development Goals, target 11.1, to ensure adequate, safe and affordable housing and basic services for all, and the New Urban Agenda.
- Impose Tax on unoccupied and vacant properties.
- Abolish forceful evictions and arrange necessary alternatives for people who are to get displaced or evicted.
- Enforce policies that demand transparency and full disclosure of necessary information regarding real estate investments and sources of capital.
- Govt. should release revenue bonds that may be directed towards building affordable housing for the general public.
With that, I conclude this essay and hope it did not fail to reflect on all the aspects of Financialization of Housing with utmost rationality and respect for Human Rights as well as our Financial System.
(Opinion Essay on United Nations Human Rights Council’s 2017 report on the Financialization of housing, www.ohchr.org/EN/Issues/Housing/Pages/AnnualReports.aspx)