Dollars and Sense: Is the Financialization of Housing a House of Cards?

Housing and real estate markets worldwide have been transformed by global capital markets and financial excess. Known as the ‘Financialization of Housing’, the phenomenon occurs when housing is treated as a commodity — a vehicle for wealth and investment rather than social good. In her report to the UN Human Rights Council of 2017, the Special Rapporteur explored the financialization of housing and its detrimental impact on human rights, in particular, ‘the right to housing’.

I wholeheartedly support this report as it highlights the issue of inadequate housing for a very large number of people worldwide. The repercussions have been felt across the globe. However, I differ on many of the suggested remedial actions including definancialization of the housing sector. Let me explain my contradictory stand of supporting housing for all but not agreeing to definacialization of Housing, in subsequent paragraphs.

To begin with, construction or owning a house has always been the most prized possession of humans since time immemorial and will remain so in future. For most of us, this may be the costliest (in terms of money) possession and hence would require considerable monetary investment. Now, definancialization would mean removing monetary value from the house. This would imply that a house would no longer qualify for collateral, probably it won’t be permitted by laws to put it on rent or earn a profit by reselling it at a higher price. It would primarily be utilized for self-use purposes and would not be permitted for any profit/ income generating purpose.

I stand in opposition to the definancialization of housing, because instead of making housing affordable and accessible to the general masses, definancialization would affect the economy and its potential to grow. Housing should be rather used to generate funds which boosts the overall economy. Revenue generated from the housing market is either the only or the primary source of income for many individuals and banks.

Limiting the financial institutions to not use the housing sector would limit their resources and ability to increase their wealth from their vast deposits. For example, it would dent the housing loans available, which is a major revenue earning channel for banks and a major savior for middle-income groups who can’t pay a large sum upfront. It would also sharply impact any bank’s ability to lend money to people without any reliable collateral and thus many of us would miss out on buying a home for ourselves. This is a ‘Catch 22’ situation, and therefore, needs to be handled sympathetically and sensitively

In my views, the problem does not lie in the capitalisation of housing sector or influx of foreign funds in this sector, which actually generates employment. Rather, the real issue is insensitive policy design and their unethical implementation. Big and wealthy corporations with their legal might always prevail upon poor individuals by entangling them in endless court battles and wear them till they agree to unfavourable conditions being imposed on them. These coercive actions in which the State too is often an unsaid partner have to stop forthwith, if we hope to bring any change in housing sector.

The possible solutions may have to include socialistic measures, wherein Governments may choose to incentivise and share some burden of the cost for the underprivileged housing. This has to be accompanied with tough rules to stop exploitation of financially weaker segments and provide them protection against predatory financial practices.

Recognising the catastrophic effects of inadequate housing on human population worldwide, the world community (inclusive of governments, large corporations, NGOs and philanthropic individuals) is stepping up efforts to address this issue. One such step is the declared and celebrated policy of providing a house to all in India by 2022. Though this seems over ambitious, it is certainly a step in the right direction. Based on the study material on the subject, open source information as well as regular articles in newspaper, I have the following India specific recommendations to submit to get the most optimal outcomes from financialization of housing without offending the right to housing, which in varying degrees may also be applicable to other countries as well:-

1. Regulate prices to ensure availability and affordability of houses. For every project, a certain percentage (approx. 30%) should be made mandatory to be sold at concessional prices determined by Govt Housing Boards.
2. Step up creation of additional housing in high-density areas (in a public private partnership model) to bring the cost and rent to more realistic levels thus nullifying the ill effects of financialization of housing. In addition, this would create jobs for many thus improving their living conditions.
3. Levy a tax on homes that are empty to disincentivize people purchasing houses purely for investment.
4. Land mass covered by slums is generally huge, and its population density is often lesser than well-developed and high-rising housing societies. Therefore, the government can focus on building multi-story housing complexes in place of congested ground floor shanties, to free up sufficient land to create schools, play areas, open spaces, parks and other amenities. This will also help the slum dwellers to get more stability and focus on education which in turn will bring them into mainstream job market
5. The governments may incentivize involvement of corporates for construction and for providing raw materials for housing projects under CSR (Corporate Social Responsibilities) schemes by offering them tax breaks and exclusive rights to some of the government infrastructure development projects.
6. Residents being moved from slums to these redevlped housing should be offered differed loans with repayment commencing 3 to 5 years from the project completion. These residents should also be charged license fees/ rents on a gradually increasing scale so as to encourage them to seek better housing outside, after a certain period.

I share the motive of report which seeks prohibition of eviction and demolition, protection of residents in informal settlements/ homeless/ renters and mortgage payers. However, I differ in its suggested measures for implementation as discussed above. I guess, a lot of people still have a bitter aftertaste of the 2008 Subprime Crisis and understandably so, given its sheer size and impact. But, because of it many of us are unwilling to give the finance sector another chance, which I believe will prove to be shortsighted in the longer run. A lot of global cities like Singapore, Hong Kong have become global powerhouses due to being at the hub of financial activities. The financial crisis was a rude awakening to the dangers of the financial world, but it also resulted in the formation of various laws and policies by governments that hold these institutions accountable for their actions in this sector in a more stricter and disciplined manner. Now, equipped with such regulations and the ideas from people all around the world about various housing ideas and projects, I believe, the problem of inadequate housing can be dealt with active intervention from all sides including that of the financial sector too