It’s been nearly 56 years since Dionne Warwick informed the people of the world that a “house is not a home”. It seems nowadays, the idea of a house (let alone a home) is beyond the means of many, acting more as a financial tool for foreign investors and hedge funds rather than shelter for all. The financialization of housing in the global market poses a threat to the human right to safe refuge, especially amongst the impoverished and underrepresented. So how did this happen?
Empty homes demolished in downtown Toronto: Bloomberg News.
Finance, just like any tool, can be used for good and evil. Andrew Carnegie believed that individuals who succeed in finance were born with a natural talent and those blessed have a moral obligation to put their capital to help others, or “give away” for the benefit of society. On the flip side, it becomes a clear issue when those individuals exploit their talents. The housing epidemic is an acute manifestation of the immediate and long term societal suffering caused when the financially adept succumb to greed.
As of 2015, real estate accounted for over 60% of all global assets, totalling $217 trillion USD, with 75% of that in residential real estate (Farha). Large firms and banks target foreign cities as a tax shelter, using lack of transparency to buy up real estate and understate capital. Though recently, the financialization of real estate has become a layman’s market. As of December 2018, 76% of all Canada’s wealth was tied up in real estate (Global News).
The hyperbolic attention speculators are showing the housing market is truly absurd. According to Professor Robert Shiller, who was awarded a Nobel Prize in economics for his housing index model, the innovations in housing construction and technology has offset increasing population and demand, keeping the underlying value of a house in the same relative range within the past 100 years. Yet investors are jumping at the chance to buy into a new apartment complex or suburban strip mall because they know prices will go up. The price of housing is driven purely by psychological speculation, or the demand and belief that it will increase; it runs on the unsustainable model of greed, motivated by the prospect of monetary gain. This will not only produce large economic shocks to the investor whenever the market corrects itself, but also immediate damage to the other actors of the economy.
As greed drives prices up, many lower-income individuals, especially in impoverished areas are driven out of their homes. For example, 58.6 million Indians do not have access to adequate shelter (Farha). Many other necessities of human survival such as water and food are protected by the watchful public eye and an abundance of government regulation. Yet, society’s view of housing is different. If 2007 taught the world anything, it should have been that the current financial model for housing is unsustainable. And although the U.S. Government and many others have regulated the fallout with the Dodd-Frank Act, bailouts, and FDIC bank insurance, the fundamental idea of upholding housing quality and attainability for its necessity as an instrument of survival has never been addressed.
Inadequate shelter in slums outside Mumbai: Emmanuel Dylan
It is important to note that some countries with regulations on real estate still face similar challenges. Take China and its infamous “ghost cities”. Despite the supposed role of government in regulating land, developers still dump millions into buildings that are too expensive to see any tenants. The problem is that the key to regulating housing is to recognize the human aspect of it. Going back to moral responsibility, housing as a necessity is something that society should strive to provide universally, just as it strives for water and food. Regulation focused around housing then should view it as less of a financial asset and more of a basic right. Since housing does not appreciate much in its inherent value anyways, regulation to defeat the current “financial” view of housing can eliminate much of the volatility in the real estate market. This, in turn, means less unnecessary shocks to the overall global economy.
Empty housing units in China’s largest “Ghost-city”, Ordos: Forbes
It might now sound like the solution is to de-financialize housing. Yet going back to the point of finance being a tool for both good and evil, it is important to note that the financialization of housing might offer a benefit. Having private interests in this market fuels development and capital in countries where those are rare. Foreign investors have a connotation of being exploitative, especially in the housing market. However, if done with proper regulation in a way where the price of housing isn’t driven to insanity by speculation and the government works more closely in development and logistics, it may be feasible to leverage the financialization of housing in order to provide much faster and accessible access for all. It’s important to also note that government regulation and action will negatively impact investor’s profits and therefore their willing supply of capital. Yet, finance is really about balance, and finding the right balance between policy and the free market is one that can be used to the advantage of society.
To summarize, the financialization of real estate has exemplified the true nature of it, as a destructive weapon, but also as its own solution, pointing out contemporary issues in the global economy as well as the personal psychological problem behind it. It is important as a society to recognize the housing epidemic and approach it from a universal and moral perspective in order to ensure both a house and a home for everyone who needs one.