THE HOUSING PARADOX: MORE FINANCING – LESS AFFORDABILITY?

This a quotation of the first pages of a very interesting essay by Ivan Tosics, tosics@mri.hu, 31 December 2018. Try to get the full essay!

1. The financialization of housing 

There are many scientific publications on the financialization of housing – at the end of this essay, I give a short list of those, which I used in this essay. Most recently I have heard a good phrasing of the issue from Leilani Farha, UN Special Rapporteur on adequate housing, at the Housing for all-conference in Vienna, in December 2018.

Housing became primarily a commodity, where excess money can be parked. Sophisticated financial instruments change housing into a lucrative good while making rents for the users higher. As a consequence, excess capital of many players go now for housing, buying properties in „undervalued areas”, where more value can be squeezed out of housing, provided that the existing users can be kicked out. Politicians, in general, are convinced to support these players as they bring „new development” to the city. All this happens with legal structures, which governments helped to create but failed to control and regulate. In this process private equity funds are the largest investors, while private pension funds are the biggest financiers. 

It is difficult to estimate the amount of money involved in the purchase of housing and real estate in the world. The value of global real estate is about US$ 217 trillion, nearly 60 per cent of the value of all global assets, with residential real estate comprising 75 per cent of the total. In the course of one year, from mid-2013 to mid-2014, corporate buying of larger properties in the top 100 recipient global cities rose from US$ 600 billion to US$ 1 trillion.  (Plan Limited, 2017). 

Farha was referring in her speech many times to Saskia Sassen, who makes pioneering investigations in the functioning of international capital. Sassen, in her contribution to the Urban Futures conference in Vienna in February 2018, highlighted the uneven territorial spread of these foreign investment volumes: the top 100 cities with 10% of population concentrate 70% of financialized assets.

As it cannot be said in general that new investments always cause problems, we have to raise the question: what are the proofs that the financialization of housing increases housing problems rather than solving them? 

Housing prices in so-called ”hedge cities” like Hong Kong, London, Munich, Stockholm, Sydney and Vancouver have increased more than 50 per cent since 2011, creating vast amounts of assets for the wealthy while making housing unaffordable for most households not already invested in the market. Moderate- and low-income households are pushed to peri-urban areas with scant employment and services. Sassen adds to that the fact that in many cases the new developments bring around empty buildings in the best locations of the cities. Besides, when rented homes or mortgages are owned by remote investors, money mostly flows out of communities and simply creates a greater global concentration of wealth. Tenants living in housing owned by absentee corporate landlords complain of sharp increases in rent, inadequate maintenance and conditions as a result of substandard renovations that have been undertaken quickly to flip the home into rentals, and an inability to hold anyone accountable for those conditions. Finally, financialized housing markets create and thrive on gentrification and the appropriation of public value for private wealth: improved services, schools or parks in an impoverished neighbourhood attract investment, which then drives residents out. (Plan Limited, 2017).

Besides directly financing new investments, financialization also means expanded credit opportunities, leading to increasing debt taken on by individual households. This might make people vulnerable to predatory lending practices and the volatility of markets, the result of which is unprecedented housing precarity. Financialized housing markets have caused displacement and evictions at an unparalleled scale: in the United States of America over the course of 5 years, over 13 million foreclosures resulted in more than 9 million households being evicted. In Spain, more than half a million foreclosures between 2008 and 2013 resulted in over 300,000 evictions. (Plan Limited, 2017).

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