Rights: Housing now valued as a financial commodity, charges UN expert

The ‘financialization of housing' is one of the greatest challenges to the right to adequate housing, with housing now being valued as a commodity rather than a human dwelling, a United Nations rights expert has charged.

This admonishment came in the latest report by the UN Special Rapporteur on the right to adequate housing, Ms Leilani Farha (from Canada), which was presented to the Human Rights Council on Wednesday.

The Human Rights Council is currently holding its thirty-fourth regular session here from 27 February to 24 March.

At a media briefing on Thursday, the rights expert pointed to the growing phenomenon of the ‘financialization of housing' as one of the greatest challenges facing the right to housing to date.

Ms Farha said the housing sector has been transformed by global financial actors and unprecedented amounts of excess capital.

"It is no longer as we once knew it. Housing has been financialized: valued as a commodity, rather than a human dwelling, it has become for investors a means to secure and accumulate wealth rather than a place to live in dignity, to raise a family, and thrive within a community."

"Housing has lost its currency as a human right," she said, noting that the amount of capital now being invested in housing is staggering. Global residential real estate is valued at US$163 trillion, more than twice the world's total GDP.

Ms Farha said: "Imagine if that capacity was harnessed for the realization of housing instead of for speculation and profit."

The impact of commodification of housing and commodified housing markets is devastating, she added.

Informal settlements are being razed to create space for luxury developments, communities are becoming devoid of human life as houses sit empty - mere vehicles for capital gain -, and extreme un-affordability is pushing low and moderate income people out of city centres. All in the name of investment, said the rights expert.

"Financialization has robbed housing of its function as a social good. In financialized housing markets, housing is no longer ‘people-driven'. Decisions about housing - its use, its cost, where it will be built or whether it will be demolished  - are made from remote boardrooms with little if any consideration of the outcome," she said.

In her report to the Human Rights Council, the rights expert referred to the "financialization of housing" as structural changes in housing and financial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth and often as security for financial instruments that are traded and sold on global markets.

It refers to the way capital investment in housing increasingly disconnects housing from its social function of providing a place to live in security and dignity and hence undermines the realization of housing as a human right.

"It refers to the way housing and financial markets are oblivious to people and communities, and the role housing plays in their well-being."

The report noted that housing and real estate markets have been transformed by corporate finance, including banks, insurance and pension funds, hedge funds, private equity firms and other kinds of financial intermediaries with massive amounts of capital and excess liquidity.

The global financial system has grown exponentially and now far outstrips the so-called real "productive" economy in terms of sheer volumes of wealth, with housing accounting for much of that growth.

"Housing and commercial real estate have become the ‘commodity of choice' for corporate finance and the pace at which financial corporations and funds are taking over housing and real estate in many cities is staggering."
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.

"Housing is at the centre of an historic structural transformation in global investment and the economies of the industrialized world with profound consequences for those in need of adequate housing," said Ms Farha.

In "hedge cities", prime destinations for global capital seeking safe havens for investments, housing prices have increased to levels that most residents cannot afford, creating huge increases in wealth for property owners in prime locations while excluding moderate- and low-income households from access to home ownership or rentals due to un-affordability. Those households are pushed to peri-urban areas with scant employment and services.

"Elsewhere, financialization is linked to expanded credit and debt taken on by individual households made vulnerable to predatory lending practices and the volatility of markets, the result of which is unprecedented housing precarity."

[In a recent Bank for International Settlements Working Paper (No. 607) titled ‘The real effects of household debt in the short and long run', Marco Lombardi, Madhusudan Mohanty and Ilhyock Shim noted the rapid rise of household debt levels relative to GDP in many countries over the past decade. By using data on some 54 economies over the period 1990-2015, they found that household debt boosts consumption and GDP growth in the short run, mostly within one year.

[By contrast, they said, "a 1 percentage point increase in the household debt-to-GDP ratio tends to lower growth in the long run by 0.1 percentage point.
Our results suggest that the negative long-run effects on consumption tend to intensify as the household debt-to-GDP ratio exceeds 60%. For GDP growth, that intensification seems to occur when the ratio exceeds 80%."]

According to the Special Rapporteur, financialized housing markets have caused displacement and evictions at an unparalleled scale: in the United States of America over the course of five 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. There were almost 1 million foreclosures between 2009 and 2012 in Hungary.

"In many countries in the global South, where the majority of households are unlikely to have access to formal credit, the impact of financialization is experienced differently, but with a common theme - the subversion of housing and land as social goods in favour of their value as commodities for the accumulation of wealth, resulting in widespread evictions and displacement. Informal settlements are frequently replaced by luxury residential and high-end commercial real estate."

According to the rights expert, millions of foreclosures, evictions and displacements and more than a billion people living in grossly inadequate housing conditions and homelessness worldwide signal, among other things, the failure of States and of the international community to manage the interaction between financial actors and housing systems in accordance with the right to adequate housing.


According to the report, the financialization of housing has its origins in neo-liberalism, the deregulation of housing markets, and structural adjustment programmes imposed by financial institutions and agreed to by States. It is also tied to the internationalization of trade and investment agreements which make States' housing policies accountable to investors rather than to human rights.

The financialization of housing is also the result of significant changes in the way credit was provided for housing and more specifically, of the advent of "mortgage-backed securities".

The 2008 global financial crisis revealed the fragility, volatility and predatory nature of financialized housing markets and the potential for catastrophic outcomes both for individual households and for the global economy.

In the United States of America, there were an average of 10,000 foreclosures per day in 2008, and as many as 35 million individuals were affected by evictions over a five-year period.

"Many expected that the global financial crisis and its impact on the human rights of millions of households would act as an alarm bell, forcing States and international financial institutions to reassess the value of unbridled financialization and introduce reforms to ensure that the financial system addressed rather than exploited the housing needs of low-income households," said Ms Farha.

Unfortunately, it seemed to have the opposite effect. Individuals and families who were affected by the crisis were often blamed for taking on too much debt and new rules and regulations were put in place to restrict their access to mortgages.
Austerity measures cut programmes on which they had relied for access to housing options, and the march towards the financialization of housing continued.

States have continued to focus on attracting capital and wealthy investors with reduced taxes and other benefits. Countries like Cyprus, Greece, Portugal and Spain, where harsh austerity measures have been implemented, have enacted policies to entice foreign investors into their domestic markets.

The report said the amount of money involved in the purchase of housing and real estate is almost impossible to digest.

Cushman and Wakefield, an American global real estate services firm engaging in $90 billion worth of real estate sales per year, publishes an annual report entitled "The Great Wall of Money" which includes a calculation of the amount of capital raised each year for trans-border real estate investments. The total in 2015 was a record $443 billion, with residential properties representing the largest single share.

"Housing and urban real estate have become the commodity of choice for corporate finance, a ‘safety deposit box' for the wealthy, a repository of capital and excess liquidity from emerging markets and a convenient place for shell companies to stash their money with very little transparency."

Housing prices in so-called "hedge cities" like Hong Kong, London, Munich, Stockholm, Sydney and Vancouver have all increased by over 50 per cent since 2011, creating vast amounts of increased assets for the wealthy while making housing unaffordable for most households not already invested in the market.

Corporate finance not only profits from inflated prices in hedge cities, it also profits from housing crises. The global financial crisis created unprecedented opportunities for buying distressed housing and real estate debt, which was sold off at fire sale prices in countries such as Ireland, Spain, the United Kingdom of Great Britain and Northern Ireland and the United States of America.

The Blackstone Group, the world's largest real estate private equity firm, managing $102 billion worth of property, spent $10 billion to purchase repossessed properties in the United States of America at courthouses and in online auctions following the 2008 financial crisis, emerging as the largest rental landlord in the country.

Other major institutional players invested $20 billion to purchase approximately 200,000 single-family homes in the United States between 2012 and mid-2013.

"What is so stark about the pouring of those vast amounts of money into housing is that hardly any of it is directed towards ameliorating the insufferable housing conditions in which millions live," the rights expert noted.

If even a portion of those amounts was directed towards affordable housing and access to credit for people in need of it, target 11.1 of the Sustainable Development Goals, to ensure adequate housing for all by 2030, would be well within reach.

Financialization under current regimes, however, creates the opposite effect: unaccountable markets that do not respond to housing need, and urban centres that become the sole preserve of those with wealth.

According to Ms Farha, financialized housing markets respond to preferences of global investors rather than to the needs of communities.

"The average income of households in the community or the kinds of housing they would like to inhabit is of little concern to financial investors, who cater to the needs or desires of speculative markets and are likely to replace affordable housing that is needed with luxury housing that sits vacant because that is how best to turn a profit quickly."

The report noted that more than 36,000 properties in London are held by shell companies registered in offshore havens such as Bermuda, the British Virgin Islands, the Isle of Man and Jersey.

"Many residential rental properties are now owned by bondholders or holders of public stock with no direct connection to properties. It is difficult to know who is accountable for human rights when the owner of housing is a multi-billion dollar fund, bondholders, public stockholders or a nameless corporate shell."

The report said that increased prices of housing and real estate assets have become key drivers in the creation of greater wealth inequality. Those who own property in prime urban locations have become richer, while lower- income households confronting the escalating costs of housing become poorer.

"Patterns of inequality are often starkest in developing countries. In Africa, if current trends continue, the number of households living in informal settlements will continue to increase while the number of ultra-high- net-worth individuals is predicted to rise by almost 50 per cent in the next decade."

The financialization of housing has dramatically altered the relationship of States to the housing sector and to those to whom they have human rights obligations.

Rather than being held accountable to residents and their need for housing, States' housing policies have often become accountable to financial institutions and seem to pander to the confidence of global credit markets and the preferences of wealthy private investors.

"Given the predominance of housing-related credit in many economies, domestic housing policy becomes inter-twined with the priorities and strategies of central banks and international financial institutions, which are themselves rarely held accountable to States' human rights obligations to ensure access to adequate housing and do not meaningfully engage with rights-holders."

Accountability to global finance rather than to human rights has been rigorously imposed by the International Monetary Fund and other creditors when Governments have faced foreign debt crises. Decisions made by central banks and finance ministers in consultation with international financial institutions are rarely informed by input from stakeholders or those involved with housing policy and programmes.

In circumstances where Governments should be relying on positive measures and resource allocation to provide housing to households affected by economic downturns and widespread unemployment, many have been held accountable to austerity measures imposed by creditors. They have agreed to dramatically reduce or eliminate housing programmes, privatize social housing and sell off massive amounts of housing and real estate assets to private equity funds.

In many developing and emerging economies, said the report, the World Bank and other international and regional financial institutions continue to actively promote the financialization of housing as the dominant strategy for addressing the critical need for housing, despite evidence that such strategies fail to provide housing options to the households that are most in need, and lead to greater socioeconomic inequality.

The report further pointed out that there are currently almost 2,500 bilateral investment treaties in force and almost 300 treaties with investment provisions.
Provisions in investment treaties generally provide protection for investors from actions by States without imposing obligations on them to uphold human rights.

Investors are guaranteed fair and equitable treatment, protection from direct or indirect expropriation and other protections and have access to an investor-State dispute settlement procedure to seek damages for breaches of those provisions.

Claims have recently been brought against the Dominican Republic and Panama, for example, on the basis that government decisions to cancel planned luxury developments in order to protect indigenous territories or environmental resources violated investors' rights under bilateral investment treaties.

The Government of Mauritius is currently being taken to arbitration by a group of property development companies from the United Kingdom that invested in luxury real estate developments in Mauritius and are now seeking damages for a decision on the part of the Government to change its planning policy to restrict such developments.

"The mere threat of those kinds of claims can have a directive effect on State housing policy. Investment treaty arbitration frequently involves millions of dollars in damages, and thus acts as a disincentive for States to enact and enforce any regulatory measures restricting the profitability of housing or real estate assets purchased by foreign investors," said Ms Farha.

In some instances, courts have played an important role in holding financial institutions liable for predatory and discriminatory lending practices, albeit without reference to international human rights obligations. In a recent case, the Eleventh Circuit Court of Appeals in the United States ruled in favour of a lawsuit brought by the city of Miami against Bank of America and Wells Fargo for discriminatory predatory lending practices linked to the mortgage crisis.

"Policy responses to the financialization of housing have tended to prioritize support for financial institutions over responding to the needs of those whose right to adequate housing is at stake. Spending on bailouts of banks and financial institutions after the 2008 financial crisis far outstripped spending to provide assistance to the victims of the crisis."

Nonetheless, a number of sub-national and national governments have started to address the effects of excess capital flows and financialization on affordability and access to housing for low-income households. Initiatives have been advanced at both national and sub-national levels providing a number of tools that can at least curb the excesses of financialization and mitigate its effects.

The report cited the fact that a number of States, including Austria, China, the Philippines, Thailand and Viet Nam, have instituted restrictions on foreign purchasers of residential real estate.


"What is lacking is for States to reclaim the governance of housing systems from global credit markets and, in collaboration with affected communities and with cooperation and engagement by central banks and financial institutions, redesign housing finance and global investment in housing around the goal of ensuring access to adequate housing for all by 2030," said the rights expert.

Many States have been too deferential to the dynamics of unregulated markets and have failed to take appropriate action to bring private investment into line with the right to adequate housing. By providing tax subsidies for home ownership, tax breaks for investors, and bailouts for banks and financial institutions, States have subsidized the excessive financialization of housing at the expense of programmes for those in desperate need of housing.

"There seems to be a gross imbalance between the attention, mechanisms and resources that States have developed to support the financialization of housing and the complete deficit of housing for the implementation of the right to adequate housing."

The Special Rapporteur suggested that the way forward requires a shift to take hold so that States ensure that all investment in housing recognizes its social function and States' human rights obligations in that regard.

That requires a transformation of the relationship between the State and the financial sector, whereby human rights implementation becomes the overriding goal, not a subsidiary or neglected obligation.

The Special Rapporteur believes that can be achieved with more constructive engagement and dialogue between States, human rights actors, international and domestic financial regulatory bodies, private equity firms and major investors.

The rights expert recommended, amongst others, that an international high-level meeting of States, international financial institutions, human rights bodies, civil society organizations and relevant experts be organized to design a strategy for engaging financial regulatory bodies and actors in the realization of the goal of adequate housing for all by 2030.

By Kanaga Raja.

Source: SUNS - South North Development Monitor, SUNS #8414 Friday 3 March 2017.