The Financialization of Housing

An Opinion on the Special Rapporteur’s Speech at the UN as part of a Yale University Course I did a while ago. It is published here below…

Housing plays an important part in our modern world. As stated by the Special Rapporteur, housing is both a commodity and an essential necessity. It is becoming an increasingly large part of many people’s net worths and an investment vehicle for sophisticated funds.

Therefore, it is not to be unexpected that the issue raised today goes far beyond the financialization of housing, but also into areas such as human capital, high-quality education and the implications of artificial intelligence systems and neoliberalism.

We can all agree that housing is an essential part of life. The inability to afford a home in a city, or at least nearby, results in a variety of unwanted consequences. They include a lack of access to basic needs such as electricity, sanitation and clean water, as well as more intangible assets such as opportunities in the business world, or even the ability to fluently speak a local language. Housing massively affects everybody in the world.

It is clear then, that housing must be made a human right.

But the approach is not without economic repercussions. Financial vehicles such as hedge funds or DPPs do not only affect institutional investors and high-networth individuals but are becoming a larger part of the lives of the everyday consumer. Pension funds have a huge impact on the futures of families, and retail investors are gaining more exposure to the retail estate market through small businesses, mortgages and REITs. Furthermore, the house is a fundamental asset to many families, sometimes being the only thing children will receive as an inheritance. The capital gain on these assets are helping to support communities and citizens, not just “cater[ing] only to the wealthy”.

Recent mortgage regulations after the financial crisis of 2008 have allowed over 84.94 million mortgages in the US market, and have avoided many of the consequences of the hyper-leveraged economy. Mortgages now represent 70.2% of consumer debt and Americans originated $1.23 trillion in new mortgage debt in the first three quarters of 2024. This has allowed many American consumers to get into the real estate market, and they now massively benefit from the massive returns real estate has recently offered. It is inappropriate to assume that this growth is entirely negative for the consumer. Housing prices grew 5.2% YoY in Dec 2024. Though dwarfed by US equity performance during the same period, this compounding of wealth offers a fragile lifeline to many individuals who rely on a portfolio of homes to generate income and to retire.

Leilani Farha suggests during their statement that financial institutions must be wary of the impact they have on the realization of the housing market. However, though important that these institutions be regulated accordingly, it may actually have a negative effect on available housing. If the residential real estate market continues to be a lucrative investment, companies will be incentivised to provide more homes, without which, any such initiative may struggle. Once the supply of housing is more pronounced, it must be assumed that the prices may fall regardless.

It may be assumed that this issue may be solved without any intervention from financial authorities and the government.

Nevertheless, financial institutions should continue to be regulated according to the major part they play in the price discovery of various assets including real estate.

Addressing the Rapporteur’s recommendations

Leilani Farha makes several recommendations to developing countries India and Portugal. India especially is becoming a major part of the world economy, and the way its institutions regulate and govern have a large impact on over a billion people. It is projected that India’s population will grow 41.2% to 1.66 billion by 2050. In my opinion, this does not seem far-fetched at all, as India’s population has grown roughly 320% since 1960. With a population growth of roughly 12 million people every year, India must put in place the right regulations in order to ensure fair and ethical treatment of its population.

Unlike the US, India is still developing its regulation and financial literacy. It is vital that India’s government help protect homeowners and investors. We cannot simply assume that the issue of the Financialization of Housing will be simply conquered through developing markets. Furthermore corruption is a key component in India, and it is to be assumed that many firms and individuals may exploit the developing nature of India’s financial markets for profit.

I agree with the Rapporteur’s recommendations therefore, as India must still develop their own regulations, and build together their powerful economy as well as utilise many of their rural farming population.

Forced evictions are of note, they must be carefully regulated, to make sure homeowners and debtors are protected, especially in India’s case.

Finally, Leilani Farha addresses Portugal, albeit less fondly than to India.

They argue that people of “Roma, people of African descent, women fleeing violence, persons with disabilities, children, youth, and all those who are poor or ‘new poor’ should be protected. They are those who suffer the most from rising house prices. Whilst older residents already own houses, or may inherit them, those entering these countries have none of these benefits and must get over the barrier instead of benefiting from it.

It is clear, therefore, that these people must be given help. But I think it would be irresponsible to only help the outsiders. It is entirely necessary that all individuals that struggle to afford their home must be given support, not only those from certain backgrounds.

The latter may alienate the original citizens, leading to discrimination towards immigrants and alienation within their own country, as is the case of many in the UK, who are becoming more aligned with Reform UK. (Reform UK appear to have the greatest amount of votes according to an unofficial poll)

I believe that these measures should be taken, only in an equal way. Similarly, eviction and demolition must be carefully watched by the government.