Macroeconomics

Excessive capitalism has always been a threat to the integral components of human life which cannot be put in crude monetary terms. Housing is one such right of any human for his/her safety and societal well-being. It is now just a commodity to secure wealth rather than an essential future space for a person and his family. Financialization of housing refers to increase in the dominance of market factors, players and practices. Housing has become a security in global markets since its considered as a HQC (high quality collateral) investments. The real estate market’s high valuations can be ascribed to its qualitative and intrinsic value. As humans, housing will always be an inalienable right to dignity. Financial institutions and mortgage firms have commoditized housing and have made them mere financial assets. Housing when considered as a financial instrument is subject to market volatility. Since its also the basic right of any human being, subjecting a human right to financial markets, its terms largely controlled by the whims of financial institutions considered “too big to fail “, sounds inhuman. For example, plummeting housing prices can lead to forced evictions and mortgage foreclosures as the aftermath of the GFC dictated. Homelessness is a public administration issue and as to be addressed by the respective state/national law. The state’s role in ensuring housing for all by 2030 can be clearly deduced, with the general observation that the states must work in tandem with the market to make the best use of the real estate market, without over-regulation, while adhering to the overarching theme of housing being an inalienable human right. Housing prices leading to polarization in living standards and systemic inequality.

The topic, financialization of housing, is of great significance in world markets as it determines the long-term trend of financial development in emerging and developed nations and alters the structure of links between economies and its workings. It impacts the cash flow between countries and asset types related to real estate. Noticeable changes of capital flow take a toll on development scenes and the FDI. Opening the markets of developing countries (with increasing population and the resultant housing demand) to equity, foreign portfolio investors (FPIs), High net worth individuals (HNIs) and corporates can be noticed. Such a scenario will increase investments and will keep the fiscal deficit under control, but the price paid in return would be artificial increase in

 Financialization of housing has given rise to “hedge cities” and housing bubbles (like the one in 2008) where the asset price doesn’t really reflect the value of houses. With mortgage backed securities a.k.a (MBS) and unregulated activity on the part of big banks such as Goldman Sachs and Morgan Stanley housing prices soared due to speculative activity. Home buyers looking for houses for its very social purpose must bear the cost of speculation. This isn’t a favourable scenario for governments when pursuing affordable housing as a policy after the Report on the United Nations Human Rights Council’s (2017) suggestion.

To quote the Report of the Special Rapporteur:

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.

The preference of highly financialized markets and their loyalties lie with the global individuals who are HNI (high net worth individuals) and doesn’t respect the basic, yet essential, needs of the local community. Even in case of price-bubble burst or a freefall of housing prices, its not entirely endemic and risk is borne by the entire economy, including the ones who never caused the asset price bubble at the first place.  Such a scenario leads to a situation called “residential alienation”, where there is critical loss of relationship to housing as a place of dwelling and its intrinsic societal values. Corporate owners are usually nameless, Limited Liability companies own houses, even the when the need felt for one is experienced mostly be a human. Again, there is the problem of anonymity.

According to National Housing Bank data, property prices in Mumbai and Bengaluru increased annually by just about 7.50% and 5.75% respectively between June 2013 and September 2017

A good model to look at Housing as a right, we turn to the successful policy changes made by the Nation of Australia, who rather look at housing as a place to run a family and to run business rather than place for business. Since the forgotten people speech by the Prime Minister, Australia known for its super-annulation pension process is also getting recognition for its affordable housing as well. Capital gains exceptions, the exclusion of the primary home, tenancy policies that favour the owners and homeowner grants are commonly citied policy achievements of the Australian Housing project as such. What makes this policy more successful is the rebound of the government after sharp rise in evictions and the interest rates as well.

Disincentivizing the usage of housing as a store of wealth or financial instrument for hedging or speculation is imperative as it undermines the social function of a house. Affordable housing and low-cost social rentals should be necessary. Government intervention is necessary for social housing while at the same time partnering with non-profit organisation. When it comes to private rentals need to be more regulated and more secure especially on the side of the tenant in order to repel any predatory loans for people who can’t afford such high interest rates. This regulation will help not only tenants but current house owners and investors. The market size of the real estate sector in 2017 was US$120 billion which is expected to reach US$1 trillion by 2030. It is expected that the sector would have a contribution of 13% to the GDP of the country by 2050. This kind of regulation is necessary especially necessary considering the rise in housing and real estate bubbles in major cities like Mumbai, Toronto, London, Stockholm and especially in China.

References

• http://theconversation.com/explainer-the-financialisation-of-housing-and-what-can-be-done-about-
• https://swisschamberofcommerce.ch/the-myth-of-the-financialization-of-the-housing-market/
• https://medium.com/@jochemgerritsen/a-different-perspective-on-the-financialization-of-housing-4c36d27ef734

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