Financialization of Housing and its Resultant Dehumanizing Effects

Article 17 (i) of the United Nations Declaration of Human Rights mandates that “everyone has the
right to own property alone as well and in association”, Article 17 (ii) says that “no one shall be
arbitrarily deprived of his property”. Further, Article 25 (i) goes on to say that “everyone has the
right to a standard of living adequate for health and wellbeing of himself and of his family including
food, clothing, housing and medical care”1.

In this essay, we will be studying the concept of Financialization of Housing in the light of the UN
Human Rights Commission Special Rapporteur report, 2017; the causes, the adverse impact on the
society and the gross violation of human rights and finally we will discuss the role of the state and
global governments as to how this can be managed in order to ameliorate the conditions of those
effected.

As per the report of the UNHRC Special Rapporteur, Financialization of Housing can be understood
as the phenomenon that occurs when housing is treated as a commodity i.e., a vehicle for wealth and
investment rather than a social good2.

Neo- Liberalism and Housing & Real Estate, the largest global business sector

The concept of neo-liberalism advocates for free markets i.e., laissez-faire and minimal governmental
interference and regulation. This form of world order believes in Darwinism and survival of the fittest
which is an antediluvian ideology. However, humans have evolved from the rule of the jungle. If we
go by the rules of capitalism and neo-liberalism we would simply be educated and exquisitely clothed
animals. Humans need social security, education, wellbeing and a form of socialistic world order that
believes in the dictum “no man, woman or child left behind”.

As per the report, global real estate represents nearly 60% of the value of all global assets or USD
$217 trillion, with residential real estate comprising USD $163 trillion or 75%. This represents more
than twice the world’s total GDP3. Capitalism and neo-liberalism have fattened this social good into a
milking cow and this clearly indicates that housing and real estate represent the world’s largest
business sector and an avenue that allows for accumulation of wealth. When the accumulation of
wealth comes into picture, it attracts the black money, laundered money and money evaded by route
of base erosion and profit shifting that makes its way through to tax haven countries and then finally
to real estate investments.

The malady lies in the fact that housing is looked through the prism of money making, profiteering,
and wealth maximization, when it should rather be looked at as a social good and a right of every
human being as enshrined in the UN Declaration of Human Rights and the Constitutions of a majority
of countries all over the world. It is problematic that financial institutions, governments, judiciary and
international organizations have deviated from their own treaties, conventions and legislations.

Causes of Financialization of Housing

Everybody has aspirations in life, and for a majority of the people one of the most important
aspiration is to be a home owner, a home and a place where they can start a family, raise their children
and grow old with their spouses or partners. Not everybody would have the wherewithal or the
resources required in order to purchase a home and to materialize this dream banks come to the rescue
of the people who sell them mortgages and help their dream come true.

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The financialization of housing originates when these loans and mortgages are pooled together and
securitized and financialized in what is called as Mortgage Backed Securities and Collateralized
Mortgage Obligations which are then traded as speculative commodities on the financial markets, this
form of innovation which has become a de rigueur can be appreciated, however, it also reeks of the
myopic view of banks, private sector and traders to profit off of unsuspecting and oblivious customers
of the bank who are hard-working middle-class taxpayers.

The problem becomes vexatious when the banks do not conduct proper due diligence as per the
standard operating procedures while disbursing loans as they are in a hurry to securitize them and sell
them off as CMOs and engage in wanton lending practices. The banker and the agents work on
iniquitous commissions and are incentivized to show growth of loans granted and in the event that
they become non-performing they have not much to lose as the loans are secured by the mortgaged
property and may have to take a small haircut and everything is business as usual. However, when this
happens people’s lives are uprooted and they descend into entropy, which was the aftermath of the
two thousand and eight financial crisis which laid bare the fragility of financialization of housing.

Adverse Effects of Financialization of Housing

It is a well recorded fact that financialized housing markets respond to the preferences of the global
investors rather that the needs of the communities. It is also noted that the global investors sit in
remote board rooms4 and make their investing decisions heedless of the adverse impact they could
have of the middle-class or lower-class communities. If by the investing decision of a mammoth
investing firm that brings an unprecedented amount of money into the housing financial market,
borrower’s housing price (rental) increases and in the case where the investing firm decides to pull out
money out of the market and the market becomes bearish, then the borrower’s home market price
goes “under water” where the price of the home is lesser that the mortgage itself resulting in
foreclosures. In both cases, the borrower is pushed to the precipice of financial ruin and homelessness.
As discusses above, the investors look at the housing as an instrument of wealth accumulation and
hence leave the homes vacant while the homeless populations are burgeoning, this is a great
embarrassment and a flies in the face of democracy and humanity.

The financialized housing sector also perpetuates what has been referred to as “residential alienation”
i.e., the loss of critical relationship to housing as a dwelling and the diverse set of social relationships
that give it meaning5. The investors are detached from the ground reality neighborhoods with no
engagement or accountability to communities. The plague of financialized housing also precipitates
inequality and discrimination by pushing marginalized groups out of the urban areas and into the
peripheries thereby creating ghettos.

The role of the State and the way forward

The Social Contract theory advocated by Thomas Hobbes, which is the foundation of democratic
governments all over the world says that individuals surrender their rights in exchange of certain
safeguards from the state or the sovereign power whose obligation it is to ensure that the human rights
of its citizens are not abridged at any cost. The governments must mandate that the implementation of
human rights becomes the overarching goal and not a subsidiary or a neglected obligation 6 and they
must reaffirm and re-establish their constitutionally mandated and internationally agreed obligations
towards their citizens. Hence, in this light the role of the state becomes sacrosanct when it comes to
protecting their citizens from the financialization of housing-

(i) Fix unambiguous state responsibility to regulate and provide housing.

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 (ii) Ensure that the financial system addresses, rather than exploits the housing needs of
people.
(iii) Detach housing and real estate from corporate profits that are immune from taxation.
(iv) Ensure that the Central Bank’s policy rate cuts do trickle down to the smallest borrower
and that the banks do transfer the lowered interest rates.
(v) Increase budget allocation to social housing programs for example Pradhan Mantri Awas
Yojana, Deen Dayal Antyodaya- National Rural Livelihoods Mission in India and check
corruption by intermediaries, contractors and government officials.
(vi) International formal and informal organizations like World Bank, IMF, G7, BIMSTEC,
SAARC can provide soft lending to countries facing housing problems.
(vii) Reliance on private market solutions must be reduced.
(viii) Make sure that the judiciary system does not overlook the constitutionally guaranteed
housing rights for example Article 21 Right to life and personal liberty (which includes
the right to a place to live in dignity and security) of the Constitution of India, in favor of
investors and financial institutions thereby taking a narrow view of contractual between
creditors and borrowers without considering the imbalances in power or the implications
on human rights.
(ix) Change the general mindset that non-payment of debt leads to foreclosure and possession.
(x) Abolish foreclosure by law and find out innovative ways so that borrowers do not have to
lose their home, for example, restructuring of loan, garnishing of wages etc., and also
plug the loop holes so that the laws are not circumvented by private sector.
(xi) The Dodd-Frank Act, 2010 that mandates that banks must retain 5% of the mortgages
issued must be increased to ~30-35% and the exemption for Qualifies Retail Mortgages
must be withdrawn.
(xii) The Guiding Principles on Business and Human Rights: Implementing the UN “Protect,
Respect & Remedy” Framework must be given teeth and enforceability through legal
sanction.
(xiii) Serious steps must be taken towards achieving the Sustainable Goal 11.1 by 2030 and the
New Urban Agenda.

The accountability of the Governments to the public to whom it owes human rights obligations rather
than to the financial institutions and wealthy investors is the step forward to re-humanize housing.