Info Service on Finance and Development (Mar17/01)
6 March 2017
Third World Network
now valued as a financial commodity, charges UN expert
Published in SUNS #8414 dated 3 March 2017
Geneva, 2 Mar (Kanaga Raja) - 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
"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
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
"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
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
"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
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
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.
FINANCIALIZATION OF HOUSING AND ITS IMPACT
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
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
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
"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
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
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
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
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.