Financialization of Housing

FINANCIALIZATION OF HOUSING

In simple terms financialization of housing refers to monetizing the basic right of humans which is the right to housing. Most often housing is regarded to be an area of investment that is going to offer returns which will unequivocally appreciate in the future. While a lot of people agree with the entire concept of treating houses or homes as a commodity rather than a social good there are people who think otherwise. Most of us fail to realize that globally millions do not have access to adequate housing.?In a report to the UN Human Rights Council, the Special Rapporteur explores the financialization of housing and its detrimental impact on human rights, in particular, the right to housing. From mass forced evictions to make way for luxury developments, to nameless corporations purchasing real estate from remote boardrooms, to empty homes and people pushed out of their communities because they simply could not afford to live there, the repercussions have been felt across the globe. In developing economies, often informal settlements or long existing neighborhoods located in ‘prime land’ are subject to evictions and displacement to make way for speculative investment. Residents are often rendered homeless, replaced by luxury housing that often stands vacant. However the government can take numerous steps in order to bridge the divide among the rich and the poor by incentivizing the unorganized sector. Regulation of financial products is mandatory. Efforts on tax regulation, taming of excessive speculation of real estate should be curbed, additional REIT (Real Estate Investment Trust) should be set up to protect the interests of small investors against the real estate partnership under DPP (Direct Participation Program) and financializaton of housing should be done at a healthy pace as it forms the core aspect of an economy.

The market of housing or real estate ?has a massive impact on the economy and according to statistics Global real estate represents nearly 60 per cent of the value of all global assets or $USD 217 trillion – with residential real estate comprising $USD 163 trillion or 75 per cent. This represents more than twice the world’s total GDP.????When real estate comprises of nearly 75% of the global asset it becomes almost impassable to eliminate the commercial aspect of the industry. Real Estate is considered to be of great significance as it acts as an intermediary between various economies by connecting them to each other. It helps in channelizing the flow of legal tender between countries which optimizes the investments and initiates a macro level impact in the economy by ensuring that the fiscal deficit of the country is under control. This explains why a lot of developing countries are moving towards more open and freer markets.

?It is fundamental to analyse the reaction of investors to a change in the prices of houses as the psychology of an individual plays a major role in influencing the kind of decisions that he takes. Through this analogy we can draw a pattern that establishes a relationship between the housing sector and the capital or the money markets. It further implies that investors will invest in homes only when they hold funds that are able to generate cash or returns. Only if the individual is on the verge of earning a greater return on his capital will he show the interest to invest his earnings in a productive area which will give him decent earnings and vice versa. However it is also a well-known fact that the markets are very unpredictable and therefore it is impossible to determine the accuracy of the financial markets across the globe. ?A lot of economists have felt that the same would lead to a sharp rise in the dominance of factors such as markets, practices, measurements both quantitative and qualitative. Through this the main aspect of Housing is disengaged from its social function and becomes a commodity or a tool in the hands of various investors and is exposed to the market where it has no guarantee of survival and may crash. To prevent financialization of the entire Real Estate market, the Dodd Frank Act was enacted in 2010 by the US government under the leadership of Barack Obama. The act keenly emphasized on financial stability, supervised the financial regulatory system, introduced the Volcker’s rule that restricted banks from making speculative transactions and investments and most importantly introduced the creation of new agencies like the Consumer Financial Protection Bureau (CFPB). The CFPB was charged with protecting consumers against abuses related to credit cards, mortgages, and other financial products. The act also created the Financial Stability Oversight Council and the Office of Financial Research to identify threats to the financial stability of the United States, and gave the Federal Reserve new powers to regulate systemically important institutions. To handle the liquidation of large companies, the act created the Orderly Liquidation Authority.

???????????CONCLUSION-

Financialization of housing acts a great tool in boosting the growth and development of the economy. However the same should be carried out at a pace in which it should not harm the interests and the livelihood of the other half of the population who cannot afford to treat housing as a commodity but can treat only as a basic right. The needs and the rights of such people should not be hampered and must be duly addressed as their rights are of great predominance and a lot of countries have the legislations to protect the same. India’s Supreme Court has affirmed the right to housing through the Constitutional provision of the right to life. The problem of inadequate housing should be resolved and steps should be taken by the Governments of various countries to ensure that no single person should be prone or vulnerable to becoming homeless. Once the same is controlled, a lot of encouragement can be given to people investing in real estate through various schemes like increase in FDI, reduction of tax rates etc., as this will promote financialization of housing in a positive way.

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