Is Financialization of Housing-a Curse or Cure?

Comparing the Statement by the Special Rapporteur on the right to adequate housing, Leilani Farha, during the Interactive Dialogue at the Human Rights Council dt. 01.03.2017 by assuming both curse and cure.

The Case:

Statement by the Special Rapporteur on the right to adequate housing, Leilani Farha, during the Interactive Dialogue at the Human Rights Council dt. 01.03.2017.

Observation:

• The perspective of Housing has been shifted from habitat to asset.

• Housing has also changed its color as a symbol of pride than the right to own.

• A major portion of Global assets are in the form of Residential real estate say 45% in 2016.

• This diluted focus on Housing resulted in millions become homeless due to evictions and defaults.

• Global capital has been invested phenomenally into a less productive segment called Housing.

• Finally, the report argues that the Financialization of Housing undermines democratic governance, exacerbates inequality, and detaches human dignity.

My Argument:

The report assumes the impact of Financialization of Housing is only negative and ignores the positive side of the same. I would like to argue both the facets of Financialization as Curse and Cure.

The Curse:

The Globe knows Financialization of Housing is not spontaneous and it is happening. It has been perceived as a curse because of the following –

The Nobel Laureate Sir Robert J.Shiller rightly says about the Human Behaviour on Mortgages “Mortgage Prices Never Fall and Land is of scarce hence better to buy now”. This irrational attitude resulted in a nearly 30% fall in home prices.

With the emergence of CDOs and CMOs, the banks had their Mortgage portfolios with Negative Amortizations – “borrow now and add the interest also as loan”. These business tactics made millions of people homeless. The Regulators stipulated as low as 3% margin money for Mortgage Loans “Bring $3000 and buy a property worth $100000”. This flimsy catch changed the people’s choice into a Symbol of Pride than the Right to Dwell. The lenders preferred earning more on the initial processing fees than proper repayment of Mortgage Loan “I earn $3000 to $10000 as fees per Loan Account who cares about proper closure of Loan”. This moral hazard paved a way for millions of compulsory evictions. The borrower's track record, CDOs, CMOs have been rated as like to make them glow than they are with improper rating by even well-known agencies “if I don’t give the preferred rating my competitor will do”. This selection bias led to the global funds being invested in the less productive financial segment the Housing. If all these have been taken care of the facet of Financialization of Housing wouldn’t have turned to be a Curse.

The Cure:

“Invention is the mother of necessity” clearly applies to the Financialization of Housing. Since before the crisis, none of the market participants would think of Shorting in Mortgage. But the crisis indicated the necessity for new financial products to Short Housing thereby making the Bubble a rare incident. Financialization of Housing evidently established that the Firm, Local and International Regulations need the hour and its stringent implementations.

My Verdict:

Despite the efforts of the authorities after the 2008 crisis, the housing market is still less regulated than it should be. The lack of adequate and affordable housing is a basic human right that should not be denied to anyone. The governments must take more steps to shift the excess global capital from unproductive uses to the most productive uses.

---