GENEVA — The world’s real estate is worth an estimated USD 217 trillion. That staggering sum, almost three times the gross world product, accounts for nearly 60 percent of all global assets.
Residential real estate, meanwhile, is responsible for three-quarters of this total. Given this vast value, homes are increasingly treated like commodities by wealthy investors and multinational corporations.
This “financialization of housing” is the subject of a new report by Leilani Farha, the United Nations’ top expert on the right to adequate housing. The Ottawa-based lawyer, who has held the post since 2014, presented her findings this month to the U. N. Human Rights Council.
“Valued as a commodity rather than a human dwelling,” she warned, housing “is now a means to secure and accumulate wealth rather than a place to live in dignity, to raise a family and thrive within a community. … It has lost its currency as a universal human right.”
In a 22-page report that pulls no punches, Farha catalogues the damage caused when housing is treated as a commodity rather than a human right. For example, as foreign capital plunges into specific real estate markets deemed safe, some destinations are becoming “hedge cities”, where local residents must compete with international investors who have sent prices soaring by 50 percent or more in just five years.
Elsewhere, millions of foreclosures have evicted homeowners in the United States and Europe since the 2007-09 financial crisis. In many cases, mortgage-backed securities — a financial instrument that bundled individual homeowners’ mortgages into investment products to be bought and sold en masse — were the culprit.
In the face of the ongoing popularity of these opaque financial tools, Farha issues a call to arms. “The global community cannot afford to be cowered by the complexity of financialization,” her report argues, detailing the legal reasons why governments should change the rules of the game in their relations with the financial sector.
The study also offers several policy responses. It points to regional governments in Spain who have attempted to halt foreclosure proceedings, for instance, as well as to cities mandating affordable housing with a regulation known as “inclusionary zoning”.
To learn more, Citiscope’s Gregory Scruggs sat down with Farha in Geneva the day after she presented her report. This interview has been edited for length and clarity.
Gregory Scruggs: Why has residential housing become what you refer to as the “commodity of choice” for the wealthy as opposed to traditionally valuable objects like fine art, jewelry or gold?
Leilani Farha: Despite the fact that there are real estate bubbles and a bust-and-boom situation with real estate, it’s considered pretty secure. And why? Because when you invest in real estate, it’s generally perceived that your investment will give you a good return very quickly. So you can input your money, you get a quick return, you sell it.
For investors, that’s what they’re looking for: security and a quick, good return. Ihe international real estate agents talk about housing as a “commodity of choice”. That’s how it’s being sold: safe, secure, quick return.
Q: The so-called “hedge cities” that you describe in your report — like Stockholm, Sydney, Vancouver — are the type that top lists of the world’s best cities for quality of life. Is there a danger that the financialization of housing is going to worsen that quality of life?
A: When you look at quality-of-life indices, they don’t look at quality of life for homeless people, low-income and poor households, right? So what are they looking at — how much park space? Is there infrastructure like subways? Are there leisure activities that are in close proximity to the city?
But they’re not really looking at the indices that would determine if a city is the best city to live in for the most vulnerable populations or those who could fall into vulnerability, where middle-income people are actually finding it very difficult to live in the city.
I actually employ someone who is living in a hedge city, and she’s in the situation where she lives in a 1.5-bedroom condo in a very good spot in Vancouver. She has a child, so the child is in the half-room, and she is expecting her second child. She cannot afford to move anywhere in proximity to where she’s already living, which is close to her parents, which is close to her current child-care provider. And she’s a middle-income kind of person.
So when they talk about best cities to live in, you always have to ask, for whom? And based on what indices?
Q: Aren’t there some financial benefits for cities from these large transactions in terms of real estate sales taxes and property taxes?
A: The beginning place is the land. So where a developer buys the land, yes, the city gets a huge amount of money. Of course, investors are pretty good at whittling down the price of land and not necessarily paying what they will ultimately end up profiting off of the land. The city will get money for their land, and that is beneficial to cities, or that’s how they perceive it.
That’s what a lot of city councilors and mayors have told me. They often don’t have a huge tax base themselves, and they are witnessing more and more people coming to their cities. They have to provide services — roads and schools — for the people coming to the city centre. And so they feel they need resources and the way to do that is to sell off their public lands to developers who will pay a decent amount.
But the question becomes, at what cost? Yes, for those who buy a luxury house or several condominiums, there are some property taxes or stamp duties involved with that. But the amount of money generated versus the cost in those cases is not balanced.
There are cities who are trying to tax more and using that capacity of local government to bring more return to the city. So let’s say the city is getting a fair bit of money from these investments — what are they doing with that money? Is it being reinvested into affordable housing? Ninety percent of the time, no.
Q: But the other 10 percent are acting. For example, your report cites London’s commitment to a 35 percent affordable threshold for all new housing developments, and Vancouver passed a 1 percent tax on empty homes. What policy responses to the financialization of housing are most scalable or effective?
A: I think there are a lot of interesting policy initiatives out there that are trying to curb what we’re seeing, this trend of the excessive amount of capital being invested in housing. But what I’m not seeing are what I consider to be solutions, and that’s because I come at this from a human rights point of view.
From the human rights place, what we need to see is a different relationship between national governments and investors and financial actors. In any of the policies that I’ve observed, I don’t see a meaningful change in that relationship. Under international human rights law, it is the state’s responsibility to regulate investors and markets. And since neoliberalism, we’ve had a complete deregulation.
From a human rights place, a solution would have to have a different vision or relationship between state and investor. Rather than states being complicit in all of this, they should be looking at what’s happening and saying, “Wait a second, this is affecting the state’s ability to meet its international human rights obligations.”
At every government level, we need to see a shift in this relationship and a reclaiming of their authority to put human rights as the paramount interest, not the interest of investors as paramount. Right now we’re in a situation where most cities and central governments put the interests of investors before the interests of human rights.
When I look at the practices that are out there, at the city level and at the national level, I don’t see that shift, [although] I see good work.
Q: Among this good work, then — are these bandage approaches, because they are not changing the root cause of the problem?
A: They’re more than bandages, because I think they are having some really good impacts. The province of British Columbia [where Vancouver is located] imposed a 15 percent tax on foreign buyers. Within a very short period, it generated a huge amount of money that they’re saying they were going to funnel into affordable housing. That’s more than a bandage.
Q: But capital also moves quickly. The British Columbia tax largely targeted Chinese buyers in the Vancouver metro area. Immediately after it was passed, the nearby city of Seattle became the most searched U. S. market on the major Chinese real estate search engine, leading media outlets to refer to it as “the new Vancouver”. Should the state of Washington, where Seattle is located, also pass a 15 percent foreign-buyers tax and Seattle pass a 1 percent empty-homes tax? What would you prescribe to cities in response to the financialization of housing markets?
A: I would prescribe some of these, but every context is different. I understand cities when they say to me, “If we overtax, then we’ll lose investors, and then there’s a net loss.” I had this conversation in London. But there is so much excess capital floating around.
If there were a global consensus around a worldwide tax or capping profits at a certain percentage, after which profits have to be funneled back into affordable housing, people with a lot of money would still be investing in real estate, because it remains that valuable and it is that safe compared to other commodities. So I don’t think we should be fearful.
I’ve been likening this issue to “living wage” campaigns. What employers are finding is that they don’t end up having to lay off staff. It hasn’t eaten away at their profit margin such that they can’t continue to operate. So my sense is that the same would be true with developers. We have to test those waters to see.