Financialisation of Housing: Balancing Commercial Interests with Human Rights

by | Jun 6, 2022

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About Shuchi Agrawal

Shuchi Agrawal is a fourth year BA/LLB student at Jindal Global Law School. She is keenly interested in human rights and international investment law.

Image description: Multicoloured houses seen from above

The right to adequate housing is considered to be a basic human right. It is fundamental to an individual’s sense of security and is an essential component of a stable standard of living. Under Article 11(1) of the International Covenant on Economic, Social and Cultural Rights (ICESCR), state parties to the Covenant are obliged to recognise the right to adequate housing and take steps to realise the right. Affordable housing has been associated with various benefits with respect to the society as a whole. It increases the public’s spending power, which allows people to spend considerably more on healthcare and education. Further, it helps in crime prevention, especially among young homeless people, and has also been directly linked to an increase in the collection of taxes for local governments. These factors have prompted numerous governments around the world to encourage people to buy houses through subsidies, grants and other similar measures.

Through the phenomenon of financialisation of housing, the status of a house has evolved into a financial commodity that is traded on international markets. Financial institutions often invest in housing as a scheme to gain tax benefits and deposit excess wealth. This has the effect of raising the cost of housing, making housing inaccessible to the general public. However, the situation is much more serious in the context of foreign investments: investments in housing which flow from developed countries towards developing nations have the effect of making housing increasingly unaffordable for local communities. Further, wealthy investors and financial institutions often invest extra capital in financially stable jurisdictions, to hedge against the economic risks prevalent in their own countries.

This practice has led to the creation of “hedge cities” which are characterised by very high real estate and housing prices. For instance, multiple hedge cities, including London, Vancouver and Munich, witnessed a rise of approximately fifty percent in their housing prices between 2011 and 2017. Such drastic escalation in housing prices results in situations which produce large scale evictions and violate the right to housing. This in turn leads to low-income communities being forced to reside on the peripheries of cities, in precarious conditions. The issues attending the financialisation of housing have been apparent for many years. The financial crisis of 2008-09, which was caused partly because of sub-prime mortgage-backed securities, approximately doubled the unemployment rate in the United States.

The financialisation of housing has also undermined the status of housing as a basic human right, with the actual needs of residents being overshadowed by the interests of global investors. The situation demands the establishment of a system of human rights accountability. Policy-makers and governments have begun acknowledging the challenges posed by the financialisation of housing: the City of Vancouver introduced a “Empty Homes Tax” in 2017, under which a tax of one percent is introduced on vacant homes, owned by both foreign and domestic investors. The money collected from this scheme is used to support affordable housing initiatives. Similarly, Montreal has introduced rules to compel developers to construct affordable housing, or alternatively contribute to a fund to finance social housing. Furthermore, Barcelona has passed a new law to allow the government to expropriate empty properties at half their market value, if the owners fail to find tenants. The properties expropriated through this system will subsequently be rented out as public housing.

The financialisation of housing increases social inequality and is detrimental to the political and economic growth of society. The measures being adopted by different jurisdictions signal an important step towards recognising the adverse effects of unaffordable housing. Such initiatives are required to restore the status of housing as a human right. The implementation of such initiatives can help fulfil the promise of adequate housing, as specified under Article 25 of the Universal Declaration of Human Rights.

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