Here’s how soaring rents and unaffordable housing prices can be fixed | Leilani Farha
JTwo years ago, when Covid-19 was declared a pandemic, I had a strange sense of optimism. I wondered if this crisis was not one of opportunity rather than opportunism. When the pandemic hit, another global crisis was already raging. In cities around the world, housing affordability had become an acute problem. The cost of housing had risen far beyond the rate of income. As a former UN special rapporteur on the right to housing, I had seen how tenants struggled to pay their rent, often falling into arrears and facing eviction.
These conditions were partly the result of the 2008 financial crisis, which provided fertile ground for investors to exploit residential real estate and extract unprecedented profits. This “financialization” of housing has triggered a new economic model. Investors would buy ‘undervalued’ and ‘distressed’ homes, undertake renovations and raise rents to raise a property’s valuation – thereby maximizing their returns on investment.
I was convinced that during a global health crisis where people had to stay at home, governments would mobilize all their resources to do whatever was necessary to ensure everyone had a decent home – if only to prevent the spread of a deadly virus. At first, my optimism seemed well placed. With economies at a standstill, governments around the world quickly recognized that tenants needed help. Many jurisdictions have enacted financial relief and eviction moratoriums to help tenants pay rent and stay housed. For example, in England, the government’s Everyone program housed homeless people in hotels.
But in most cases, attempts to help tenants have been limited to emergency programs, leaving the underlying causes of the global housing crisis untouched. Meanwhile, governments and central banks have adopted a series of fiscal and monetary policies (such as lowering interest rates and engaging in quantitative easing) making it cheaper to borrow capital. This almost guaranteed that once tenants emerged from the pandemic, they would face a worsening housing crisis. Indeed, since the pandemic, rents have exploded.
These policies have been a boon for investors. Last year, backed by investment from US public pension funds, private equity firm Kohlberg Kravis Roberts & Co closed four residential real estate deals through its investment fund, including one in Germany that included 7,500 homes . Meanwhile, the CEO of Blackstone, one of the world’s largest private equity firms, boasted that the company had achieved “the most remarkable results…on virtually every metric” in its history. Shares of the company have soared in 2021. The success has been attributed, in large part, to “inflation-resistant” residential real estate holdings, with rents rising two to three times the rate of the index. consumer price.
The top priority of these business owners is to please their shareholders. If left unchallenged, the financialization of housing could make cities affordable only to the wealthy. As housing becomes increasingly unaffordable, low-income households will suffer more socio-economic deprivation.
It is clear that we need a paradigm shift. There is a growing consensus that making housing a human right is essential to solving the housing crisis. Proof of this is the Shift directives, which I am launching today in the European Parliament. It is the world’s first set of international recommendations that challenge the financialization of housing, using human rights standards to point the way forward. Written in consultation with leading experts, the guidelines guide governments and investors on topical issues such as short-term rental platforms like Airbnb, student accommodation, the banking sector and “renovictions” – the process of renovating a property in order to raise the rent. .
The Shift guidelines draw inspiration from places and movements that already reject the financialization of housing and embrace a human rights framework. In Chile, the Pinochet-era constitution is being reformed to include the right to housing. Last year, Singapore imposed significant taxes on the purchase of investment properties to cool its heating market. Catalonia recently passed a sweeping housing bill to protect residents and deter business owners from hoarding homes in cities like Barcelona by requiring large landlords to offer genuinely affordable rent proposals to vulnerable households. before serving eviction notices. Landlords who leave their homes unoccupied for more than two years also risk heavy fines or even expropriation.
Likewise, local tenant movements in cities like Amsterdam, Madrid, Berlin and Toronto are demanding an end to the financialization of their housing and are winning. In New York, for example, a group of feisty tenants banded together and won the opportunity to buy the apartments they were renting from their landlord, who was threatening to raise their rents. Even some US banks have pledged to stop lending to abusive landlords. Meanwhile, the growing wave of investor interest in environmental, social and governance criteria is a recognition that companies need to do better.
Faced with soaring rents and real estate prices, the housing crisis may seem inevitable. But it doesn’t have to be that way. Land trusts and housing cooperatives have already shown that there are viable alternatives to the extractive housing investment model that turns our homes into financial assets. But these kinds of hopeful initiatives will remain small-scale unless governments recognize two things: first, that the current system is broken, and second, that those who contributed to the crisis are not the best. placed to solve it.
We have an unprecedented opportunity to secure the human right to housing through regulatory changes that would force investors to play a positive role in society, rather than play a real monopoly game. The Shift Guidelines provide governments and institutional investors with precisely what they need to seize this opportunity, to ensure that housing systems are based on equality, safety and dignity – the fundamental principles of human rights. man.
Leilani Farha is Global Director of The Shift and served as the United Nations Special Rapporteur on the Right to Housing from 2014 to 2020. She is co-host of the bi-monthly podcast Pushback Talks