Financialization of Housing
This is a short essay I wrote for a Coursera course called Financial Markets by Dr. Shiller Sterling, Professor of Economics at Yale University concerning this report about Financialization of Housing from UN Special Rapporteur Leilani Farha.
The following is the essay word for word
United Nations Human Rights Council's 2017 report discusses financialization of housing which is the paradigm shift that happened to houses changing it from a place of residence to a financial instrument used to trade and create wealth. The report focuses only on the negative side of financialization of housing implying that it “exacerbates inequality and social exclusion, dehumanizes housing, undermines democratic governance” and the rapporteur suggests that the solution is that the state must “regulate, direct and engage” with the private market.
On the other hand, a country managed to find a solution to this problem without no further regulations: Egypt.
Financialization of housing isn’t all negative, it has positive aspects, too. It might have indirectly contributed to homelessness and skyrocketing prices, but the rapid technological advancement that happened in the construction industry wouldn’t have happened this quick, could not have happened at all, if it weren’t for the huge interest in the real estate that happened due to the financialization of housing.
Moreover, it may have caused some people to deteriorate to lower financial class due to the high rent and high prices, but at the same time it provided opportunity to other people to make investment and become richer.
In addition, thanks to financial innovation we’ve managed to create the concept of insurance in an efficient way which eased our lives.
Furthermore, the key to fixing homelessness is not by forcing regulation nor by prohibiting the eviction of residents as this interferes with the owner’s freedom and rights. The government has to simply play the new game of the market in a limited way and use it to provide shelter for the homeless. I will reference the Egyptian experience: Egypt has started an economic reform program in 2016 aimed at increasing growth by making Egypt a more attractive market through the construction of new cities and other mega capital projects. Egypt suffers from a high number of citizens living in the slums due to poverty and to due overpriced housing. Of course, Egypt, a developing market that wants to attract investors and foreign investment, won’t risk adding more regulation as it already has a high tax rate to avoid deterring investors away of the market. So, what to do? The Egyptian government decides to start building compounds in its new cities and some in the old ones, and divide these compounds into several brackets priced differently to satisfy most of the classes. The most famous 2 projects are New Al Alamein and the New Capital. The government builds at the regular construction costs and sell at a considerable price, making a good profit still. The government then takes a percentage of that profit and use it to build a compound composed of fully furnished apartments along with elevators for people living in the slums, also simultaneously clearing the slums and using that land for further projects. The smart thing is that the government doesn’t build regular flats, the first 2 levels of some of the buildings are composed of commercial stores, the flats still get income through the rent of these stores plus the job opportunities. Most famous housing project is Bashayer El Khair
In conclusion, we don’t need further regulation of the market or decisions that might interfere with people’s rights of ownership (i.e. the owners of the house where the tenants cannot be evicted until the government finds a housing for the tenants). We need to give more space for the government to invest in real estate, not for profit and speculation, but to provide for all its citizens not just the new house owners or the homeless.
The following is the essay word for word
United Nations Human Rights Council's 2017 report discusses financialization of housing which is the paradigm shift that happened to houses changing it from a place of residence to a financial instrument used to trade and create wealth. The report focuses only on the negative side of financialization of housing implying that it “exacerbates inequality and social exclusion, dehumanizes housing, undermines democratic governance” and the rapporteur suggests that the solution is that the state must “regulate, direct and engage” with the private market.
On the other hand, a country managed to find a solution to this problem without no further regulations: Egypt.
Financialization of housing isn’t all negative, it has positive aspects, too. It might have indirectly contributed to homelessness and skyrocketing prices, but the rapid technological advancement that happened in the construction industry wouldn’t have happened this quick, could not have happened at all, if it weren’t for the huge interest in the real estate that happened due to the financialization of housing.
Moreover, it may have caused some people to deteriorate to lower financial class due to the high rent and high prices, but at the same time it provided opportunity to other people to make investment and become richer.
In addition, thanks to financial innovation we’ve managed to create the concept of insurance in an efficient way which eased our lives.
Furthermore, the key to fixing homelessness is not by forcing regulation nor by prohibiting the eviction of residents as this interferes with the owner’s freedom and rights. The government has to simply play the new game of the market in a limited way and use it to provide shelter for the homeless. I will reference the Egyptian experience: Egypt has started an economic reform program in 2016 aimed at increasing growth by making Egypt a more attractive market through the construction of new cities and other mega capital projects. Egypt suffers from a high number of citizens living in the slums due to poverty and to due overpriced housing. Of course, Egypt, a developing market that wants to attract investors and foreign investment, won’t risk adding more regulation as it already has a high tax rate to avoid deterring investors away of the market. So, what to do? The Egyptian government decides to start building compounds in its new cities and some in the old ones, and divide these compounds into several brackets priced differently to satisfy most of the classes. The most famous 2 projects are New Al Alamein and the New Capital. The government builds at the regular construction costs and sell at a considerable price, making a good profit still. The government then takes a percentage of that profit and use it to build a compound composed of fully furnished apartments along with elevators for people living in the slums, also simultaneously clearing the slums and using that land for further projects. The smart thing is that the government doesn’t build regular flats, the first 2 levels of some of the buildings are composed of commercial stores, the flats still get income through the rent of these stores plus the job opportunities. Most famous housing project is Bashayer El Khair
In conclusion, we don’t need further regulation of the market or decisions that might interfere with people’s rights of ownership (i.e. the owners of the house where the tenants cannot be evicted until the government finds a housing for the tenants). We need to give more space for the government to invest in real estate, not for profit and speculation, but to provide for all its citizens not just the new house owners or the homeless.
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