Two years ago, when Covid-19 was declared a pandemic, I had a strange sense of optimism. I wondered if this crisis might be one of opportunity, rather than opportunism. When the pandemic struck, 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 incomes. As the former UN special rapporteur on the right to housing, I had seen how tenants were struggling to pay 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 mine residential real estate and extract unprecedented profits. This “financialisation” of housing unleashed a new business model. Investors would buy “undervalued” and “distressed” homes, undertake renovations and raise rents to increase a property’s valuation – maximising their investment returns in the process.
I was convinced that during a global health crisis when people were instructed to stay home, governments would harness all their resources to do whatever was necessary to ensure everyone had a decent home – if for no other reason than 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 recognised that tenants needed help. Many jurisdictions passed financial aid and eviction moratoriums to help tenants pay the rent and remain housed. For example, in England the government’s Everyone In scheme housed rough sleepers in hotels.
But in most cases, attempts to help tenants were limited to emergency programmes, leaving the underlying causes of the global housing crisis untouched. Meanwhile, governments and central banks enacted a series of fiscal and monetary policies (such as lowering interest rates and engaging in quantitative easing) making it cheaper to borrow capital. This all but ensured that once tenants emerged from the pandemic, they would be left to face a deepening housing crisis. Indeed, since the pandemic, rents have rocketed.
These policies were a boon to investors. Last year, buoyed by investments from US public pension funds, the private equity company Kohlberg Kravis Roberts & Co closed four residential real estate deals through its investment fund, including one in Germany, which encompassed 7,500 homes. Meanwhile, the CEO of Blackstone, one of the world’s largest private equity firms, boasted the company had achieved “the most remarkable results … on virtually every metric” in its history. The company’s stock soared in 2021. Success was attributed, in large part, to “inflation-proof” residential real estate holdings, as rents rose at two to three times the rate of the consumer prices index.
The top priority of these corporate landlords is pleasing their shareholders. Left unchallenged, the financialisation of housing could make cities affordable only for the affluent. While housing becomes more and more unaffordable, lower-income households will suffer further socio-economic deprivation.
It’s clear we need a paradigm shift. There is a growing consensus that embracing housing as a human right is key to solving the housing crisis. The proof is The Shift Directives, which I am launching today in the European parliament. These are the world’s first set of international recommendations that challenge the financialisation of housing head on, using human rights standards to lead the way forward. Drafted in consultation with leading experts, the directives guide governments and investors on timely issues such as short-term rental platforms like Airbnb, student housing, the banking sector, and “renovictions” – the process of renovating a property in order to raise the rent.
The Shift Directives draw inspiration from places and movements that are already rejecting the financialisation of housing and embracing 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 dissuade corporate landlords from amassing homes in cities such as Barcelona by requiring large property holders to offer genuinely affordable rent proposals to vulnerable households before serving eviction notices. Property owners who leave their homes vacant for more than two years can also face hefty fines or even expropriation.
Likewise, grassroots tenants movements in cities such as Amsterdam, Madrid, Berlin, and Toronto are demanding an end to the financialisation of their homes, and winning. In New York, for example, a feisty group of tenants banded together and secured the chance to buy the apartments they were renting from their landlord, who was threatening to raise their rents. Even some American banks have pledged to stop lending to abusive landlords. Meanwhile, the rising tide of investor interest in environmental, social and governance criteria is an acknowledgment that corporations need to do better.
Faced with rocketing rents and house prices, the housing crisis can seem inevitable. But it doesn’t have to be this way. Land trusts and housing cooperatives have already shown that there are viable alternatives to the extractive model of housing investment that turns our homes into financial assets. But these types of hopeful initiatives will remain small-scale unless governments recognise 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 guarantee the human right to housing through regulatory changes that would obligate investors to play a positive role in society, rather than a real-life game of monopoly. The Shift Directives provide governments and institutional investors with precisely what they need to seize this opportunity, to ensure that housing systems are based on equality, security, and dignity – the foundational principles of human rights.
Leilani Farha is global director of The Shift and was the UN special rapporteur on the right to housing from 2014-2020. She is the co-host of bi-monthly podcast, Pushback Talks