Whitehead, Christine; Scanlon, Kath; Voigtländer, Michael; Karlsson, Jacob; Blanc, Fanny; Rotolo, Martina; (2023) Financialization in 13 cities - an international comparative report. London School of Economics (LSE): London, UK.

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Abstract

Over the last 20 years, financialization of the housing market has become a topic of increasing public and political concern, especially in high-demand cities. It has also become an important element in academic discussion. The objective of the research was to undertake a comparative study across a range of countries with very different experiences to help understand how financialization is defined and experienced in different contexts and its relative importance as compared to other determinants of housing outcomes. Analytically, some observers see financialization as little more than a natural outcome of financial development, with both positive and negative implications. At the other end of the spectrum, its many critics see it as a game changer, harming not just those directly affected by higher housing costs and greater insecurity but helping to generate the structural transformation of economies, firms (including financial institutions), states and households. Academics from the disciplines of finance and economics tend to stress the first, while those who draw on sociology and political economy are much more concerned with the negative outcomes of changing political and market power. There is a clear tension between those who see housing issues mainly through the lens of human rights (who argue that any housing system must ensure adequate affordable housing for everyone) and those who see housing as a commodity which uses scarce resources (who argue for efficient provision of housing, with government intervention to address distributional issues). Many of the attributes of housing generate tensions between these two approaches: everyone needs to live somewhere but housing is also a ‘luxury’ good so richer households demand more; housing is both an asset and a consumption good; and while demand for housing can increase very quickly, supply responds only slowly if at all. The basic hypothesis of financialization scholars is that deregulation of the finance and housing markets has brought housing more into the mainstream of tradeable assets and enabled a whole range of new players, often with strong profit motives, to enter the housing system. These developments have increased demand for housing as an asset as opposed to housing as a home. While these changes may have enabled efficiencies to be realised, they have also incentivised participants to identify loopholes where excess profit can be achieved. In addition, ultra-low interest rates have enabled investors to leverage equity yields even though the overall yields in the market have been moderate.

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