Financialisation Of Housing in the Asian Context

In July 2020, I wrote this short essay on the financialization of housing for a Coursera course called Financial Markets by Dr. Shiller, Sterling Professor of Economics at Yale University. I am happy to share this with anyone that is interested in reading it.

On 1st March 2017, Leilani Farha, the Special Rapporteur on the right to adequate housing issued a statement during the Interactive Dialogue at the Human Rights Council. In this report, she addressed her concerns on the financialisation of housing and its implications on the basic human right to adequate housing.

In particular, these implications include undermining democratic governance, exacerbating inequality and social exclusion, and detaching housing from its connection. From the effects of the ‘golden visa’ in countries such as Spain and Portugal, which resulted in millions of foreclosures and evictions, Leilani highlights the gross violation of human rights, in particular, the right to housing. She goes on to picture financialisation of housing as the root cause of this violation.

I would like to address this in the Asian context, in particularly, bringing up the examples of Singapore and Hong Kong.

In Hong kong, just 49.2% of the population are homeowners and the average price of a home is 20.9 times the average household income. Moreover, many Hong kongers must wait over 4 years to get public housing. The steep prices of housing could be largely attributed to geographical reasons as well as Hong kong’s reluctance to curb speculation. The Hong Kong government has a huge reliance on revenue on land sales, with land sales accounting for the majority of its revenue each year. Moreover, Hong kong has also been labelled as the “world’s freest market”.

The Hong Kong government sells plots of land to the highest bidders (property developers) every year who are then granted with 50-year leases to build housing estates, offices and hotels. Due to mainly speculation, this has driven the prices of land in Hong Kong to exorbitant amounts. Recently, 2 Chinese developers paid $2.17 billion for a plot of residential land, which exceed market valuations by almost 50% . The land sales in Hong kong has mainly benefited wealthy investors but has caused the middle-class and lower-class Hongkongers to suffer. Facing a widening inequality gap, the soaring house prices has forced many lower income Hongkongers to live in small, cramped cubicles.

Meanwhile, the extent of government involvement and intervention in the real estate market for Singapore can be said to be high so as to prevent speculation and profiteering. In 1961, most Singaporean residents were living in congested and poorly maintained housing conditions. Hence, the newly elected government decided to establish the Housing and Development Board (HDB) which started a campaign of aggressive construction of one-room rental flats, with a common kitchen and toilet facilities. By 1964, HDB began selling 99-year leasehold flats in high-rise housing blocks at affordable prices. At 2018, the rate of home ownership in Singapore was approximately 91% of the population. However, as the citizens accumulate more wealth, we start to see a radical transformation from the subsidized public housing as a mode of social housing to a form of wealth accumulation. This has thus led to concerns in inequality in housing. Hence, to discourage speculation and prevent the inflation of property prices, the Singapore government has intervened in 2 ways — providing additional cash grants to lower-income families to make housing more affordable, and to severely restrain inflationary and speculative property investments.

These include the shortening of leases, selling new flats based on construction costs, and restricting profit makers from buying up new flats. Contrary to the subprime mortgage crisis which contributed to the US recession, the Singapore government has sought to restrict the level of mortgage loans for real estate investments. This means that credit of an individual should not exceed 60% of its monthly income. Lastly, there was the imposition of the additional stamp duty on property investments — 15% levy for all foreigners, 5% for permanent residents buying their first flat and 7% for Singaporeans purchasing their second flat and above.

In addition to this, similar to Hong Kong, the government has provided additional cash grants to all first time public housing leaseholder who are of middle income backgrounds. Those with a monthly income of less than s$1500 can receive up to s$60000. At its most extreme, 2 low-income single persons applying jointly for a small flat can receive up to s$60 000 grant for a flat priced at s$75000. In general, the amount that the Singapore government spend on these subsidies amounted to s$1 billion.

As seen in the Hong kong context, financialisation of housing can be viewed as the main reason for depriving people of their basic rights to living. However, financialisation of housing may not be necessarily bad. There is actually an incredible amount of positive change in society that financialization has brought about.

Take for example, mortgage-backed securities. While mortgage-backed securities have a negative image as the cause to the onset of the global financial crisis in 2008, it has also enabled the people to be able to buy houses, by ensuring a high supply of capital to potential lenders. Mortgage-backed securities makes ordinary people like us more resilient to the ups and downs of the business cycle, by spreading risk. Moreover, it also helps small businesses in downturns. Thus, it facilitates better international consumption risk sharing.

In conclusion, I feel that financialisation of housing is not inherently bad or good, but its full benefits can be reaped if the government chooses to regulate and maintain it. In Singapore’s context, although there are concerns about the rising inequality brought about by the financialisation of housing, the Singapore government has strongly intervened and regulated the housing market, in order to make housing affordable for all. On the other hand, Hong kong’s property market is subjected to speculations brought about by foreign investors, which ultimately drove housing prices up.

References

Chua, B. H. (2014). Financialising public housing as an asset for retirement in Singapore. International Journal of Housing Policy, 15(1), 27–42. doi:10.1080/14616718.2014.984823

Clennett, B., Jakubec, M., & Marco Jakubec. (n.d.). A lack of affordable housing feeds Hong Kong’s discontent. Retrieved July 15, 2020, from https://www.aljazeera.com/ajimpact/lack-affordable-housing-feeds-hong-kong-discontent-190801151538867.html

Farha, L. (n.d.). Statement by the Special Rapporteur on the right to adequate housing, Leilani Farha, during the Interactive Dialogue at the Human Rights Council. Retrieved July 15, 2020, from http://www.ohchr.org/en/NewsEvents/Pages/DisplayNews.aspx?NewsID=21264

How thinking like Trump can solve Hong Kong’s housing crisis. (2018, June 13). Retrieved July 15, 2020, from https://www.scmp.com/comment/insight-opinion/hong-kong/article/2150565/how-hong-kongs-housing-crisis-can-be-solved

Saiidi, U. (2017, April 10). Here’s why Hong Kong housing is so expensive. Retrieved July 15, 2020, from https://www.cnbc.com/2017/04/09/heres-why-hong-kong-housing-is-so-expensive.html

The macroeconomic benefits of mortgage-backed securities. (n.d.). Retrieved July 15, 2020, from https://voxeu.org/article/macroeconomic-benefits-mortgage-backed-securities

Why we need a ‘Hongkongers first’ policy for home sales. (2018, June 27). Retrieved July 15, 2020, from https://www.scmp.com/comment/letters/article/2152567/why-prices-hong-kong-homes-will-keep-rising-until-sales-are