“All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.”
– Article 1, Universal Declaration of Human Rights
Every progress usually begins with an idea, an invention, a new course of action. It starts with a desire for a new level of efficiency, the propagation of an excellent system of things, of a positive turn in affairs. Most often, at the centre of these intentions, lay the goal of creating wealth. The financial system over the history of the world has evolved with the demands of the times. From the Romans to the Dutch to the Japanese, across the Atlantic into Africa and by reason of American prowess, great strides have been made in advancing the lot of humanity through finance. Through superb inventions and financial innovation, through skillful and rigorous implementation, wealth has been generated from places that were otherwise unlikely.
However, as with many inventions, certain financial innovations bring with itself new problems for humanity.
It is estimated that the number of homeless people living in the world today are about 150 million. In 2015, Habitat for Humanity, a non-governmental not-for-profit organization dedicated to building simple, decent and affordable housing stated that 1.6 billion people of the world’s population live in “inadequate shelter”. The degenerative impact of this and the causes may vary from country to country but the implications for humanity are, nonetheless, the same. The United Nations projects that by the year 2050, the world’s current 7.6 billion people should increase to 9.8 billion!
The corresponding effect of this growth is not farfetched – an increase in the demand of the world’s goods and services, including the need to satisfy the housing needs of the teeming population, and also an increase in the need to preserve, protect and enforce human rights.
In this short article, I beam focus on the concept of financialisation of housing and its overarching human rights implications. I comprehensively address the Nigerian housing condition and attempts at financialising housing in Nigeria. I also make important recommendations as to how overall housing conditions can be improved by regulators even with housing financialisation.
What is Financialisation of Housing?
The rise of neoliberalism and modern capitalism must be credited with creating grounds for the many innovations found in modern finance. In understanding the expression “Financialisation of Housing” the concept of “Financialisation” must first be understood.
Financialisation has proven elusive to define; attempts appear to all revolve around a labyrinth. The closest so far is an all-encompassing definition given that its character evolves based on varying transactions. It has been defined as the ability to trade risk. It has also been referred to as the rise in the size and importance of a country’s financial sector relative to its overall economy. This is simple enough.
With respect to the term “financialisation of housing”, Professor Bob Hargreaves and Associate Professor Graham Squires both of Massey University, New Zealand stated that:
“The inter-relationship between local housing markets and international markets has been described as housing “financialisation”. Instead of treating housing simply as a place to live, it is often viewed as a commodity that can be traded, borrowed against and used as a way of accumulating wealth.”
Furthermore, Leilliani Farha, the Special Rapporteur to the United Nations on Adequate Housing, in a 2017 report to the UN on the Right to Adequate Housing defines financialisation of housing as:
“… structural changes in housing and financial markets and global housing whereby housing is treated as a commodity, a means of accumulating wealth, and often as security for financial instruments that are traded and sold in global markets.”
The deductions from the above definitions is that financialisation of housing connotes the commodification of housing, that is, housing basically treated as a security, used mainly as a facilitator of trade in financial instruments in international markets. This clearly points to the expanding role of financial markets and financial institutions in the housing sector.
The Paramountcy of Human Rights
The amount of homeless people in the world today is alarming. The Report by the Special Rapporteur to the United Nations on the Right to Adequate Housing posits that the financialisation of housing violates human rights by reason of the attitudes and approaches adopted by institutions in the commodification of housing.
The human rights implication of financialisation of housing considers the use of housing as a means of financial exchange and a facilitator of trade (rather than as the home and living abode of individuals, families and communities) as violating human rights. It refers to the way capital investment in housing increasingly disconnects housing from its social function of providing a place to live in security and dignity. We thus observe a situation undermining the realisation of housing as a human right. It refers to the way housing and financial markets are oblivious to people and communities, and the role housing plays in their well-being.
Leilliani Farha, the UN Special Rapporteur, identified a threefold assault on human rights caused by the financialisation of housing in that:
- Financialisation undermines democratic governance and community accountability
- Financialisation exacerbates inequality and social exclusion
- Financialisation detaches housing from its connection to communities and to the human dignity and security that are at the core of human rights.
The case made by the Special Rapporteur on the Right to Adequate Housing is that through financialisation of housing, though more housing units are built and development projects on real estate becomes more attractive, the effect is that more people in the world today are rendered homeless. The first is that the issuance of “mortgage backed securities” has done greater harm putting the economic interest of a few wealthy investors over the social welfare of the great majority of the masses. This became immensely apparent in the advent of the 2008-2009 financial bubble where a great number of people and families lost their houses to foreclosures due to the underhanded practices of lenders who paid more attention to their economic gains than to the social impact of their decisions. This was despite the irrational exuberance shown by the hike in real estate prices between 2003 and 2007, and increased lending to individuals and institutions with low credit ratings.
Second, during the 2008-2009 financial crisis, in a bid to hedge funds, private equity firms and other institutions were ready at hand to buy up houses immediately foreclosure orders were given by Courts. These firms thereafter sold these houses to investors through Collateralised Mortgage Obligations (CMOs) and other schemes. This condition led to a hike in rents, poor maintenance of the properties as the tenants found it difficult to identify who the landlords were, and those who could not afford the houses had to settle for less palatable accommodation. Again, investors found it more comfortable to leave the houses and property unrented and empty so they would not have to deal with tenants in the eventual disposal of the property even with the great number of people in need of such housing.
Third, development projects by investors or developers leads to the displacement of people occupying the areas marked for development. Also, the properties developed are usually too expensive for the original occupiers to afford, and there are usually no alternative or commensurate accommodation provided for them. This in effect leads to an increase in the number of those who are homeless and those with inadequate housing.
The Nigerian Condition
In Nigeria, the right of individuals to own immovable property is constitutionally recognised. Though under the land tenure system, as provided by law, individuals only have a leasehold interest in land with a right of occupancy for a period of 99 years counting from 1979.
Notwithstanding, the rate of investments in the Nigerian housing sector has increased over the years. With new large-scale development activities in housing especially in urban areas like Lagos, Abuja and Port Harcourt, this is no farce. The real estate sector stands tall as the 5th largest contributor to Nigeria’s GDP.
There have been measures embarked upon to promote financialisation in the Nigerian real estate sector. The invitation of foreign developers and investors, and the introduction of investment vehicles such as the Real Estate Investment Trusts (REITS) which facilitates investment in real estate on the Nigerian Stock Exchange are all targeted at achieving this purpose.
Expectedly, these measures have been touted by these developers, investors and even the government as bearing potentials to improve the way of life of the citizenry. However, they have not only successfully caused gentrification but also occasioned the displacement of thousands of people. The alarming rate of loss of livelihood, making life for the great majority of the people more burdensome cannot be left out of this saddening equation.
According to the Federal Mortgage Bank of Nigeria, Nigeria currently has about 17 to 20 million housing deficit which increases annually by 900,000 units. Also, in a statement credited to the Bureau of Public Service Reform (BPSR), about 108 million Nigerians are reported to be technically homeless. This includes those who stay with friends and family because they cannot afford to rent or buy their own homes. The increased involvement of the private sector has also led to a continuous increase in rent and in the price of lands and housing. There is a real housing problem and attempts at financialisation of housing without resolving the underlying housing needs can only make the condition more terrible.
Regardless, the Nigerian government has persistently asserted its commitment to solving the housing problem. This may also be with the country affirming its commitment to Target 11.1 of the Sustainable Development Goals (SDGs).
And it appears, in solving the housing problem, the government is not taking resolute and effective actions. For example, there was a National Housing Fund (Establishment) Bill that required Presidential assent for it to become a binding law. This Bill imposed a 2.5% Sustainable Development Levy on locally produced and imported cement ex-factory price. The implication of this would have led to an increase in the price of cement thereby making the already unaffordable housing more unaffordable. Thankfully, the President did not grant his assent after concerns were expressed by members of the public.
However, on a general scale, the policies and programmes of both the federal and state governments towards housing development and finance does not address, or appears not to have addressed, the housing need of those who are in real need. This leaves developers, private equity firms, particular investors and specified groups e.g. civil servants, as the major beneficiaries.
The Case for Effective Regulation
It must be stated that financialisation of housing is not totally bad for humanity. To be fair, Housing Financialisation, certainly has its pros. Not only does financialisation of housing lead to the building of more housing units, it also leads to the building of wealth through the economic phenomenon of capital Appreciation; it helps in building equity, and also aids in hedging against inflation.
Meanwhile, in the midst of these positive pointers, there is an urgent need for government regulation and oversight to ensure optimization of its positive social impact and rewards. The role of government in the interplay of economic activities, especially in the financial sector, cannot be overemphasised.
The regulatory role of government must involve policies directed towards ensuring the following:
Accountability and commitment to human rights and dignity: As Leilliani Farha observed, international financial institutions require countries to be accountable to global finance than to considerations of human rights. One of the demerits of financialisation of housing is that financial corporations, private equity firms, individuals and other investors who are totally detached from communities make decisions about the housing market of the community from the comfort of boardrooms. The government must ensure that a greater degree of respect for human rights is required from these investors, especially with respect to the development and pricing of housing in these communities. The profit motive of these businesses must not override the preservation of communal and human dignity and the fundamental human needs of society.
Bridging the gap of social exclusion and inequality: For instance, investors usually buy mortgage-backed securities because they offer an attractive return on investment. Regulators could make it mandatory that the profits from the sale of securities are used by financial institutions and agencies to offer subsidised loans to low-income families. This could also come in the form of tax, such taxes which will be used by government in providing subsidised housing for low-income families. Furthermore, government through regulation can ban foreclosures or, at least, make it of last resort in the event of default on mortgages. This will in turn impact positively on the social effects as it will not only reduce the rate of those groups excluded from good and affordable housing, it will also reduce the rate of social and economic inequality existing in society.
Prudential responsibility: Regulators must also ensure that in other to avoid a financial bubble, which may impact the market negatively, there are effective prudential obligations required of investment firms. Such requirement must be with the aim to ensure that firms are sufficiently capitalised and have sufficient resources to face the risks they undertake. It must also ensure compliance with extant laws that prohibits money laundering and terrorism financing.
It is elementary that there are basically three necessities important to human life- food, clothing and shelter, and education also. The right to adequate housing falls under the broad socio-economic rights of man. In modern society, the bar has been elevated with the provision of additional rights like the right to gainful employment and the need for compulsory entrenchment, protection and preservation of these rights. It is sad that in Nigeria these socio-economic rights though recognised by law cannot be enforced without prolonged legal gymnastics. For they are still regarded as mere aspirations, except there is an independent act of government giving recognition to them either through regulation or legislation, or as recognised by the courts.
The negative effects of financialisation of housing is being felt the world over, poverty being the most gruesome consequence especially in areas where it is being so employed. Though it has shown capacity to produce much wealth, the effects of financialisation of housing on the whole must be controlled, its impact on society must be understood, and the preservation of human rights and dignity must be placed above all other considerations.
Just like any other human invention, the financialisation of housing can be employed towards positive and negative ends. The role of government and regulators therefore must involve them employing all humane measures in ensuring the that the financial market, in all its forms, is geared towards attaining positive social ends addressing the great pressing needs of society. Society should be kind and gentle on its people.
• The Constitution of the Federal Republic of Nigeria 1999 (as amended).
• The Universal Declaration of Human Rights
• Hagreaves, B. and Squires, G., “The “Financialisation” of Housing”, Massey University, New Zealand, http://www.massey.ac.nz/massey/about-massey/news/article.cfm?mnarticle_uuid=96000DA9-4608-458A-B6AC-D46C0E3D54F5g
• Hardie, L, “Trading the Risk: Financialisation, Loyalty and Emerging Market Government Policy Autonomy”, University of Edinburgh (2007)
• Kenton, W, “Financialization”, Investopedia https://www.investopedia.com/terms/f/financialization.asp
•Nigeria and its homeless citizens- THISDAYLIVE https://www.thisdaylive.com/index.php/2018/10/25/nigeria-and-its-homeless-citizens/?amp
• UN Human Rights Council, Report of the Special Rapporteur on adequate housing as a component of the right to an adequate standard of living, and on the right to non-discrimination in this context, A/HRC/34/51.
• Statement by the Special Rapporteur on the Right to adequate housing, Leilani Farha, during the Interactive Dialogue at the Human Rights Council. https://www.ohchr.org/en/NewsEvents/Pages/DisplayNews.aspx?NewsID=21264&LangID=E
Partner, Law, Finance and Technology
LAW AXIS 360°