My Opinion

Financialization of Housing
Based on a Statement by the Special Rapporteur on the right to adequate housing, Leilani Farha, during the Interactive Dialogue at the Human Rights Council on March 1, 2017.

 

By Edwin Ronaldo

 

I agree with the opinion on the 2017 United Nations Human Rights Council report on housing finance. Before arguing, let me explain first. In fact, housing finance does not create new value. In addition to violating human rights. Housing finance was the biggest cause of the crisis. Soaring housing prices, followed by banks experiencing liquidity problems, due to the financial incompetence of the community. So, it causes a structured crisis.

Finances can double profits in just seconds in the money market. But it cannot create new value such as in the agriculture sector, industry sector, trade sector, and services sector. This encourages the separation of the financial system and the real economy. Since financialization is highly dependent on speculative action, it is not surprising that the financial sector ranging from one bubble to another (crisis to crisis).

Actually, the crisis was triggered by the housing sector crisis. Banks accept deposits from customers, then they lend to the industry. The bank pays the customer a certain interest. And industrialists pay that interest rate. The difference between the two interest rates is the source of profit of banks commonly called Net Interest Margin. This is the model that old commercial banking uses. After entering the period of financial deregulation, we enter a new model. In the old model of every person who took out a loan to a bank, he created assets for the bank. It was put in the account and stayed that way, unchanged. Now, this old model is gone. We are entering into a new model where credit agreements between borrowers and banks are not the end of everything. The bank converts the loan into a tradeable financial asset, through a process called securitization. This instrument is then traded in the financial market. Parties operating in the financial markets can buy and sell them. The party that trades these assets expects to make a profit. Among other things, through a lower purchase price and then sold at a higher price.

The bank, which takes on this residential credit, has turned it into assets that are aligned with other assets into complex derivative products called asset-backed bonds. People who buy those bonds do so when the housing market develops and the value of housing assets rises, and they expect to sell those bonds at higher prices. When these loans started to feel unprofitable. For example, because the value of a house is destroyed by many borrowers who fail to pay installments, or because many people sell their homes to pay debts, the securities immediately lose their price. Those who sell these problematic assets seem to feel they have escaped risk. In fact, they have spread risks into the system, such as contracting to investment banks like Goldman Sachs and Merril Lynch, and so on. This has a deadly effect on the system as a whole. The fact is that the credit system has financed U.S. economic growth throughout the 1980s. On the other hand, the deregulation of the financial sector is also a solution for global capitalism to restore its profit levels. This is a bad picture of the economy in general. The biggest threat insight is soaring household debt. By the 1990s, household debt had reached 95.6 percent of the total income. After millions of people lost their money and were depressed by new debt, banks now have debts that are at very bad risk. The subprime mortgage crisis is part of the debt picture of working people and the middle class. Pumping credit in finance is the ruling class's way of delaying the crisis, but it has actually deepened the degree of the overproduction crisis itself.

It's hard to curb the rich for their purchases. The solution that I can provide is the need for the application of a progressive tax on housing ownership as an effort to suppress excess ownership. Thus, homeownership for the purpose of speculation and accumulation of wealth can be slowed down. In addition, the proceeds from the implementation of progressive taxes can be used as cheap housing subsidies for low-income people. So that the balance can still be maintained both from the economic side and the fulfillment of human rights.

 

Reference Source:

https://www.ohchr.org/en/NewsEvents/Pages/DisplayNews.aspx?NewsID=21264&LangID=E