The financialization of housing takes the idea of housing as a commodity to a new degree and has created new forms of housing relations.
Hey Passage readers,
It’s Doug here again, with part three of my course on the housing crisis.
In the first lesson, I discussed how the root of the housing crisis stems from the fact that despite Canada agreeing housing is a fundamental human right, it’s treated as a commodity.
In the second lesson, I explained how governments at all levels have worsened the crisis since the mid-’90s by pursuing housing strategies characterized by austerity and pro-market reform. These strategies effectively deepened the treatment of housing as a commodity as opposed to a right, with disastrous consequences for homeowners, renters, social housing residents, and the homeless.
In today’s lesson I want to look at the financialization of housing, which is a relatively recent development, but one that takes the idea of housing as a commodity to a new degree. Overall, financialization harkens a new era of housing relations, which is bad news for working class people.
What is Financialization?
As it relates to housing, financialization refers to the increasing dominance of financial actors and markets, who regard housing as a tradable stock or asset as opposed to a place for people to live. After the Great Financial Crisis (GFC) of 2007/2008, states were less willing to increase taxes and invest in public solutions to the significant societal housing problems. As a result — and also because beneficiaries of financialized housing are well organized, and have the ability to lobby governments to implement policies that support their aims — financialization intensified, leading toward more rampant speculative investment in housing.
I can guarantee you’re familiar with at least one of the types of actors behind the financialization of housing. I’m going to go over a few of them now, and explain how they’ve made the housing crisis worse.
One of the groups benefiting the most from the financialization of housing are financialized landlords. This may sound a little confusing at first, as any sort of landlord treats housing as a commodity, letting you live somewhere in return for payment. Yet while the structural relationship between landlord and tenant remains the same, there’s a difference: Compared to a traditional landlord, financialized landlords use more cold-hearted rationales centred around returns on investment.
Financialized landlords have a legal obligation to return dividends to investors. As such, this could mean that less maintenance work gets done, more corners are cut in terms of property management or that more aggressive eviction strategies are pursued in hopes of replacing tenants with higher-income ones. Of course, smaller landlords pursue these strategies too, but the intensification of financialization brings the practices to a new level.
There are all sorts of financialized landlords, but some common types are real estate investment trusts (REITs), private equity firms and institutional investors. In Canada, some major examples of financialized landlords are CAPREIT, Boardwalk and Hazelview (formerly known as Timbercreek).
As Martine August, assistant professor at Waterloo’s School of Planning, demonstrated in an August 2020 paper, prior to the GFC, REITs in Canada owned approximately 80,000 multi-family residential suites. As of last year, August notes in a Policy Options article, that number had grown to around 200,000, with the top 25 financial landlords in general holding about 300,000 units, including CAPREIT (52,000), Boardwalk (33,000) and Hazelview (22,000). August’s research has also shown that there’s an apparent correlation between weak rent controls and the prevalence of REITs.
But individuals are increasingly becoming financialized landlords as well, seeing so-called investment properties as a way to accumulate more wealth. Statistics Canada data shows that approximately 15 per cent of property owners in British Columbia and Ontario, for example, own multiple properties, and many of them would be treated as investments. Some banks facilitate this process by offering special investment property mortgages to prospective buyers.
Financialized landlords have made the housing crisis worse in at least a couple significant ways.
First, in order to be successful, they often use tactics of displacement, demolition and rezoning to extract the most profit. This has impacted tenants by making evictions more traumatic than they already are, oftentimes involving the destruction of close-knit communities. A clear example of this can be found in Ottawa’s Herongate community, where a townhouse development predominately made up of racialized tenants was demolished to be replaced by one aimed at wealthier, whiter occupants. This is a process they refer to as “unit turns.”
Moreover, the financialization of housing has gone hand in hand with higher rental prices, as these entities use a variety of tactics and strategies to return profit to shareholders. August writes that, “According to urban planner Steve Pomeroy, for every one affordable unit created by government funding, approximately 15 become unaffordable due to the financialization of rental housing.” As an example, August notes that, “During the COVID-19 pandemic in 2020 […] CAPREIT ‘turned’ nearly one-fifth of its suites (approximately 8,500 suites) and increased rents by an average of eight per cent (or $107 per month).”
To make matters worse, financial landlords, who are more capable than average people of purchasing housing, are now starting to acquire single-family dwellings and convert them into rentals.
The Rise of Airbnb
The rise of Airbnb, an online marketplace and publicly traded stock that primarily caters to short term rentals, is tied to the growth of housing as an asset and the increasing number of people turning toward investment properties as an avenue to accumulate wealth.
Airbnb — built on previous ventures like CouchSurfing, where people would let others crash on their couch for a short period of time — started out to allow people to rent unused bedrooms. Yet it was quickly developed into a vacation rental application, catering to people who purchase homes as investments to be used for short-term rentals, with a market valuation of around $100 billion as of earlier this year.
In a 2019 study, scholars at McGill University found that Airbnb effectively eliminated 31,000 rental units in Canada the year before, and that almost half of all Airbnb units are owned by commercial operators. In fact, the top 10 per cent of hosts on the platform earned the majority of revenue. In Montreal, 30 per cent of revenue is made by just 1 per cent of Airbnb hosts.
The travel restrictions imposed by the pandemic have prompted some landlords to shy away from the short-term market, but prior to this point cities such as Toronto were attempting to regulate the platform through registration and relatively small municipal tax fees.
Comprising less than 1 per cent of rental units in cities such as Toronto, Airbnb isn’t the sole cause of the housing crisis, and yet governments were and are still right to target them. This is because by catering to tourists, Airbnb makes housing less affordable for long term residents. Landlords are able to earn in a week or two what would take a month from a long-term resident, making it more lucrative and in turn removing rental units from the market, thereby leading to increases in rental prices.
Beyond just making rent more expensive, and eliminating rental units, Airbnb also hollows out a genuine sense of community solidarity. Owners target communities in popular areas, like Toronto’s waterfront or the port in Montreal, which has a reverberating effect as formerly long-term tenants are forced to find housing elsewhere.
Another example of their destructive impact on communities can be found in pandemic parties in Airbnbs across Canada and the United States, where units were used to host large gatherings in violation of COVID-19 restrictions. People who rent Airbnb’s generally aren’t concerned or acquainted with the neighbours surrounding them, and this alienation lends itself to these types of situations. Airbnb eventually instituted a ban on these parties in August 2020, but given its decentralized nature, and owing to the fact that profit-hungry operators own these places, it is difficult for the platform to enforce these actions.
Another trend behind the financialization of housing is the rise of speculative investors who “flip” houses. As opposed to people who are looking to purchase a family home to live in, speculators, both amateurs and powerful institutions, often sit on an asset, with the expectation that they can turn a profit within a short period of time due to either renovations or hot markets artificially increasing the price of housing. Sometimes speculative investments are empty homes, and other times, depending on the buyer, they are lived in for a short period of time.
In June, the CBC reported the average Canadian home price rose 38 per cent over the past year. This rapid inflation of housing prices, which forces families to take on more debt, is partly due to speculation, with some people purchasing housing as an asset without the intent of living there. This has primarily benefited the wealthy: Across Canada, in terms of net worth, the top 20 per cent of people who own properties that aren’t primary residences hold 81 per cent of the real estate market.
That unequal distribution has an exacerbating effect on home prices, as people with access to wealth are more willing and able to invest in housing, even if costs are increasing. With skyrocketing housing costs, people earning more average incomes, and without wealth, are shut out of homeownership or incentivized to move to less expensive places they otherwise might not live.
A lot has been made of the role foreign buyers play in the rise of speculative investments in cities such as Vancouver and Toronto. In 2016, the Liberal government in British Columbia instituted a foreign buyers tax, which was increased under the following NDP government. The City of Vancouver also instituted their own levy, but in total these measures have had relatively little impact, and have done nothing to address pre-existing problems of affordability.
With years of foreign buyers’ taxation doing little to resolve Canada’s housing affordability crisis, perhaps we’re nearing a time Canadians will understand that commodification of housing is at the root of this structural problem. The primacy of private market regulations and austerity policies favoured by our officials at every level of government, not any particular group, is what needs to be demonized.
The dominance of private property relations in Canada’s housing market means we have a monopoly situation, wherein powerful private interests come to override those of the public. (As a small aside, the original name of the board game Monopoly was Landlord’s Game, which its creator said was intended to show “a practical demonstration of land-grabbing with all its usual outcomes and consequences.”)
In our next and final lesson, we’ll explore what a people’s alternative to the private interest-dominated housing landscape might look like, and how we can get there.
Thanks for reading!