How is housing financialization being addressed under the right to housing?
Greater attention is now being paid to the growing housing affordability crisis in Canada, while Canada’s housing market has never been more profitable. Who is being held accountable?
Elizabeth Fraser is a graduate student at the Max Bell School of Public Policy and serves as Vice President Operations on the Public Policy Association of Graduate Students. Her policy interests include housing, poverty reduction, and addressing systemic discrimination and inequities through public policy. Her views are her own.
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THIS PAST TUESDAY, the Liberal Party of Canada and the New Democratic Party of Canada reached an agreement to keep Liberal Party in power until 2025. The agreement covered several priority areas, but one striking inclusion was the promise to tackle the financialization of the housing market by the end of 2023. The Government of Canada does not currently have any policies or strategies to address the financialization of housing, a relatively recent phenomenon where housing is treated as a commodity associated with wealth and investment instead of as a social good. There is a significant lack of clarity as to how this pervasive issue will be systematically addressed in just a little over 21 months. The preamble of the National Housing Strategy Act (NHSA) states that a national housing strategy supports the progressive realization of the right to adequate housing within the International Covenant on Economic, Social, and Cultural Rights (ICESCR). Despite the significant impact that financialization has on this right to housing, the Canadian government has not taken proportional action to address this problem since the Act was passed in 2019.
While the Liberal-NDP agreement is a step in the right direction, it comes three years after the NHSA was passed and five years after the human rights-based National Housing Strategy (NHS) was announced. The housing market has seen tremendous growth over the past five years, with the prices of homes and rents steadily increasing, leaving more Canadians in precarious situations, especially those whom the right to housing is meant to protect. As the newly announced Federal Housing Advocate assumes their responsibilities under the NHSA, this issue may be investigated further. Given the progress to date, the Canadian federal government may be found to have fallen short of its progressive realization obligations, especially if the new agreement does not lead to appropriate and impactful outcomes.
The obligation of progressive realization is a key aspect of economic, social, and cultural (ESC) rights. Article 2(1) of the ICESCR states that each State must “…take steps, individually and through international assistance and cooperation…to the maximum of its available resources, with a view to achieving progressively the full realization of the rights…by all appropriate means…”. The concept of progressive realization acknowledges that most ESC rights take dedicated time and resources to be fully realized; however, the emphasis on ‘maximum available resources’ ensures that a lack of resources is not a justifiable reason for limited intervention. Monitoring this obligation can also indicate whether the progressive realization of the right to housing is a priority for the government, whether appropriate steps are being taken to realize the right and if all maximum available resources are actually being used.
Consideration of a government’s expenditure, government revenue, development assistance, debt and deficit financing, and monetary policy and financial regulation are all central to maximizing resource availability that can be used towards the progressive realization of human rights. To ensure that the Canadian government is taking appropriate steps, the NHSA created an accountability mechanism through the Federal Housing Advocate, an independent entity housed within the Canadian Human Rights Commission, which is tasked with the protection of the progressive realization of the right to housing. They can identify and report to Parliament on systemic housing issues in Canada, which could include the financialization of housing and the adequacy of the government’s action.
Financialization is not exclusive to housing; it is a process whereby financial entities have a greater influence on economic policies and outcomes within a market, leading to greater private profits. This process is associated with the concept of marketization, where goods or services previously perceived as public or social goods and services are ‘up for sale’, changing the meaning of the good or service and creating or exacerbating inequities. The financialization of housing has reinforced the perception of housing as a commodity and a means of generating or storing wealth, rather than as a social good and a human right.
The early 1990s recession and shift to more neoliberal politics under the Chretien government led to deep cuts to social spending in Canada, including housing expenditure. The Canadian Mortgage and Housing Corporation (CMHC) built fewer homes and primarily became a mortgage insurer, still a significant part of their mandate today. This new federal policy made it easier for Canadians to purchase homes that were supplied by the private market; this policy was effective, as 63% of Canadian families owned their homes in 2016. However, the assumption that the private market would adequately provide affordable housing was never realized, as the return on investments driving the activities of financial entities is much lower for this type of housing. This has created the market failure we see today, with approximately 8.3 million Canadian households living in unaffordable housing, spending 30% or more of their income on housing costs.
Financialization inherently undermines the right to housing; without adequately addressing this, any government action will fall short of its objectives. The National Housing Strategy Solutions Lab has recently sponsored a financialization research lab, but no interventions or regulations have specifically focused on this area. The National Housing Strategy (NHS) offers several funding streams for affordable housing; unfortunately, the Parliamentary Budget Office’s independent review of spending on housing affordability in 2021 found that funding is far below what was announced with little impact on affordability so far.
Although 90% of affordable housing is managed by the government, non-profits, and co-operatives, most NHS programs are available to the private sector, forcing affordable providers, who are often under-resourced, to compete against the deep pockets and significant resources of the private sector, often without success. If incorporated or part of a real estate investment trust (REIT), these same private investors or developers may also receive favourable tax rates, increasing their profits and return on investment despite their contribution to the affordability crisis.
Inadequate spending, providing funding through NHS programs to the private sector, and continuing favourable tax rates for private entities over affordable housing providers all raise concerns about Canada’s right-based NHS, progressive realization of the right to housing, and who is being held accountable. Unlike other countries around the world experiencing similar housing crises, Canada has the resources to tackle this issue; they are simply not being used appropriately. Every time funding goes to private developers or REITs pay low taxes on their rental income, both expenditure and revenue generation are being diverted away from realizing the right to housing and back into the pockets of financial entities who have largely contributed to this crisis.
Although the Advocate has yet to announce their first initiative, their mandate to address systemic issues puts financialization at the top of the list of areas to be investigated. The federal government is ultimately accountable for these and other systemic housing issues under its obligation of progressive realization through the maximum use of its available resources. It would do the Canadian government well to take financialization and their human rights obligation seriously so that we can move one big step closer to ensuring that every Canadian has a place to call home.
The Bell is edited by Jaclyn Victor, Jason Kreutz, Shweta Menon and Phaedra de Saint-Rome of the Max Bell School of Public Policy at McGill University.