Financialization and Homelessness

The Connection Between Housing Financialization and Homelessness

The financialization of housing and rising homelessness rates are deeply interconnected phenomena in modern housing markets. This research report examines the causal relationships between these issues, demonstrating how the growing influence of financial entities in housing markets contributes to displacement, housing insecurity, and ultimately homelessness for vulnerable populations. Evidence shows that when housing becomes primarily an investment vehicle rather than a social good, the resulting market dynamics can push people into precarious living situations and homelessness, with significant economic and social consequences.

Understanding the Financialization of Housing

Financialization of housing refers to the increasing dominance of financial firms and investment vehicles in housing markets, where properties are treated primarily as assets for wealth accumulation rather than as homes. This phenomenon has transformed housing from a social good into a commodity and investment vehicle.

Definition and Key Players

The financialization of housing describes "the growing role of financial firms such as private equity, pension funds, and real estate investment trusts (REITs) in the housing market. These firms acquire, operate, and develop housing as an investment strategy, with an aim to maximize returns for shareholders"1. At its core, financialization represents a fundamental shift in how housing functions in the economy, with housing increasingly disconnected from its social purpose of providing shelter.

As defined by former UN Special Rapporteur on the right to adequate housing, Leilani Farha, financialization occurs "when single and multi-family homes are treated like an extractive industry like mining. Where housing is used to extract wealth, mostly by those who already have an abundance of it"12. This process transforms housing into a financial product that prioritizes investor returns over human needs.

Scale and Growth of Financialization

The scale of housing financialization is substantial and growing rapidly. Residential real estate accounts for nearly 45% of the total value of all global assets, and between mid-2013 and 2014 alone, corporate real estate investment in the top 100 recipient cities rose from $600 billion to $1 trillion13. In Canada, research estimates that about one-third of all seniors' housing has been financialized, along with 20-30 percent of purpose-built rental buildings6.

Pathways from Financialization to Housing Insecurity

Financialization creates several direct pathways that can lead to housing insecurity and homelessness through various profit-maximizing strategies employed by financial entities.

Affordability Crisis

The most direct connection between financialization and homelessness is through diminished affordability. Financial firms that acquire housing typically implement business models designed to maximize returns, which frequently involves substantial rent increases. This leads to a fundamental conflict between investor interests and tenant welfare.

As noted in research by the Office of the Federal Housing Advocate, "Financial firms operate rental housing with a goal to increase rent levels, making it their business model to reduce affordability"16. This systematic approach to reducing affordability creates housing stress for renters, who are "often paying more than 30 per cent of their income on housing costs"2.

The concrete impact of this financialization can be seen in rental costs. For instance, "a one-bedroom apartment that used to rent for $888 in 2005 now rents for $1,537 in 2022"18 due in significant part to these dynamics.

Strategic Evictions and Displacement

Financialized housing companies often employ eviction as a strategic tool to increase profits. Research shows that "financial operators use eviction as a revenue-generating tool, and that they evict tenants at higher rates than other types of owners"16.

During the COVID-19 pandemic, despite eviction moratoriums, large corporate landlords filed massive numbers of evictions. In just a six-week period following the announcement of the CDC eviction moratorium, at least 11,500 eviction actions were filed by large corporate landlords5. These evictions disproportionately affect vulnerable populations and can directly lead to homelessness.

Studies have specifically identified "eviction as a core strategy of 'financialized' landlords for increasing the profitability of their rental properties"10. This approach, often referred to as "repositioning" buildings to "add value," commonly involves displacing existing tenants to enable higher rents after renovations16.

Deteriorating Conditions and Harassment

Beyond direct affordability impacts, financialized ownership often leads to deteriorating living conditions. According to research, "In some properties owned by financial entities, firms neglect repairs and upkeep. In others, tenants may feel pressured to leave by firms that use legal and extralegal strategies to push out long-standing residents paying lower rents"16.

When tenants face these pressure tactics and can no longer afford rising rents or tolerate declining conditions, they may be forced to leave their homes. If affordable alternatives aren't available, this displacement can lead directly to homelessness or precarious housing situations.

Vulnerable Populations Most Affected

The connection between financialization and homelessness disproportionately impacts already vulnerable groups within society.

Demographic Disparities

Research confirms that housing financialization "is having the greatest impact on disadvantaged groups, such as vulnerable seniors, low-income tenants, people with disabilities, members of Black communities, recent immigrants and refugees, and lone-parent families"6. These groups often have fewer housing alternatives and financial resources to withstand displacement.

The racialized impact of financialization is particularly notable. Studies show that during the 2007-2012 financial crisis, the foreclosure crisis "disproportionately harmed low-income and racialized homeowners in the US"16. Similar patterns of disproportionate impact continue today in rental markets.

Community-Level Impacts

Entire communities can be affected when financialization leads to displacement. One example is the Herongate neighborhood in Ottawa, where "after Timbercreek's acquisition of the site, the subsequent redevelopment converted existing townhomes into much smaller and more expensive units. The largely racialized, low and moderate income community faced mass evictions and demovictions for a total of 230 homes"11.

This tenant's account illustrates the profound human impact: "I have a lot of pain because of what happened. I was depressed, my kids were depressed - they had to change schools, they're being bullied … It was completely disruptive. I came to Canada because I wanted a better life, but things have been so tough"6.

Economic and Social Consequences

The connection between financialization and homelessness creates significant economic and social costs for both individuals and society as a whole.

Costs to Individuals

When housing financialization leads to homelessness, individuals experience severe consequences. Research has shown that "eviction has also been shown to drive substance use, homelessness, and recidivism"10. Once homeless, individuals face a range of challenges that make recovery difficult, as "their incomes remained low for the decade surrounding an observed period of homelessness, suggesting that homelessness tends to" persist15.

Costs to Society

From a societal perspective, "Homelessness is costly to society because people experiencing homelessness frequently require the most expensive publicly-funded services and institutions"19. These costs include emergency healthcare, policing, shelter services, and other public interventions.

Research has found that "Areas with higher eviction rates are associated with higher levels of violence and crime rates, food deserts, and higher levels of stress, depression, and other health risk factors"10. These community-level impacts create additional costs beyond the direct expense of homeless services.

In 2017 alone, the U.S. Department of Housing and Urban Development awarded approximately $1.96 billion through its Continuum of Care program for homeless services19, representing just a fraction of the total societal cost of homelessness.

Addressing the Connection Between Financialization and Homelessness

Several approaches have been proposed to address the harmful connections between housing financialization and homelessness.

Regulatory Approaches

Experts recommend stronger regulations to limit housing financialization, including "stronger rental and tenant protections; better education and information around existing tenant rights and legal processes; increases in non-market and social housing; limits to private ownership; and improved rent control measures"10.

Canadian researchers specifically suggest "a revitalized and trusted tenancy board system that oversees and ensures the propriety of evictions as a rule rather than an exception, and a model of proactive authorization" for evictions10. This would help prevent the displacement that often leads to homelessness.

Public Housing Investment

A key recommendation from researchers is that "federal and provincial governments in Canada should substantially increase the funding and production of public and non-market housing, to reduce evictions and improve tenants' quality of life"10. Similar recommendations apply to the United States and other countries facing housing financialization.

These investments would "ideally be positioned as part of a broader federal and provincial housing policy reorientation to de-emphasize financialization and housing as a speculative investment"10.

Four-Pronged Approach

Researchers at the University of Waterloo have proposed a four-pronged approach to tackle housing financialization, which includes:

1. An open data property registry

2. Expanded public housing

3. Comprehensive rent control

4. Taxing REITs and other financial vehicles2

This multifaceted approach recognizes that addressing the connection between financialization and homelessness requires coordinated interventions across multiple policy areas.

Conclusion

The evidence clearly demonstrates a significant connection between the financialization of housing and homelessness. When housing becomes primarily a vehicle for financial gain rather than a social good, the resulting market dynamics - including strategic evictions, reduced affordability, and deteriorating conditions - create pathways to housing insecurity and homelessness, particularly for vulnerable populations.

Addressing this connection requires policy interventions that rebalance the housing system toward its social function of providing shelter, rather than its role as an investment asset. This includes stronger tenant protections, expanded public housing, and regulatory measures to limit the negative impacts of housing financialization. Without such interventions, the growing financialization of housing markets will likely continue to contribute to rising homelessness rates and their associated human and economic costs.

Citations:

1. https://homelesshub.ca/book/office-of-the-federal-housing-advocate/the-financialization-of-housing-in-canada/
2. https://uwaterloo.ca/news/global-futures/solving-crisis-financialization-housing
3. https://www.chrc-ccdp.gc.ca/individuals/right-housing/financialization-housing/financialization-affects-housing-security
4. https://www.homelesshub.ca/sites/default/files/attachments/Gabarre-Financialization-International-Landscape-ofha-en.pdf
5. https://nlihc.org/sites/default/files/COVID-19_National_Call_102620_PESP.pdf?ct=t%28DHRC-Coronavirus-10.26.2020_correction%29
6. https://www.housingchrc.ca/en/corporate-investment-in-housing-linked-to-unaffordable-rents-evictions-and-long-term-care-deaths-study
7. https://www.ohchr.org/en/special-procedures/sr-housing/financialization-housing
8. https://www.youtube.com/watch?v=K56ndz1i-Io
9. https://www.asanet.org/financialization-increases-housing-precarity-new-study/
10. https://assets.cmhc-schl.gc.ca/sf/project/archive/research_6/the-lived-experience-of-evictions-in-canada-wachsmuth-et-al-2023.pdf
11. https://www.acto.ca/production/wp-content/uploads/2023/06/Financialization-of-Housing-ACTO.pdf
12. https://housingrights.ca/financialization-statements/
13. https://theowp.org/reports/the-financialization-of-housing-in-the-united-states-how-companies-impact-the-right-to-adequate-housing/
14. https://www.policyalternatives.ca/news-research/financialization-of-housing-must-be-confronted-d1/
15. https://www.nber.org/papers/w32323
16. https://publications.gc.ca/collections/collection_2023/ccdp-chrc/HR34-7-2022-eng.pdf
17. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5092765
18. https://housingrightscanada.com/a-primer-on-financialization-of-housing-in-canada/
19. https://www.americansecurityproject.org/impact-homelessness-economic-competitiveness/
20. https://sicanada.org/program/financialization-and-housing/
21. https://homelesshub.ca/collection/homelessness-101/what-are-the-causes-of-homelessness/
22. https://www.propublica.org/article/when-private-equity-becomes-your-landlord
23. https://www.ourcommons.ca/Content/Committee/441/HUMA/Reports/RP12613862/humarp12/humarp12-e.pdf
24. https://www.kelownarealestate.com/blog-posts/are-financialized-landlords-are-driving-rent-increases-across-canada

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