2023.04 The Taiwan Banker NO.160 / By David Stinson
Housing financialization must be paired with tenant protections and social securityBanker's Digest
Housing plays a multifaceted role in the economy and financial system. On the one hand, it is the means of production for residential services, an asset like any other. On the other, it is an important instrument for monetary policy transmission, and on the third hand, it is an essential element of retirement finance underpinning social security. The stakeholders are not just homeowners themselves, but also include their communities, as well as even internal migrants who aspire to be part of the community. A recent trend in the US towards corporate residential renting has attracted increasing scrutiny, with complex implications. Starting around 2021, reports started to emerge of institutional buyers snapping up whole blocks of houses, paying above asking price due to a lower cost of capital than individual mortgage borrowers. Current housing inflation has been blamed in part on these new buyers. These players range widely in size and use a variety of legal structures, most importantly private equity and real estate investment trusts (REITs). Their importance in residential markets has grown sharply, although unevenly across markets, particularly concentrated in the South, which tends to have more lenient tenancy laws. In the most affected states, 30% of homes or more were sold to investors in 2021. The situation raises a number of issues for Taiwan as it seeks to deepen its market for financial investment in real estate. The US permits a great variety of financial instruments and fee structures, each with their own implications. Regarding REITs, for instance, manager pay can be fixed to either profits or assets under management (AUM), which creates different incentives. Besides these investor-side issues, however, in the longer term, Taiwan must also study the American experience to understand why such investments are so unpopular on a political level. Artificial constraints The “financialization” of real estate has drawn attention from thinkers ever since Marx (who called it “commodification”). A 2017 report of the Human Rights Council of the UN on the “financialization of housing” noted “the expanding role and unprecedented dominance of financial markets and corporations in the housing sector.” ‘Housing and real estate markets have been transformed by corporate finance, including banks, insurance and pension funds, hedge funds, private equity firms and other kinds of financial intermediaries with massive amounts of capital and excess liquidity. The global financial system has grown exponentially and now far outstrips the so-called real “productive” economy in terms of sheer volumes of wealth, with housing accounting for much of that growth.’ The report also quoted statistics showing that housing makes up residential real estate makes up 45% of global assets, while other real estate makes up another 15%. On a basic Economics 101 level, financialization is a positive phenomenon: a lower cost of capital ultimately benefits the consumers of housing, i.e. residents. Housing is however such a unique market that other aspects of society will also need to rearranged to accommodate such changes. In the end, these readjustments themselves could become important forces for social renewal, but they must be managed correctly. The report continued: ‘Financialized housing…precipitates what has been referred to as “residential alienation,” the loss of the critical relationship to housing as a dwelling and the diverse set of social relationships that give it meaning. In financialized housing markets, those making decisions about housing – its use, its cost, where it will be built or whether it will be demolished – do so from remote board rooms with no engagement with or accountability to the communities in which their “assets” are located.’ Regarding price, in a functioning market, an influx of capital should generally be matched by new construction. One fear in this regard involves the effectiveness of anti-trust regulation. The US has started to enforce anti-trust regulations with more vigor in real estate, as in other sectors. Regulators are starting to target PropTech apps, although these platforms exchange information rather than take direct ownership of assets. The bigger issue, however, and an important overall cause of the US housing crisis, is that community involvement is frequently an exclusionary factor in its own right. Municipalities have managed to sharply curtail new construction through zoning regulations, a sort of anti-competitive behavior by local governments. Politicians at higher levels of government are slowly starting to take notice of this problem, but in the meantime, price signals remain the best way to deal with scarcity, even when that scarcity is artificial in nature. If nothing else, they serve to highlight the problem. Alienation and information asymmetry That said, the core issue of “alienation,” which is another Marxist term, cannot be so easily dismissed. After signing a rental contract, a tenant will typically know their rent for the next year. On a variety of other, more structural factors, however, they take more of a gamble. This information asymmetry has the potential to create a “market for lemons” race to the bottom. (This refers to the title of a seminal paper by George Akerlof, where lemons refer to defective used cars.) In the US, corporate owners have been found to be more prone to aggressive evictions, and less likely to make basic repairs and maintenance. Furthermore, the court system can be easily abused with such an asymmetry of power if procedures are not streamlined. There are certain benefits to landlords who come from within the same community.[PL1] Beyond the qualitative aspects of the landlord-tenant relationship, meanwhile, the monetary cycle also can affect the quantity of such relationships. The rent-or-buy decision is related to the rent-to-price ratio, and sales prices tend to respond much more to monetary policy than rents. When capital is relatively scarce, it makes more sense to rent. When rates are good, residents are more likely to buy the same types of units they could already afford to rent, thereby shrinking the rental market. This wisdom is captured by the phrase “you are born short one house.” With monetary easing, one’s portfolio becomes more liquid, generally prompting reallocation into a neutral position. In fact, liquidity has economic value of its own, separate from the value of the underlying asset. Thus, the new construction created by more deployable capital may not completely offset the price inflation effect. That price increase however reflects real value for residents: being able to more smoothly switch between the rental and ownership markets. This value is however unlocked only if society can accept such broad-based shifts in housing models over the business cycle. Political leverage None of this yet however explains why corporate homeownership has become such a lightning rod for criticism in the US. The larger issue is the role of housing in personal wealth accumulation, as a policy-advantaged form of forced savings. “Home-price appreciation has historically been how Americans achieve financial prosperity,” Ryan Dezember wrote in the book Underwater: How Our American Dream of Homeownership Became a Nightmare. “Unlike stocks and bonds, ownership of which is concentrated at the top, houses are widely held. Roughly half of housing wealth is owned by America’s middle class.” It is also worth adding that home equity is one of the primary means by which racial wealth disparities have been passed down through the generations. Housing is far from a normal market. Even the US, famously averse to interference in the private sector, operates a couple of state-owned enterprises for housing. With so much of the economy structurally oriented towards personal homeownership, certain policies may need to be adjusted for corporate ownership. Last October, three House Democrats proposed the Stop Wall Street Landlords Act, which would stop repurchases of mortgages for corporate-owned houses by Freddie Mae and Fannie Mac, among other measures. In truth, from the perspective of a young or economically disadvantaged renter, “commodification” is not the worst possible state, and may even offer certain advantages. Economies of scale exist for certain property services. In the US, corporate landlords may be better suited for the sorts of denser condos and apartments that are now required for urban infill housing. One of the main fears about ‘hot money’ in real estate has been a tendency to hold vacant houses for years on end waiting for sales prices to rise. In fact, this criticism applies more to wealthy individuals who simply need an outlet for savings than for corporations, which tend to prefer a steady cash flow from letting and are less concerned about administrative expenses. It is also possible to address the issue more directly through a tax on vacant properties. In the longer term, it would be better to move social savings into sectors with closer links to real production, as opposed to land value appreciation. This process will be complex, and will probably also need to involve an element of coercion comparable to mortgage payments. Health savings accounts could be one possibility, which could help reduce insurance costs. Whatever the form, some degree of government guarantee may also be required. Sometimes the most important role of markets is to compel difficult political conversations. This process is likely to take place relatively early in the US for housing investment, with its depth of markets and diversity of financial models. [PL1]這句話有點看不太懂，請問是指對房客來說，跟自己住在同一個社區的房東比較有利嗎?