Restraint on the free market housing
At the 2017 UN Human Rights Council, Leilani Farha issued a statement on the financialization of housing and its implications for the right to adequate housing. Farha argued that in most countries, housing has become a commodity, compromising its historical function as a shared social experience. Moreover, she speculated that such commoditization has worsened the global housing crisis, exacerbating inequality and promoting social exclusion.
I couldn’t agree more with the report and as a real estate agent, I want to extrapolate the dimensions of this to Chile, where I live.
In the 2020 Index of Economic Freedom from The Heritage Foundation, Chile scored 76.8 out of 100, surpassing United States (76.6), which makes the country “mostly free”. For me, the liberty to pursue economic interests is the key to promote greater prosperity with the right amount of government interference in order to become a developed country and reduce poverty, but neither countries and markets can bypass human rights. By nature, humans pursue self-interest, so prosperity also needs regulations in basic matters, like housing.
In Chile, housing politics are market-oriented and there is no regulation on rent and sale prices, making it more difficult and almost impossible for many people to rent or own a house or apartment displacing them to neighborhoods two hours away from their jobs or making them living sharing with others. Even though it is very important to have the freedom and invest in any way people want, we can’t forget housing is a human right and countries who signed and ratified UN treaties must comply the best way possible, so housing, by all means, is an investment but shouldn’t be a commodity.
The country has a variety of subsidized loans for housing in order to aid with the economic assistance for purchasing, and even though there are some restrictions for the owner to sell or rent for a certain period, there is no monitoring for informal renting that can lead to speculation. Moreover, this kind of properties are usually located outside big cities, so exclusionary displacement is the only housing choices for some people to buy or rent.
Another clear example of market-oriented housing in Chile are cities like Viña del Mar or Puerto Varas, both have had many real estate developments but the prices are not considering local salaries, instead, are set for high salaries of individuals that mostly live in Santiago (the expensive city in Chile but the one with best salaries) and want the property for holidays. This has increased local prices in rent dramatically, displacing many people.
We have to remember that Chile has the UF unit (unidad de fomento) which adjusts prices every day to inflation. Even though is not a currency, properties are sold in UF (the final price of selling is calculated by multiplying the daily UF to the Chilean peso amount) so they never lose value through time so this can be seen as an insurance on the asset value and, for decades, prices on properties usually increased according to UF but since 2010 Chile had an explosive amount of real estate developments and over years properties and especially renting have increased prices in an uncontrolled way.
Joaquín Lavín, the mayor of Las Condes, one of the wealthiest boroughs in Santiago proposed affordable housing (one under construction now) for people in need that have lived in the borough for a minimum of 15 years and have worked in the borough for a minimum of 5 years, among others requirements like savings and lack of criminal record. This is a great initiative that can perfectly coexist with market-oriented real estate. However, many neighbors protested against the construction of this new project claiming that properties around would drop their value and crime rate would increase with these new owners and tenants even though they were aware of the requirements and knowing that is for people that have lived many years in the neighborhood in overcrowded houses with poor quality of life, so this is a clear example of discrimination and there is an important percentage of the population that prefer displacement, depriving the poor of communities that in this case, they always have belonged to. Prices didn’t fall as people thought and in fact, there are many new real estate projects with luxury amenities near this polemic social building.
Singapore is the country with the highest score on 2020 Index of Economic Freedom, meaning low government interference but in fact, almost 80% of citizens live in housing developed and governed by the state. This in order to provide affordable housing with strict regulations for people who purchase apartments and want to rent it in the future. Also, the government owns properties in order to provide affordable renting and they even have a racial quota for developments in order to have full ethnic integration.
In Chile housing is clearly dehumanized and market regulations, like in Singapore, are extremely important and necessary for housing in order to stop speculation on a basic human right. This could be contained with new politics like Las Condes borough or if the government would own for example, properties exclusively for rent-controlled apartments. Allowing to set a fair price for most properties but leaving the door open for a percentage of investors that may offer other amenities in order to sell or rent with a speculative or irrational high price, allowing free housing market but in a controlled way.
This article was one of my assignments for the course “Financial Markets” from Yale University dictated by Professor Robert Shiller, available in Coursera.
