Across the globe, homes are increasingly priced like luxury goods. In the US, for example, inflation-adjusted home prices soared 118% between 1965 and 2021, while income only increased by 15%. Meanwhile, from 1985 to 2020, rent prices jumped 149% while income grew just 35%. The housing crisis should be understood, above all, as an affordability crisis.

I’ve spent much of my career examining the forces that have eroded affordability in the housing sector and can confirm that the increasingly commonplace treatment of homes as ‘investments’ is part of the problem. As prices have soared over our lifetimes, housing as an investment has generally produced good returns. Housing has become viewed as a relatively safe ‘asset class,’ where value is all but guaranteed to go up even over the course of a short period of time. This has fueled speculation, individuals taking on excess debt to enter the market, flipping homes, or buying up properties to put on the rental market.

While individual investors are not innocuous, deep-pocketed institutional investors have turbo-charged this pattern and paradigm. Particularly since the great financial crisis, private equity and other investors have been purchasing ‘undervalued’ properties on a massive scale, often out-bidding those who want to buy the homes as their primary residences, undertaking renovations of varying degrees and urgency and raising rents to pull as much value as possible from their units.

It’s a lucrative business for institutional investors and their shareholders. But its negative consequences ripple across society—from driving people from their homes and communities through renovations, evictions, rent hikes, and increasing property values to fueling speculative real estate bubbles and exacerbating inequality.

While homes may prove an effective tool for profit-making, it has grown to such unwieldy proportions that housing has been stripped of its central function: housing as home, fundamental to human dignity, to health and to life itself, and a human right, protected under international and domestic laws. This doesn’t mean everyone is entitled to a penthouse in Manhattan. But conditions in society must enable everyone to secure a decent home for themselves and their families.

The right to housing is not incompatible with capitalism. Markets have been successfully leveraged to increase living standards and secure affordable homes. While never perfect, especially in terms of discriminatory practices, older generations living in advanced capitalist countries generally had access to affordable housing — generally described as costing less than 30% of income — at a much higher rate than today.

As inequality and environmental harm are reaching breaking points, a growing number of businesses are looking to focus on more than just profit. The recent boom of environmental, social and governance (ESG) investing is clear recognition that more can and must be done.

The majority of ESG efforts have centered around environmental criteria, while the social repercussions of investments remain largely overlooked. The implications of business practices on tenants and even some homeowners have largely been ignored, despite the social fallout of the sector’s financialization. Likewise, there is the worry that green renovations, while important, will be another easy path to ‘renovictions’ or unfair rent hikes, this time under the guise of environmental concern. It’s not too late for housing investors to act ethically, and it is time for governments to help them do so.

To help governments, investors and companies in the housing sector solve the housing crisis, I recently launched The Shift Directives in the European Parliament. These directives, crafted with the help of multi-disciplinary experts from across the world, offer a new vision for 21st century housing that has human rights at the center. They offer practical recommendations for achieving a more fair and functional system.

The Shift Directives are centred on the premise that by incorporating a human rights framework and standards into housing and finance policies and investment practices, governments and institutional investors will add value to the housing sector, not only extract it. A human rights approach is not based in charity or good-will, it is based in obligations and compels governments and businesses to act in a manner that ensures the long-term security of tenants through affordable housing, while providing adequate returns on investment.

If governments lead, institutional investors will follow. As a starting point, governments must enact legislation recognizing and giving effect to the human right to adequate housing. This legislation should include provisions stipulating the obligation to realize the right to housing transcends the fiduciary duties owed to investor or shareholder clients. Taking a whole of government approach, governments must establish mechanisms to ensure any investment in housing contributes to affordable, secure housing and is meeting housing need, including for the most disadvantaged households and communities. Governments are also obliged to ensure investors in real estate comply with human rights, including by:

• Requiring institutional investors to recognize and implement their human rights responsibilities, for example through the creation of guidance documents on respect for human rights within the real estate sector;
• Requiring a human rights impact assessment prior to purchase or sale of property, or before upgrades and renovations are undertaken;
• Legislating reasonable and affordable percentage limits to increases in rent and property maintenance fees consistent with the right to adequate housing
• Ensuring a portion of rental units are allocated as affordable rental housing where affordability is defined as commensurate with household income and not based on what markets can command.

If government took this form of leadership, investors would be compelled to recognize their residential real estate portfolios fall in an area that is a human right and would be required to adjust their business practices in line with their human rights responsibilities.

For any of this to work, however, transparency and accountability will be essential. Just as companies share audited data on their environmental footprint, governments must ensure investors are required to provide general information about their real estate holdings, as well as hard data and metrics on the human rights impacts on tenants and their communities created by their business practices. This includes data on how many tenants they have evicted; whether those tenants were provided alternative housing and whether the eviction resulted in homelessness; and rent hike data.

States must also establish recourse mechanisms to ensure governments and institutional investors can be held accountable and are required to remedy and correct for any negative human rights outcomes attributable to the practices of institutional investors. This requires the establishment of public participatory discussions or hearings regarding the impact of the financialization of housing and its impact on various elements of the right to housing such as affordability, security of tenure, habitability and tenant participation in decision making. These discussions should be used to inform domestic legislation, policies and housing strategies. Moreover, business and finance self-governing bodies must establish independent monitoring and complaint mechanisms with expertise in the right to housing to ensure any business conducted within the area of residential real estate, including social impact investing or ESG related investment, complies with international and regional human rights standards and obligations and where it does not, that tenants may seek remedies.

For both governments and institutional investors, embracing human rights may be a shift from current approaches to investment in residential real estate, but the pay-off is significant: happier, more secure tenants (clients), who are better able to contribute to their communities, and more equitable, peaceful societies.

Leilani Farha, Global Director, The Shift; Former UN Special Rapporteur on the Right to Housing