Hi there. I am honoured to be here with all of you as a researcher specializing in housing financialization.
The Universal Declaration of Human Rights includes the right to housing and the right to health as part of the right to an adequate standard of living. Thus, states are accountable for ensuring both rights. Most signatory countries, including Canada, developed national public health systems and vast social housing programs after the declaration. While public health systems are still working and the administration guarantees the right to health, most states have dismantled social housing programs, and the right to housing is not in force anymore. Why?
My hypothesis is that housing became a financial product worldwide in the late seventies. In my paper, I explain how this phenomenon began with the end of the Bretton Woods system. Since then, financial products, such as mortgage-backed securities, have allowed financial investors to develop a huge market in housing and mortgages. These institutions have put pressure on governments worldwide to dismantle the social housing programs with the aim of taking advantage of a new market.
The global financial crisis challenged the housing system based on general access to home property through mortgage indebtedness. The Bank for International Settlements—the bank for central banks—acts as regulator of the commercial banking system worldwide. This institution, based in Basel, Switzerland, identified the massive granting of mortgages without guarantees, defined as subprime mortgages, as the cause of the global financial crisis.
Thus, the Bank for International Settlements established a new legal framework for mortgages, the third Basel accord, known as Basel III. All members of the Bank for International Settlements must implement their regulations, which they did in 2013. The most important norm of Basel III was the restriction on the granting of mortgages without a consistent guarantee. Thus, Basel III indirectly forced banks to grant only mortgages with a 20% loan-to-value down payment.
However, four countries dodged this restriction through public aid: Canada, U.K., New Zealand and Australia. Housing schemes follow the same pattern in these four countries. The CMHC provides mortgage loan insurance when the borrower cannot meet the standard 20% loan-to-value down payment. If a home has a value of $500,000, the borrower needs only $25,000—a 5% loan to value—instead of the $100,000—20% LTV—standard of Basel III applicable in the other countries.
Through a fallacious discourse of family protection, the Canadian government has hindered access to adequate housing. Mortgage loans make up the most significant component of household debt. Let's check the evolution of household debt in Canada after Basel III in comparison to that in other countries.
The household debt level is 80% of GDP in the U.S. In Spain it is 63%. In Ireland it is 35%. In 2013, household debt was 82% of GDP in the U.S. In Spain it was 78%. In Ireland it was 93%. Thus, household debt has dropped in these countries since the Basel III implementation in 2013, meaning it is minus 2% in the U.S. In Spain it is minus 15%, and in Ireland it is minus 58%.
As we can see, the household debt trend since 2013 is contrary to the Canadian household debt trend. Household debt has dramatically increased since 2013 at 19%, reaching 112% of GDP in 2020. From 2019 to 2020, Canadian household debt increased by 9.38% of GDP. This was the fourth-largest increase worldwide. During the years that preceded the global financial crisis, household debt never increased by more than 6% of U.S. GDP in one year.
In the paper, I have compared the Canadian housing system to the housing systems of other countries with similar socio-economic conditions: U.K., Germany, France and Austria. The conclusion is that some countries, such as Austria, which resisted the financialization of housing through the maintenance of vast social housing programs, present the best indicators in terms of access to housing, affordability and prosperity for all.
Thank you.