Investment must change to meet the world’s housing needs

More than 1.8 billion people around the world lack adequate housing. In many countries, the cost of renting and buying a home continues to outpace wage growth. As the UN Human Rights Council seeks to appoint a new Special Rapporteur on the Right to Adequate Housing, the urgency of this critical mandate has never been more stark. 

The next Special Rapporteur will face mounting calls to help shape more effective strategies to address the housing crisis head on. An often overlooked cause of housing deprivation is the ‘financialisation’ of housing - where homes are seen as commodities for wealth creation rather than as secure places to live. Today, real estate represents one of the most lucrative businesses in the world, accounting for 67% of the world’s wealth. 

Investors therefore have a crucial role to play in addressing this crisis: there is an urgent need for a radical shift in thinking that sees respect for human rights - including the right to adequate housing - and planetary boundaries, becoming essential considerations in how real estate investments are made around the world.

The financialisation of housing

The right to housing, first affirmed as part of the right to an adequate standard of living in the Universal Declaration of Human Rights, is today understood as the right to live in a place with security, peace and dignity. This includes security of tenure, availability of services, affordability, habitability, accessibility, appropriate location, and cultural adequacy. 

Investment is crucial to realise the right to housing. Governments must ensure that sufficient resources exist to build affordable new homes for growing populations (especially in the global majority world), and to upgrade existing homes, improving comfort and adequacy, reducing emissions and adapting them to the changing climate. However, in the last 50 years, most governments have moved away from investing directly in housing, making way for the private sector to lead. Today, governments see private sector investment as essential to solving the housing crisis.

This means that the role of investors and their responsibilities in supporting the realisation of the right to housing - now more than ever - must be at the heart of the new Special Rapporteur’s work.

The Taskforce on Affordable, Sustainable Housing (TASH) - a coalition of organisations including IHRB and The Shift, has been conducting research to better understand the role of investors in housing. We’ve reviewed over 200 reports, case studies, and other publications to assess the positive and negative impacts of different investment strategies on housing affordability and carbon emissions. 

Data in this area is nebulous and often limited: the real estate sector is opaque, with complex business structures that hide ownership of buildings and land, while obfuscating accountability. However, our research has revealed that, at $62 trillion, income-producing real estate accounts for 60% of global GDP. About 25% ($12.3T) of this is managed by institutional investors, a number that’s rapidly increasing, with residential real estate playing a growing role in most newly launched asset management funds.

Most of these investments are concentrated in the largest cities in Europe and the USA, where medium-term impacts can be seen most clearly. However, having piloted this approach, many investors are now moving into other areas, for example buying 95% of all new apartments completed in Ireland in 2019, and in the global majority world. Here, investors are targeting what they perceive as 'undervalued' markets for new opportunities, supported by international financial institutions like the International Monetary Fund (IMF) and World Bank that actively promote financialisation as a housing strategy, alongside state policies that facilitate treating housing as financial instruments.

Two types of investment, two different outcomes

When identifying the impacts of real estate investments, a crucial difference emerges depending on the type of investment and the status of the building.

Investments that increase housing supply - new builds or vacant buildings - can, if supported by rights-aligned regulations (tenant protections, housing standards, affordability requirements, etc), help reduce housing costs, although the former have the downside of increased emissions.

Investment into occupied buildings is more complex. Investors should work closely with tenants and governments to implement improvements, ensuring that these works, and any associated impact on housing costs, are fair and do not lead to displacement. This holistic and long-term focus, as taken by Home.Earth, for example, has the triple benefit of protecting affordability and security of tenure for tenants, reducing emissions, and minimising reduced income from tenant turnover and potentially unpaid rents.

Such approaches, however, aren’t the norm. The predominant business model for investment in housing too often sees investors prioritising financial returns at all costs, even over the rights of tenants, often because they feel subjugated to the fiduciary duty owed to shareholders. In many countries, this has resulted in a series of standard practices that undermine the right to housing, including frequent rent increases, fees and subsidiary payments, which can lead to unaffordability; a reduction in maintenance spending creating uninhabitable conditions; and increased tenant turnover rates. In many cases, affordable housing has been repositioned as luxury accommodation or short term rentals. In the worst cases, investors - often supported by governments - have seized land and housing from informal, low-income, and Indigenous peoples to build luxury and commercial developments, leading to widespread evictions and displacement. At scale, these approaches also crowd out individual or non-profit housing investors, and have a detrimental impact on climate change. 

The difference between these real estate investment practices has attracted the attention of the European Investment Bank (EIB). At its annual forum earlier this year, the EIB highlighted the huge amounts of capital being passively invested into residential real estate, and warned this is unproductive capital because it is not generating jobs and growth or improving affordability, but simply extracting rents and concentrating wealth. The EIB is actively working on ways to respond and encourage capital to shift into more productive directions. For example, this might include attracting capital to buildings that currently sit empty - something that organisations like Inclusio have been attempting - and working collaboratively with public authorities to build more affordable housing. The EIB has also highlighted the importance of regulations to ensure a more efficient market that serves its primary goal: to provide homes.

Mechanisms to uphold housing rights

The business and human rights field has, so far, primarily looked at real estate through the lens of labour rights and supply chains. However, the UN Guiding Principles on Business and Human Rights are a powerful mechanism to engage the real estate sector on housing rights issues, particularly with regards to institutional investors.

Over the past ten years, investors have made significant progress in mainstreaming environmental disclosures. Social sustainability disclosures lag far behind, but we are now seeing some movement, with the European Sustainability Reporting Standards explicitly referencing adequate housing, and the Global Real Estate Sustainability Benchmark now including affordability as a reporting metric. BNP Paribas, Deutsche Bank and others are also starting to see housing affordability as a material issue both from a financial and material standpoint, but these are isolated instances rather than signals of a systemic shift. In WBA’s 2024 Urban Benchmark, none of the 126 surveyed real estate and construction companies reported on issues relating to affordability.

The right to adequate housing is a key enabler for the fulfilment of other rights. Yet progressively realising this right increasingly depends on market forces and private sector actors. It is critical now, more than ever, to focus on the responsibilities of investors in avoiding harms and upholding human rights law. As some governments turn away from the rules-based order, investors can carry out their activities without scrutiny or legal accountability. Understanding the critical role investors play in our housing systems and ensuring their activities in no way undermine the realisation of the right to housing but instead are consistent with human rights law, will be critical in the years ahead.

This is the focus of our work at TASH, and we look forward to supporting the new UN Rapporteur to make this a priority of their mandate.