Insider trading
Insider trading: an illegal practice in which the owner of a share or stock makes decisions based on confidential information. An example is when a legislator buys shares in a company that they later award a large contract to.
If we allowed bank bosses to write banking laws, there would be an outcry. Why is the same not true for homeowners making rules about housing? Young people cannot afford homes but legislators, who seldom share this position, seem deaf to the crisis. It seems possible that these two facts are linked. How did we end up establishing housing as a luxury?
© Will Boase
The human right to housing is one of the most vital and intimate parts of human existence. Yet, under present rules we allow the supply of homes to be regulated in a manner that treats them as a financial instrument to be traded and speculated upon, without considering which vested interests this affects. This has led to an unprecedented situation in which a growing number of working people are unable to afford to either buy or rent housing. In turn, this stifles companies’ abilities to attract and retain workers. It is unfortunate for everybody. So, what went wrong? And what can be done?
© Will Boase
Blind trust* and leadership
*Blind trust: when an administrator oversees an investment portfolio on behalf of its owner but without its owner’s ability to either know what is happening or influence the investment. This is typically done so that people can avoid accusations of corruption if they must regulate companies in which they have invested.
When a person is elected to government it's common that they will either declare any stocks they hold and abstain from any interested votes*, or place the stocks in a blind trust over which they have no control. We demand this of our lawmakers for a simple reason: We do not believe that it is right that rules should be made by people who stand to gain something from the rules they make. Laws should be impartial and in the interest of society as a whole. If an individual benefits, that should be as a result of good judgment or blind luck.
*Interested vote: a vote which might involve a conflict of interest for a politician.
Generally, that rule holds firm everywhere. We ask the owners of Pfizer stock to step back as we decide the purchase of vaccines, and we don't consult Volvo's shareholders before deciding on new electric vehicle classifications. The result is that, with some exceptions, we mainly have industries and products which are regulated by disinterested or divested third parties who regulate them as part of their duty, without any direct benefit. But there is one industry that remains almost outside this rule, with no clear reason. That is the housing industry.
Housing, until recently, was a market in which there was not much call for heavy regulation or for states to see a role for themselves. Proportions vary country by country, but generally, the state's central task was in administering publicly-owned land and commissioning and renting public housing supply to families outside the normal market for commercial rentals. Private and state company-owned houses leased (and in some cases offered as rent-to-buy) to workers, and housing stock was not only sufficient but exceeded the demand in almost all markets. And perhaps crucially, above all, this was the perception that housing was such a basic, important and stable utility that nobody ever seems to have considered that homes might one day be treated like hot stocks.
© Will Boase
So what changed?
But as the boom of the 2000s gained pace and cities became the new nuclei of Europe's service-focused economies, and as cheap flights began shuttling thousands of young and adventurous new travelers between the region's capitals, two things happened at once. In one, public properties were sold off to private owners and became financial instruments to be invested in, and disposed of, as cities performed like stocks. And two, short-term rentals became not just a reality but a boom in most cities, relegating the long-term tenant to a position of poverty in comparison to the exorbitant (and often untraceable) rents paid by short-stay guests.
Property speculation, driven by unregulated markets and dizzying price rises, quickly created a situation in which it was grossly rewarding to buy property and raise the rent every year to keep pace with the growth in relative housing costs; or even leave it empty and spare themselves the headache. Meanwhile, poorly-regulated short-term rental websites enable landlords to earn substantial rental income without having to run the risk of falling foul of (typically pro-tenant) rental protections.
Seen on a graph, property ownership leaps upward in the period of 2007-2021. But that jump is deceptive, because what was lost as ownership increased was the availability of affordable rentals or purchases for precarious or non-traditional (read-freelancer) tenants. In the past ten years, house prices across the EU 27 have grown by 19.1% while wages have grown just 8.1%. This represents a 10% drop in real income for rental tenants, but it also indicates a market in which wageworkers find it harder to rent or buy houses, and must accept worse conditions in doing so.
© Will Boase
Times have changed, the system must update
Which brings us back to the beginning of this piece. Why is it that when regulating pharmaceutical stocks a legislator must declare their interests, but when doing the same for housing regulations, or for commissioning new affordable housing, or agreeing the mandatory maximums to be paid for rental properties, our legislators, who are almost invariably homeowners and are often buy-to-let landlords, are bound by no such rules? The current situation assumes a norm in which a person is able to access a mortgage. But, as young people know all too well, the rules for mortgages exclude many people with unstable or unpredictable incomes, while the labour market is steadily becoming more unstable and unpredictable.
Housing uncertainty is bad for everybody. It reduces people’s happiness, leaving them less likely to have children and more likely to suffer from anxiety. It also suffocates the free movement of EU citizens, replacing talent with wealth. The solution, fortunately, is clear. Property ownership cannot be treated as the norm in legislating housing, just as stock ownership cannot be treated as the norm in regulating a company. Unless everybody owns a house, legislators who own property, and most especially rental properties, should be barred from participating in the regulation of the sector. So long as laws affect the pricing of and access to housing, regulation should be limited to persons representative of the citizens they are tasked to protect. Anything less is insider trading.
© Will Boase
Bibliography and further readings
Lorusso, S., Caleffi, I. B., Lovink, G., & Ventura, R. A. (2019). Entreprecariat: Everyone is an entrepreneur, nobody is safe. Onomatopee.
Overview - Income and living conditions - Eurostat. (n.d.). Retrieved February 7, 2022
