Financialization, as a broad concept, denotes the growing prominence and impact of financial institutions and markets. Within the realm of housing, financialization refers to how finance plays a pivotal role in rendering housing as a highly liquid asset, thus erasing distinctions between income and wealth distribution (Aalbers, 2016; Stephens & Hick, 2022). Moreover, financialization encompasses the rising dominance of institutional investors as primary participants in the housing market, effectively elevating housing to the status of a distinct asset class.

Aalbers (2016) defines financialization as “the increasing dominance of financial actors, markets, practices, measurements and narratives, at various scales, resulting in a structural transformation of economies, firms (including financial institutions), states and households” facilitated by the combination of “economic circumstances, conscious government decisions, unforeseen consequences (“negative externalities” in economist speak) of government decisions, and financial-technical possibilities” (p. 118). In the housing sector, financialization encompasses a diverse array of activities and strategies pursued by both institutional and private investors. These include practices such as debt management, securitization, and the establishment of real estate investment trusts (Holm et al. 2023). Central to this phenomenon is the treatment of housing as a commodity. Commodification, broadly defined as the process by which the economic value of a thing dominates over its other uses, means that housing's function as real estate supersedes its role as a place to live (Madden & Marcuse, 2016).                 

The evolution of global investment and financial markets has led to a structural shift in housing, culminating in its commodification. As a result, housing is primarily seen as a commodity rather than as a place of residence (Farha & Porter, 2017), and it is turned into a commodity that accumulates wealth which can be bought or sold on global markets. Consequently, housing has increasingly become a means of wealth accumulation for a privileged few, exacerbating its affordability crisis for the broader population. Therefore, the financialization of housing poses a significant threat to human rights by disconnecting housing from its essential social function as a place to live.

Financialization has sparked significant interest in housing studies, emerging as a novel process shaping housing institutions (Hick & Stephens, 2022). This interest surged notably in the aftermath of the global financial crisis (GFC) of 2007-08, underscoring the heightened attention paid to financialization in research circles (Holm et al., 2023). Moreover, scholars argue that the financialization of housing is not only pertinent to housing researchers but also to welfare and poverty researchers. Adopting a theoretical lens rooted in the “varieties of capitalism” approach to the welfare state, the extent of financialization within housing markets is viewed as a determinant of national growth levels and is regarded as a driver of growth (Hick & Stephens, 2022)

The financialization of housing has led to significant changes in European housing systems, manifested in various effects and forms including rising house prices, declining rates of home ownership, an increase in the private rented sector, deteriorating housing markets, and decreased affordability of housing (Stephens & Hick, 2022). The trend towards financialization is changing the housing market and increasing income inequality in a society, while fuelling housing price instability by encouraging speculation (Dewilde & de Decker, 2016; Fields, 2016). Financialization is thus an obstacle to the affordability and stability of housing supply. The best example of this is the GFC, which has its origins in speculative mortgage derivatives. Stephens et al (2015) state that “the nature of tenure and its relationship with finance reflect the role of the state and the market as sources of (housing) welfare.”

The responses of different governments and housing markets to the GFC varied across Europe (Whitehead, 2014). This was confirmed by Holm et al. (2023) and their comparative analysis of financialization in seven European cities, who found that each city filtered global processes differently due to “place-specific historical and socio-political arrangements” (p. 159). Financialization thus introduced a new logic of economic conditions for the provision and distribution of housing, facilitated by innovative financing practices that promoted housing as a safe, low-risk, high-return investment opportunity (Holm et al., 2023).

The continued financialization of housing is anticipated to exacerbate affordability challenges for both mortgage homebuyers and renters, with renters experiencing a greater and more immediate impact (Hick & Stephens, 2022). As Aalbers (2016) asserts, if financialization is the root problem in the housing market, then de-financialization is the solution. De-commodification measures are essential, particularly for tenants and low-income families lacking secure housing. However, tackling the issue necessitates more than just examining the role of financial institutions and markets. It requires to increase the provision of social housing, reforms in housing governance, labour markets, and banking and taxation regulations, which collectively influence the nature and extent of financialization in housing.