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Financialization and housing costs

August 21, 2021 By Michael Lewyn

One common explanation for high rents is something called “financialization.” Literally, this term of course makes no sense: any form of investment, good or bad, involves finances.

But I think that the most common non-incoherent use of the term is something like this: rich people and corporations have decided that real estate is a good investment, and are buying it, thus driving up demand and making it more costly.

But if this is true, to blame financialization for high rents and sale prices is to confuse cause and effect. If real estate prices weren’t going up, it wouldn’t make sense to buy buildings as investment. Thus, high housing costs cause financialization, not vice versa.

In fact, if government did not restrict housing supply through zoning, financialization would be a force for good. Why? Because instead of buying existing buildings, people with money might be more willing to build new buildings for people to live in- which in turn might hold housing costs down.

PS I am running for Borough President of Manhattan, and am gradually creating a Youtube page that addresses anti-housing arguments in more detail.

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Filed Under: Economics, housing, NIMBYism, Policy, Zoning Tagged With: financialization, housing

About Michael Lewyn

Michael Lewyn is a Professor at Touro Law Center, where he teaches property, land use, trusts and estates, and environmental law. Originally from Atlanta, he graduated from Wesleyan University and received his J.D. from the University of Pennsylvania Law School. His books include "Government Intervention and Suburban Sprawl: The Case for Market Urbanism." In addition, he has published dozens of articles, most of which are available at works.bepress.com/lewyn.

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