How do housing markets differ?

Before discussing the consequences of choosing between alternative housing market configurations, we must first understand what those differences are. Housing markets diverge in a multitude of ways, which means that any attempt to categorize or quantify national housing finance approaches necessarily does some violence to the underlying reality. The goal is to strike a balance between simplicity and fidelity to the real world. In this book, I argue that national housing systems diverge in terms of how commodified they are – particularly in terms of their financial market penetration. That is, the key difference between countries is the extent to which they treat homes as commodities and a means of creating financial assets.

Commodification refers to the process of valuing and allocating a thing – in this case houses – through a market of some sort. Financialization, for the purposes of the housing discussion, is a type of commodification wherein the exchange of houses becomes dependent on the exchange of financial products. If we were to draw a Venn diagram of the way I will deploy the terms, financialization would be nested in commodification. That is, the financialization of housing necessarily also includes commodification – since financial products are intrinsically commodified. On the other hand, it is possible for a thing to be commodified but not financialized. For instance, rental markets are less financialized than the market for purchased homes. Rental prices are market- determined; however, signing a rental contract does not create a financial product in the way that signing a mortgage contract does.

Soviet-era Eastern Europe is arguably as close as we have come to non-commodified, non-financialized housing markets in the modern world. Ideology deemed housing to be part of the “social” rather than the “economic” sector. Although limited rights to homeownership were generally permitted, all citizens were entitled to housing. When there was not enough housing to meet demand, the problem was perceived as one of insufficient government action rather than the normal functioning of scarcity within a market (Hegedüs, Tosics & Mayo 1996).