خرید و دانلود نسخه کامل کتاب Ahmet Suayb Gundogdu Food Security, Affordable Housing, and Poverty – Original PDF

1 AFFORDABLE HOUSING AND POVERTY 3 The sound understanding of Zakat is linked to a comprehensive understating of the term hoarding. The Arabic term Ihtikar is used for collecting, doing wrong, and greediness. The word is mainly used when referring to people who buy more food than they need to sell at higher prices during times of shortage (Madni, 2013). There is a clear hadith: “He who hoards is a sinner.”3 Even though it has generally been associated with food, hoarding applies to other basic human needs, including real estate. Hoarding works against fair price formation, which is the pivot of Islamic economics and finance. This is why state intervention is necessary (Gundogdu, 2019a, 2019b). The definition of hoarding reveals a delicate balance between Islamic encouragements of property ownership versus price distortion in the market. For example, a person who uses the property for utility and commercial purposes is not a hoarder. A person should pay Zakat on hoarded assets, including money. Avoiding Zakat payment is not a joke in Islamic belief, as indicated in Case Box 1.2. Case Box 1.2: Hoarding of Money Ahnaf B. Qais reported: While I was in the company of the (elites) of Quraish, Abu Dharr came there, and he was saying: Give glad tidings to the hoarders of riches that their backs would be branded (so deeply) that (the hot Iron) would come out of their sides, and when the backs of their necks would be branded, it would come out of their foreheads. He (Abu Dharr) then went away and sat down. I asked who he was. They said: He is Abu Dharr. I went to him and said: What is this that I heard from you which you were saying before? He said: I said nothing but only that which I heard from their Prophet ( ). I again said: What do you say about this gift? He said: Take it, for today it is a benefit. But when it becomes a price for your religion, then abandon it Source Sahih Muslim, 2177 The problem of poverty, as conventionally defined, can supposedly be resolved with loans by stimulating economic growth. However, this solu- tion often back fires in the long term. The conventional method of Riba loans without checks and balances only fuels poverty. Should poverty be defined in the Islamic way based on debt accumulation for higher real 3 Sahih Muslim, 1605. 4 A. S. GUNDOGDU estate prices leading to negative net worth? The conventional economics argument about linking economic growth with income is irrelevant as poverty is defined based on net worth in Islam. The Islamic definition of poverty suggests that developed countries are not far ahead of the least developed countries regarding poverty statistics. Given the definition, the Islamic understanding of poverty prioritizes affordable housing because providing housing is an important element of the poverty definition. Accomplishing this universal provision of afford- able housing with reasonable prices will help avoid negative net worth, which creates poor people as defined in Islam. Islam accepts the concept of debt, but such debt should not lead to unfair price formation of real estate prices. A mortgage is a legal instrument by which the creditor receives the pledge of the debtor’s residence as collateral. In practice, however, it was challenging to evict people from their homes due to the bias of courts and policymakers against lenders due to social repercussions. The financial sector pushed for strong foreclosure laws imposed on devel- oping the secondary market to channel more funds to housing finance (Van Order, 2003). The debt-driven housing market yielded overdevel- oped beautiful urban and suburban dwellings, yet unhappy people as the established system worked for capital owners against households. Islamic mortgages cannot be different from conventional ones as the more conventional finance engages tangible assets, the more the nature of business resembles Islamic Finance. Yet, there should be a significant difference between Islamic finance contracts: late payment charges. In real life, however, Islamic banks often impose late payment charges similarly to conventional banks. Shari’ah scholars argue that late payment charges are permissible to avoid a moral hazard by borrowers, given that banks cannot accrue any benefit from late payment. This is a challenge to develop a secondary market for Islamic mortgages. The issue of resource mobilization is an important topic given that the 2008 financial crisis emerged out of innovative resource mobiliza- tion/securitization products. Resorting conventional or Islamic deposit banks has a significant disadvantage related to the maturity mismatch, between deposits and loans, precipitating systematic financial sector risk. Once unaffordable, prices would sky-dive due to the liquidity crisis that emerged in the financial sector out of the mismatch. In this regard, alter- natives might be looked for within the capital markets. The Sukuk for securitizing the mortgage loan is a potential method, yet there are serious Shari’ah compliance issues with the Sukuk, as-is many are based on: Bai 1 AFFORDABLE HOUSING AND POVERTY 5 Table 1.1 Outcome and output table as-is case; conventional approach Policy tool Output Outcome Channel more funds with the lower interest rates for construction and purchase of houses Produce more houses Unaffordable housing Source The author Al-Dayn, Organized Tawarruq, and Bai Al-Inah. Such practices are not different from conventional instruments. It is unjustified to claim that Islamic banks as they are can help in facilitating the provision of afford- able housing. The issue is more related to the policy aspect: availing more financing, being Islamic or conventional, to home purchases inflates house prices. The more funds are available and the lesser the interest rate, the more people bid for the finished houses. As it is practiced today, availing of more loans is not a solution. It is a root cause of unaffordability. The fundamentals of the mortgage and securitization topic will be discussed more in depth in the next chapter. Table 1.1 indicates the outcome and output design of the present financial and economic system. It is assumed that affordable housing will be facilitated by producing more houses and availing more mort- gages, assuming a trickle-down effect. However, channeling funds to the production and sale of houses gives rise to high land prices. Funneling more funds would increase land and house prices and undermine afford- ability. Besides, the financial sector will get exposed to assets that are not easy to liquidate in case of liquidity crunches. These recurring bubbles and crunches will continue due to the fundamentals of the present monetary system. Table 1.2 presents the Islamic approach. The policy outcome should be to provide affordable shelter for all, so more houses should be built. To achieve the desired outcome with the targeted output, more houses should be produced while decreasing land and house prices. This chapter discusses the policy tool: “Decrease Land and House Prices.” The next chapter elaborates on producing more houses by “channeling more funds with a lower markup to construction and purchase houses with Islamic finance.”