Housing is a basic requirement that remains unsatisfied in many countries. The importance of developing robust systems of housing finance is paramount as emerging economy governments struggle to cope with population growth, rapid urbanization, and rising expectations from a growing middle class. On one hand, demographic growth, urbanization trends and social changes, in particular the decline of traditional family links, have been new needs at an often fast pace. On the other hand, a house represents too formidable an investment to be paid for upfront by most individuals.
The Housing Finance Unit helps client countries reform or develop market-based systems that are able to cater to a large portion of the demand and enable governments to focus on the neediest groups. In that endeavor, a critical challenge is to deal with the underdeveloped state of the capital markets, which does not provide sufficient resources of required maturities. The housing finance team also assists with many other issues:
- Weaknesses in market infrastructure (legal status of property rights, land registration systems, enforcement of mortgage collaterals)
- Efficiency and risk management capability of lending systems
- Adjustment of savings and lending products to instable environments
- Efficiency of subsidy schemes
- Adequateness of regulatory and supervisory frameworks
Why housing finance matters to development
When housing finance works well, it contributes to economic growth, household savings, and develops resilience to economic shocks. However, when the financial system does not provide funding at affordable conditions – in particular, offering repayment periods long enough to be compatible with individual incomes – three types of undesirable situations occur:
- Only the top income groups can afford comfortable housing, thus they build up real estate assets which contributes to widening wealth gaps;
- Most households are condemned to live in sub-standard conditions which, at best, are improved in an incremental way over many years;
- Governments are tempted to provide assistance to a large share of the population, an intervention that generally exceeds the capacity of public financing and leads to negative social and financial results.
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