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Markets and Housing Finance

Veronica Cacdac Warnock and Francis E. Warnock


We examine the extent to which markets enable the provision of housing finance across a wide range of countries. Housing is a major purchase requiring a long-term financing, and the factors that are associated with well functioning housing finance systems are those that enable the provision of long-term finance. Across all countries, controlling for country size, we find that countries with stronger legal rights for borrowers and lenders (through collateral and bankruptcy laws), deeper credit information systems, and a more stable macroeconomic environment have deeper housing finance systems. These same factors also help explain the variation in housing finance across emerging market economies. Across developed countries, which tend to have low macroeconomic volatility and relatively extensive credit information systems, variation in the strength of legal rights helps explain the extent of housing finance. We also examine another potential factor—the existence of sizeable government securities markets—that might enable the development of emerging markets’ housing finance systems, but we find no evidence supporting that.

Keywords: mortgage, housing finance, emerging markets
JEL-Classification:G10, G18, G28, O16

Last updated 28 August 2014 by IIIS (Email).