Urban Studies, Vol. 36, No.

4, 755 773, 1999

The Financing of Social Housing in Integrating

Financial M arkets: A View from Developing
Countries
Bertrand Renaud
[Paper rst received, A ugust 1997; in nal form, September 1998]

Su m m ary. The housing sector is the last m ajor sector of the n ation al econ om y for which
analytical fou ndation s for econ om ic and nan cial policy evalu ation have d evelop ed. However, the
application of this analytical fram ework to intern ation al com parison s of housing p olicies or the
evalu ation of housing nance system s still lags con siderab ly behin d the stron g fou ndation s laid
over th e years for trad e, nan ce or industry p olicy analyses. None the less, th e era when
im provisati on and fragm en ted policy-m aking in h ousing an d housing nance cou ld be excu sed is
w ell past. Today, there is a deep and exp anding bod y of basic research and p olicy analysis that
can be shared for the design of housing p olicies and hou sing nance in stitu tion s whether it is in
the Europ ean Union or develop ing cou ntries. O bviou sly, social and econ om ic con texts as well as
w ealth levels differ greatly . Com m on analytical found ation s can lead to very differen t prescrip tion s in cou ntries where m acroeco nom ic an d nancial policies, nancial infrastru cture, and
urban law s policies and practices differ. In som e cou ntries, the institu tion s of the m ark ets are so
deep that w e m ay no longer be fully aware of them . In others, th ey barely exist. Everyw here, the
division of labour betw een pu blic and p rivate action s in b oth housing policy and housing nance
is shiftin g. Like Europ ean cou ntries, but at m uch low er levels of in com e an d w ealth , develop ing
cou ntries con tin ue to seek grow th w ith equity. H owever, those are cou n tries where the m ajority
of p eop le are poor, cities are grow ing rap id ly, pu blic as w ell as private institu tion s are often weak
and scal resou rces are severely con strain ed. In such environ m ents, it seem s to stan d to reason
that the nancing of social hou sin g should only be a su bset of pub lic con cern s for the develop m ent of a safe and sound housing nance system that will be ab le to exp and in step with
urban isation . The question add ressed here is w here th e nancing of social housing ts w ithin the
new world of housing nan ce. The search for altern ative form s of housing nance for low -incom e
grou ps can n ot disregard overall tren d s affectin g the nancial sector an d hope to be sustain able.
It has becom e clear du ring the past tw o decad es that there is no such thin g as a hom ogen eou s
`Third W orld across which identical p olicies and in stru m ents cou ld b e con ven iently applied .
This sim plistic con cept resu lted from the Cold W ar, ign oran ce of distan t foreign p laces and, in
particu lar, of their speci c hum an cap ital, law s, institu tion s and practices. The reality in housing
n ance, as w ell as in other areas of public policy, is that there are profou nd differen ces am on g
the m ore than 180 advan ced an d develop ing cou ntries that are now m em bers of the W orld Ban k.
It is therefore im portan t to think of housing nance as `path-dependent in the sense that any
inn ovation will be shaped by past and curren t con dition s. One can distin guish six broad types of
housing nance system s. Their m ain featu res are brie y ou tlined here. In sp ite of such internation al diversity, the separation of subsidies from n ance and the redesign of social housing
n ance program m es are everyw here a critical referen ce for the design and develop m ent of better
housing n ance system s.
B ertrand Renaud is in the Capital Markets Development Department, The World Bank, 1818 H Street NW , W ashington, DC 20433,
USA . Tel: 202 473 2496. E -mail: Brenaud@w orldbank.org.

0042-0980/99/040755-19 $7.00

1999 T he E ditors of Urban Studies

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BE RT RAND RE NA UD

1. Introduction
The nancing of social housing remains a
major public policy agenda in the countries
of the Europe an Union and in other OECD
countries. However, the con guration of this
agenda has been changing profou ndly during
the past decade in terms of the nature of
problems, resources and modes of delivery.
As a counterpoint to this E U agenda, I discuss the same question in the context of
developing countries. Implicit is the perception that these tw o very different groups of
countries have more to share in terms of
experience and solutio ns than was previously
thought . However, I shall neither address
directly nor challenge the reasonable assum ption that social housing experiences in
the developed and the developin g countries
are worth sharing. It seems much more useful to explore the claim that the nancing of
social housing should neither be the leading
nor even the dom inant preoccupation of the
W orld Bank. Such a stance may seem paradoxical. Is the eradication of poverty no
longer the overarching objective of that institution? There is no change in goals: grow th
and the alleviation of pove rty remain central
to the mission of the W orld Bank. However,
the environm ent has profou ndly changed.
The question raised is how the housing
nance agenda is being restructured in
developing countries and the im pact of
such changes on the nancing of social
housing .
The ways we are approaching housing policy, housing nance and therefore the
nancing of social housing in developing
countries are different today. Change is
happening under the com bined weight of
50 years of developm ent experience, the
accumulation of serious research, a rapidly
changing urban environm ent as well as
the on-goin g globa l transform ation of nancial systems. It is im portant to review the
most salient ndings of basic research and
housing policy evaluation over the past
25 years. Then we shall consider brie y
what light might be throw n on policy
agendas of developed and developing coun-

tries by two recent major studie s of hom elessness in the US. Having em phasised the
com mon scienti c basis for policy analyses
in the EU and in the developing countries,
we can proceed to the discussion of the
forces that are shaping housing policies in
developing countries and their im plications
for social housing .
T he focus here is on housing nance
proper i.e. on the links betw een housing
nance and nancial markets; it is not on
housing policy. W hat are the new housing
nance trends that we are now observing
around the world? Speci c housing nance
policy recom mendations must t very different national contexts. It is therefore useful to
outline a typolog y of housing nance systems. This typolog y of housing nance systems is not arbitrary. How ever, its purpose is
certainly not to present a mechanical view of
the nancial sector where individ ual countries would t neat boxes and a mistaken
linear sequencing of nancial developm ent
would apply. Rather, the typolog y aims to
stress that current conditions and the prerequisites for furthe r development of housing
nance systems differ greatly across countries. The analytical foundations that we
share can lead to very different priorities.
The small, inef cient and segregated housing
nance systems that are found in most developing countries today have grow n to meet
recent urban dem and. It will therefore be
necessary to integrate properly the nancing
of social housing into the broader framework
of a housing nance system which itself is
better linked with the overall nancial system and the entire econom y.
2. The Foundation s of M odern Housing
Policy
T he British people and their politica l parties, uninstructed in the basic facts and
unaware of the extent of their ignora nce,
continu ed to grapple with their housing
problems in the vocabulary of a class conscious folklor e inherited from the nineteenth century (Richard M. Titm uss
forew ord in Nevitt, 1966).

DE VE LO PIN G COU NT RIE S

The num ber and conditions of our houses

is a sym ptom of our methods of nancing
them , and until we fully unde rstand the
im plications of our methods of nancing,
taxing and subsidizing them we cannot
hope to arrive at any solutio n to our problems (Nevitt, 1966, p. 1).
The nineteenth century invention of the
amortised loan is of such im portance that it should rank with the inve ntion of the steam engine in changing the
face of Britain (Nevitt, 1966, p. 8).
W hy begin a discussion of the nancing of
social housing with references to the foundations of modern housing policy? W hy such a
seemingly irrelevant detour? There are two
reasons. First, very few major sectors of the
econom y have been so much plagued by
unjusti able amateurism in public policy as
housing in developing countries. Bilateral
and multila teral donor organisations or nongovernment organisations (NGOs) should
not necessarily be absolved of such behaviour. Secondly, and more positively, the considerable volum e of serious research and
policy evaluation work that has built up over
the past quarter of a century in market econom ies has greatly changed the ways macroeconom ists and nancial-sector specialists
consider social housing. The broad failures
of the massive public housing experiments of
centrally planned econom ies have further
deepened our understanding of what constitute sound housing markets.
One of the very basic and obvious tenets
of nance is that the nancial services that
we are designing should t the econom ic
characteristics of the product or activity that
we intend to nance. Therefore, a thoroug h
understanding of housing markets is fundamental to sound housing nance. T his is not
the place to review in any detail 25 years of
housing and housing nance research and
policy work in a large num ber of countries.
How ever, when it com es to professional
standards of analysis in housing policy, at
least one major project must be mentioned.
No single effort has had such a mom entous
im pact on the way we think about housing

757

policy today as the E xperim ental Housing

Allow ance Program (EHAP) which began in
the US in 1973 and whose nal evaluation
was com pleted in 1982. This historical experim ent took over a decade of work by
well over one hundred researchers at a
cost of almost US$200 million of the tim e;
the core government budget being $158 million (Friedm an and W einberg, 1983, p. 7).
W hether they are individ ually conscious of
this project or not, a very large share of
the trained analysts working on housing
policy around the world today are part of
the intellectual family tree that grew from
the researchers involve d in the EHAP project.
E HAP com bined two novel elements at
the tim e: housing allowances and social experim entation. Its main goal was to determine whether
low -incom e families in need of decent
housing might be better served if they
received housing allow ances direct cash
paym ents for housing than if they were
offered subsidised housing built by or for
the government (Friedm an and W einberg,
1983, p. 14).
This social policy proje ct started from the
three traditional rationales for public intervention in housing : public health; housing as
a `merit good i.e. a good whose level of
consum ption society views as more im portant than what individ uals choose to or can
afford to consum e; and market im perfections. It had three main com ponents: a
dem and-side experiment, a supply- side experim ent and an adm inistrative-delivery experim ent. W hat interests us here is that the
EHAP project s main ndings have greatly
im prove d our overall understanding of housing markets. Its ndings also proved their
worth in developing countries where they
have not been invalidated but, instead, have
been extended.
E HAP researchers found that, from both
a social and an econom ic viewpoint,
dem and-side housing allow ances are clearly
superior to supply- side subsidies. The core
nding can be sum marised simply: targeted

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BE RT RAND RE NA UD

bene ciaries do not have a housing problem

so much as they have an incom e proble m.
Demand-side subsidies were found superior
to supply- side subsidies (in the form of
government-prov ided housing ) on three accounts: deadweight losses in consum er welfare; losses of consum er sovereignty; and the
com parative resource cost of provid ing access to housing through housing allowances
against the direct provision of a physica l unit
(see Mayo, 1983, pp. 235257).
E stim ated `deadw eight losses in consumer welfare were low for housing allowances com pared to public housing
because housing progra mmes are experienced by bene ciaries much more as incom e-transfer programmes than as the
housing programmes they were intended
to be. T his should not have been a great
surprise to econom ists who have often
com pared the ef ciency of subsidies in
cash with subsidies in kind.
Losses in consum er sovereignty relate to
the fact that levels of tenant satisfaction
are considerably lower when they are
given access to a speci c public unit than
when they can exercise their ow n choice
of rental units with the help of a housing
allowance. It was found that the level of
satisfaction in occupying com parable units
was about 20 per cent low er in the case of
direct public housing provision than when
house holds have made their choice thanks
to a cash allowance. 1 Certainly, `consumer
sovereignty works much better than the
`planne r sovereignty as is starkly shown
by centrally planned housing systems.
T he resource cost of providing units under
a supply- side programme was found to be
considerably larger than under a dem andside programme. The cost of provid ing a
new public unit under public programmes
at that tim e was estimated to be 80 per
cent higher than the cost of provid ing a
com parable unit by way of housing allowances. In addition, it was estimated
that on-goin g trends in housing markets
are likely to widen that gap over tim e. The
im plications for the organisation and oper-

ation of construction ministries can be farreaching.

Addition al housing market ndings were also
very substantial. It was already know n that
public housing programmes were inequitable
and wasteful: inequitable because they
served only a fraction of the popula tion eligible for housing assistance ; wasteful because the subsidized units were more
expensive to build and maintain than similar
units in the priva te housing market (Friedman and W einberg, 1983, p. 14). A series of
pow erful ndings resulted as follow s
(Lowry, 1983, pp. 2527):
Som e poor househo lds live in inexpensive and inadequate dwellings; others are
adequately housed by dint of spending half
or more of the incom e for housing Budgetary relief is probably a
higher priority for low -incom e househo lds
than is better housing .
85 cents of each program dollar would
directly bene t participants. A com parable
estimate for the Section 8 Existing Housing Program is 57 cents; for the federal
public housing programs, 34 cents; and for
incom e maintenance program with no
housing requirements, 89 cents.
About half of all households eligible
would participate in a perm anent national
allowance program. Only about 30% of
these would occupy better housing , but all
would be able to spend more for non
housing consum ption.
A national housing allowance program
would affect only participants and their
housing ; the broader com munity would
not be affected for good or ill.
Cross-sectional variation of incom e about
the mean has less effect on housing consum ption than a long-run change in the
average incom e of all househo lds.
The existing invento ry of housing is
exible in response to dem and changes.
T he output of housing service can be substantially changed by varying current inputs (energy, repairs, buildin g services)
without great losses in ef ciency.
Imbalances in supply and dem and tend to

DE VE LO PIN G COU NT RIE S

be re ected in vacancy rates rather than

remedied by price changes.
More analytical results have been added to
those of the E HAP project, including results
from developin g countries, without changing
their main thrust. In developing countries,
scal resources are very lim ited com pared to
the scale of needs and scarce government
skills are at a high prem ium . The strategic
insight ow ing from the EHAP and
con rmed by another decade of work in
som e 65 countries is that priority should go
to the developm ent of well-structured housing markets with sound institut ions and organised professions. Policies should avoid
the dive rsion of scarce talent to small enclaves of public programmes especially
when they are directly managed from the
national level of government where know ledge of local markets is skim py at best. This
is also the core message of the W orld Bank s
housing policy paper of 1993 which has yet
to be widely im plem ented.
W hat matters most is to enable markets to
work, as has been repeatedly stated. Governments that attempt to substitute marginal,
enclave public programmes for the broad
developm ent of the institutions of housing
markets will im pose very large costs on their
societies and particularly on the poor throug h
both errors of om ission and errors of com mission. Obviousl y, accepting such policy
advice is often dif cult for politicians and
policy appoin tees whose tim e-horizon is
much shorter than the expected life of a
buildin g. It takes tim e, skills and sustained
effort to develop laws and institutions. On
the other hand, as Paul Strassmann said in an
excellent pioneering study of housing construction programmes in developing countries: It is much easier to take the picture of
a beautiful buildin g than that of a bad cash
ow (Strassmann, 1978). 2
W hat A re W e Learning about Homelessness?
Obviousl y, the priority given to creating
ef cient housing markets is not designed to
ignore the plight of the most disadvantaged

759

members of society. The goal is just the

opposite. If ef cient markets can supply
housing services at prices consistent with the
purchasing power of the majority of the
populat ion, this will make it easier to create
the ` scal space within public budgets to
nance the needs of the poorest and the most
disadvantaged. But what are these needs? Is
there a com mon ground betw een the advanced econom ies such as countries of the
EU and developing countries?
A striking and increasingly visible developm ent in the US and in so many af uent
cities of the EU is the rising num ber of
people living in temporary shelters and on
the street. Fifteen years ago, hom elessness
was usually sidestepped in these societies as
a developing-country problem. Two recent
major studies have clari ed the US context.
They address the same issue, yet they differ
in their emphasis and in their conclusions. In
a rst meticulous study published in 1994,
Christopher Jenks found that econom ic factors had little to do with hom elessness. In a
major sense, Jenks concludes that hom elessness in the US has little to do with housing .
He nds no single dom inant pro le of a
hom eless person, but rather different and distinct causes of hom elessness requiring individual remedies. All types are linked to the
breakdown of private and public social support netw orks. Jenks found that three major
direct but separate causes triggered hom elessness: the poorly though t-out closing of
mental hospitals, the spread of various drugs
and in particular crack cocaine, and the disappearance of skid-row hotels where destitute individ uals could nd housing for a few
dollars a night. To the extent that a breakdow n in social relations is a dom estic problem, hom elessness does not seem to be a
signi cant housing policy issue for the international com munity. Hom elessness appears
to be a social issue usually requiring very
localised remedies. 3
T he equally meticulous study of hom elessness by Brendan O Flaherty publish ed in
1996 challenges Jenks analyses. As Quigley
(1996) points out, the work of O Flaherty
stresses hom elessness as a housing market

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BE RT RAND RE NA UD

phenom enon rather than as a matter of social

condition or social status like Jenks work.
Through a tight process of elimination,
O Flaherty nds that steady changes in the
structure of US housing markets since 1975
have caused the rise in hom elessness there.
He nds that housing market dyna mics have
contributed to the rise of hom elessness via
the substantial decline in housing dem and by
the middle class and the removal from the
stock of the housing on which these social
groups could previou sly rely. W ith a worsening of the incom e distribu tion has com e a
shortage of housing for people with very low
incom es and thus a rise in hom elessness. The
well-known ltering-down process has been
im paired. This is an im portant nding that
can be used in com parative housing policy
work.
These two major studies of hom elessness
are more com plem entary than contradictory.
How ever, O Flaherty s work is more directly
relevant to housing policies in developing
countries in that it highlig hts the positive
correlation between socioeconom ic polarisation, spatial segregation, a skew ed incom e
distribution and hom elessness. 4 Clearly, the
degree of skew ness of the incom e distribution and of wealth does not only have an
im pact on hom elessness; it is also a major
factor in the design of the full range of
housing policies from those for the middle
class to those for the households most at risk.
Among developing countries, wherever the
middle class is small and the national savings
rate is low we can anticipate that it will be
more dif cult to develop a sound and expandin g housing nance system.
W hether hom elessness or broader lowincom e issues are at stake, the dom inant
thrust of modern housing polic y analysis is
that dem and-side subsidies are much more
likely to be successful and ef cient than
public supply- side subsidies. To achieve the
desired better targeting in the US, new
low -incom e housing programmes are being
developed. 5 These social programmes emphasise the development of new capacity by
local government to carry out housing and
com munity developm ent activities with a

strong emphasis on local publicprivate

partnerships. W ith the globalisation of information and of som e NGO networks, com parable programm es are evolvin g in developing
countries as well, particularly within Latin
America.
3. F orces Reshaping Policies: The New
W orld of Housing Finance
Even if they share analytical foundations,
housing polic ies in developing countries differ from those of mature econom ies such as
those of the EU. In particular, there are very
strong reasons why the rapid expansion of
safe and sound housing nance systems organised on a com mercial basis is such a high
priority today. Until recently, few developing
countries had proactive and well-articulated
housing nance strategies concerned with the
overall ef ciency of the nancial markets. In
a signi cant num ber of countries, coherent
housing nance strategies well integrated
with the nancial sector are nally being
articulated. These new strategies focus on
ef cient mortgage markets and are profoundly different from the government program mes of a decade ago. W hy? Two
distinc t but converging sets of forces are at
work: the acceleration of world urbanisation
and the global transform ation of nancial
systems.
3.1 Peak Urbanisa tion and the P ressures for
M arket-based Finance
The grow th of the world s urban popula tion
has been extremely rapid. During the 20-year
period 197595 the increase in world population was 1.73 billion people which is equal
to the total popula tion of the world in 1900.
W hat is even more im portant is that the
world s population is now 50 per cent urban
which means that the world popula tion has
entered its peak urbanisation phase where
ruralurban migration com bine s with internal
urban populat ion growth to generate very
high urban growth rates. China is now entering this phase, as is India. Together, these
two countries now make up 40 per cent of

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DE VE LO PIN G COU NT RIE S

THE WORLD S RATE OF URBANISATION IS REACHING ITS PEAK

100 per cent
75-80 per cent

Peak rate of urbanisation

1

50 per cent
Per capita
Income

Industrialisation and urbanisation

Peak rate of housing investment
7-9 per cent of GNP

3-4 per cent of GNP

2-3 per cent of GNP

Housing investment and urbanisation level

3
15 per cent

G row th

of rea l e

state as

se ts

Urban real estate assets in national wealth

Per capita
Income

35-40 per cent

Per capita
Income

F igure 1. T rends in world urbanisa tion.

the world s populat ion. T he dem ands for infrastructure nance and housing nance to
achieve ef cient urban inve stment are therefore very strong. By com parison, in 1900, the
only country in the world to be more than 50
per cent urban was the UK. Nevitt s (1966)
emphasis on the im portance of the amortising loan to the developm ent of British cities
(quoted earlier) therefore has great relevance
to housing nance today.
Figure 1 illustrates how the relationship
betw een (1) the level of urbanisation; (2) the
annual rate of housing investm ent as a share
of GDP; and (3) the share of housing in total
tangible wealth typically evolve over tim e.
Developm ent and industrialisation produce a
well-known pattern of urbanisation that can
be stylised as a logistic curve. The 50 per
cent urbanisation phase marks the period of
most rapid urbanisation. From this point forward, ef cient housing nance is critical to
avoid serious distortions in the structure,
com positio n and trading of urban assets.
Graph (3) in Figure 1 also suggests why

mortgage-related nancial assets form such a

large part of total nancial assets in highly
urbanised econom ies, which is not the case
in m ost developing countries. W hat kinds of
housing nance system do we nd today in
developing countries to handle this massive
urbanisation?
3.2 Cities A re B uilt the W ay They Are F inanced
Cities are built the way they are nanced
(Renaud,1987) . In developing countries, it is
possible to determine from their visual appearance how housing units and neighb ourhoods have been funded. W e nd three main
kinds of housing produc tion system that are
shaped by their nancing:
Inform al nancin g. This relies on small, very
localised, mutual and irregular form s of
nance usually dependent on com mon local
bonds. Such inform al nance can be based
on various ways of pooling savings through

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BE RT RAND RE NA UD

rotating saving and credit associations

(ROSCA). Inform al housing nance leads to
incremental form s of housing investm ent
where owners becom e `self-developers and
rely on small crafts and trades to built their
own units. This process dom inates many cities and explains why their neighb ourhoo ds
look like endless, almost perm anent, construction sites.
Private bank nancin g. This is the desirable
way of suppor ting urban investm ent because
it facilitates the production of a diversi ed
stock of com pleted housing units. These
units are built in a relatively short tim e, by
experienced professional developers that are
usually organised into a very com petitive
real estate industry with a wide variety of
enterprises of all sizes.
State nancing . This is readily identi able by
large-scale housing projects dom inated by
engineering goals and consisting of standardised, monoton ous units of relatively high cost
but low value for their occupants. An often
poorly understood but serious side-effect of
state nancing is that it will block the developm ent of the netw orks of skills and professions needed for an innova tive and dynam ic
real estate industry. These professions include property appraisers, brokers, credit bureaus, m ortgage registries and real estate
advisory services that are crow ded out by
rigid state adm inistrative processes and inappropriate regulations. In market econom ies,
these professions employ 34 per cent of the
labour force. In housing systems dom inated
by state nance, the scarcity and poor quality
of inform ation is an im portant obstacle to
ef cient investm ent and innovat ion.
The rapid developm ent of com petitive private com mercial housing nance is essential
to nance the massive waves of urbanisation
that developin g countries now face. Fortunately, it appears that the prospects for developing market-based housing nance systems
that are ef cient and resilient to risk are
im provin g signi cantly.

3.3 Four Forces that Are Changing Financial Systems

Independently from the present massive rate
of urbanisation, nancial markets them selves
are being deeply transform ed by forces that
are also affecting housing nance services.
Financial liberalisation began in the US in
the late 1970s and has since spread across
other nancial markets. Liberalisation is now
ending the tight segmentation of nancial
activities.
Financial innova tion is leading toward
seamless nancial markets. T he focus is rapidly shifting away from specialised institutions to the provision of specialised nancial
services such as mortgage nance that is
provide d by a wide variety of institutions. In
advanced econom ies, the decline of `special
circuits for housing nance is a com mon
trend.
T he global convergence in bankin g regulation and supervision that was set in motion
by the Basle Com mittee a decade ago in the
lim ited context of international bankin g has
spread and has had a direct im pact on housing nance. Two regulatory aspects are especially im porta nt for the grow th of housing
nance: risk-based capital adequacy regulations together with tighte r and well-de ned
asset classi cation are leading everywhere to
a better risk-adjusted view of different type s
of lending activities including a new look
at housing nance.
T he digita l inform ation revolution is
changing every aspect of banking and
nance such as paym ent systems, settlement
systems and risk management. Internal corporate operations system s such as branch
reporting now run in real tim e. In the case of
consum er nance and retail bankin g, automated loan underw riting systems and `hom e
banking are also rapidly spreading interactive, software-based relations with clients.
New technology has som etimes spread in
very unexpected ways, such as the `smart
card systems in low-incom e, low-literacy
townships of South Africa or Nigeria where
paym ents systems are very weak (Sato,
1997). Such `smart cards might also reduce

DE VE LO PIN G COU NT RIE S

som e of the serious mortgage paym ent collection problems observed in too many developin g countries.
3.4 New Directions in M acroeconom ic Policies
Equally im portant, new macroeconom ic policies are shifting away from short-term demand management in favour of stable
medium -term monetary and exchange-rate
objectives. This shift to medium -term
`in ation targeting has been induced by the
`rational expectation approach to econom ic
policy the way of conceptualising macroeconom ic analysis and of designing macroeconom ic policies for which Robert Lucas of
the University of Chicago was awarded the
Nobel Prize in econom ics in December
1995. 6 One of the most visible outcom es of
this policy shift is the renewed emphasis on
scal soundne ss and balanced budgets. T here
is much concern that government debt should
not be crowding out private nance in the
capital markets and balanced budge ts will
see to that. This developm ent of capital markets holds much prom ise for housing nance.
The nancial upheaval in the aftermath of the
1997 Asia crisis will bring more nuance and
greater balance in the im plem entation of
policies. A full reversal of policy direction is
not very likely.
3.5 Fiscal P olicies and the P rivatisation
Paradigm
The collapse of centrally planned econom ies
in the 1980s has also deepened our understanding of our own market econom ies and
what makes them successful. Among other
im provem ents, renewed thinkin g about the
`privatisation paradigm is leading to a much
better form ulation of scal policies which
has im portant im pacts on housing policy and
housing nance as follow s:
It is now unde rstood that the separation of
subsidies from nance is an essential prerequisite for linking housing nance systems to capital markets and signi cantly
im proving risk management.

763

There is a much greater concern for the

targeting of transparent subsidies the
goal being to ensure that public subsidies
will not go mostly to the middle class but
will reach the neediest in society.
The privatisation of form erly public activities when possible can create more
` scal space for the nancing of the more
critical public needs as already mentioned.
Social safety nets are discussed now in a
more integrated way. In countries with
fairly effective adm inistrations, program mes now tend to consider the totality
of problems of households at risk: not
health only, or education or housing alone.
For instance, the econom ic shocks experienced in Latin Am erica during the 1980s
have shown that the provision of a longterm asset in the form of hom e-ow nership
was not really the best way to provid e
short-term relief to low -incom e families at
risk. Health, nutritio n, employm ent and
education were more im portant. Certainly,
new housing investm ent has a very desirable multiplier effect on employm ent.
How ever, social programmes also lose
their im pact when they are fragm ented
into unco-ordinated actions by uncoordinated and even com peting agencies.
3.6 R apid Globalisa tion of F inancial M arkets and Net Capital Flow s to Emerging
Countries
The most remarkable trend in nancial markets has been the rapid integration of global
capital markets. Drastic changes in net capital ow s to developing countries have taken
place since 1990. Today, it is not so much
the W orld Bank, the IMF or central banks
that are preaching better nancial and scal
policies: the global nancial markets are getting more and more powerful at im posing
their ow n discipline on the econom ic policie s
of individ ual countries. Both the volum e and
the com positio n of these capital ows have
changed dram atically in half a decade (see
Figure 2). In 1990, total net ows of capital
to developing countries amounte d to US$94
billion out which of cial sources including

764

BE RT RAND RE NA UD

300

250
Official creditors
US$ (billions)

200

150

Equity

100
Banks
50

0
1990

Non-bank creditors
1991

1992

1993

1994

1995

1996

1997

F igure 2. Sources of external nancing to m ajor em erging m arket econom ies, 199097 (net ows,
US $ billions ).

the W orld Bank dom inated and represented

39 per cent of total ow s. By 1996, net
capital ows had more than doubled to $239
billion , but the share of of cial funds had
declined to only 3.25 per cent. Private equity
ow s have now becom e the largest com ponent of total ows rising to $104 billion and
a 43 per cent share of total ow s (Institute of
International Finance, 1997). The major
change com pared to the 1980s when so
many com mercial bankers were blinded by
the safety of `sovereign debt is that international nancial markets are much better
inform ed about each country . Terms of new
debt are much more differentiated by country
and project risk and pricing tend to be more
rational. However, the Asia crisis has starkly
revealed that im proved pricing is not enough
and that a better international system needs
to be created to deal with the vola tility of
short-term capital ows and asymmetries betw een large capital in ows and small emerging markets.
However, these ows are very unevenly
distributed. Asia absorbed 56 per cent of the
net capital ow s in 1996. Argentina, Mexico
and Brazil accounted for much of the rest.
Out of the 180 members of the W orld Bank
(including industrial countries), about 25

econom ies capture about 95 per cent of all

external capital ows. The activities of the
W orld Bank are likely to becom e more differentiated and diversi ed from policy advice
to lending . New lending products also need
to be developed. In countries with growing
nancial markets, new instrum ents such as
guarantees are needed to suppor t not to
replace private nance, to facilitate the extension of loan maturities and to reduce political risks. In the smaller but much more
num erous countries still lacking access to
capital markets, continuing econom ic restructuring needs to be supported with better
policies and the nancing of much stronger
core institutions starting with com mercial
banks.
4. New Directions in Housin g F inan ce
To achieve faster growth, most countries are
opening their econom ies to world markets.
Such an integration reduces the `reversibility of public policies because global capital
markets will monitor closely key macroeconom ic policies. Macroeconom ic uncertainty
linked to dom estic politics will tend to decline and microeconom ic ef ciency also im proves. T he speed and quality of integration

DE VE LO PIN G COU NT RIE S

into the world econom y depend on the developm ent of good legal, nancial and physical
infrastructure. In spite of the fact that housing is a non-traded sector, the housing
nance system is never neutral to this integration process because of the large im pact
that it always has on overall nancial developm ent. Either, housing nance will suppor t
overall nancial developm ent through a positive im pact on risk managem ent and on the
mobilisation of house hold nancial savings
to nance investm ents; or, a small and poorly
performing housing nance system will be
unable to respond to the dem ands of urban
developm ent. Unresponsive mortgage lending will in turn stim ulate adm inistrative and
political interventions into the nancial sector. T hese interventions usually result in
costly and self-defeating distortions such as
mandated funding at subsidised rates below
market and similar interventions that create
negative externalities for the rest of the
nancial system.
Too often what we nd today are institutional patchworks resulting from the interactions over tim e between special-interest
groups , line ministries and distant nancial
authorities and planning ministries preoccupied with the nancing of perceived `priority
sectors . Experience with segregated specialised banks and other nancial institutions
narrowly restricted to a single sector, dependent on special access to concessionary funding and special privileges, has not been
satisfactory. In advanced countries, they
were undiver si ed and did not manage their
risks properly (US Saving s and Loans,
Japanese Jusen, French Credit F oncier).
In developing countries, international experience has proved beyond doubt that
purely government-m anaged institutions
while seemingly created in the public interest ultim ately becom e inef cient, monopolistic and bureaucratic. They often use
their privileged access to government to sti e
com petition elsewhere in the nancial system. As a result, the range and quality of
available nancial services and instrum ents
are quite lim ited. Housing nance is extremely scarce in most developing countries

765

in sharp contrast with industrial countries

where housing - nance-related assets form a
major share of the markets. In developing
countries, governments will continu e to have
a role in putting in place certain types of
nancial institution, but they should not involve them selves in management. They will
continu e to have a strong if indirect role in
regulating (not controlling) the private sector
to prevent institutions from becom ing monopolie s or operating against the public interest.
A key requirement in reform ing housing
nance systems is the need to separate subsidies from nance. Subsidised mortgage lending should not be forced upon lenders.
Various reasons lie behind this im perative.
First and forem ost is the necessity to encourage household savings in nancial form . Experience shows that in any given country the
funding of 1 subsidised mortgage is num erically equivalent to 20 tim es the average
nancial savings of househo lds. Therefore, to
subsidise 1 family means taxing 20 savers
who will receive low or even negative returns on their savings thereby discouraging
them from saving and bloc king the growth of
the nancial system. T he dam age does not
stop there because a good share of the subsidy is likely to be captured by the builders
of the unit provid ed whose price is out of line
with the purchasing pow er of the buyer.
Therefore it is not an unreasonable question
to ask whether subsidised mortgage lending
is assisting buyers or merely com pensating
for signi cant distortions in urban policie s
and regulations affecting the supply of housing.
A major strategic opportu nity to im prove
housing nance is openin g up with the reform of pension systems that is spreading
around the world with the aim of achieving
high rates of saving and the prevention of
misuse of pension funds. T he reform of pension systems triggers the growth of long-term
institutional investors and can profou ndly
change risk managem ent in housing nance
systems. As sum marised in Figure 3, current
world trends in housing nance are characterised by the follow ing features:

766

BE RT RAND RE NA UD

1. TREASURY
2. CENTRAL BANK

SOCIAL HOUSING
FUND

SECONDARY
MORTGAGE
FACILITY
(four main types)

INTERNATIONAL FINANCE
INSTITUTIONS (WB, others)

CAPITAL MARKETS

Funds

- Institutional investors
- Individual investors

Funding
Various forms
of social housing

PRIMARY MARKET:
1. DEPOSIT BANKS
2. FINANCE COMPANIES

TERM SAVINGS
- pension plans
- life insurance
- mutual funds

Secured housing loans

LOW-INCOME
HOUSEHOLDS

MAIN HOUSING MARKET

F igure 3. W orld trends in housing nance.

the decline of special circuits for housing

nance that can be observed in developed
and developing countries alike;
the separation of subsidies from nance
with up-front subsidies funde d from scal
sources and not from distorting taxes on
the nancial system;
the integration of housing nance to capital markets through the developm ent of
various types of secondary mortgage market facilities that help retail mortgage
lenders to manage their funding risks
ef ciently;
much greater com petition and innovation
among a variety of bankin g institutions
and mortgage nance com panies serving
a growing share of the housing markets;
and
the concurrent development of the various
nancial services required for the development of priva te mortgage markets both at
the prim ary and at the secondary market
levels: appraisers, im proved property
registration systems, credit bureaus, mortgage registries, real estate advisory services, mortgage insurance services, rating
agencies, etc.

5. A Typology of Housing F inan ce System s

The current description of world trends in
housing nance that has just been presented
is a conceptual one. The reality in housing
nance, as well as in other areas of housing
policy, such as the nancing of social housing, is that there are profou nd differences
among the 180 developed and developing
countries that are now m embers of the W orld
Bank. In housing nance, one can disting uish
six major groups of housing nance system.
W ithin each of these groups, considerable
differences remain and sharply different opportunities for im provin g housing nance
may exist.

5.1 F actors Shaping Housing Finance Systems

The structure, organisation and performance
of a housing nance system at a given tim e
depend on three com plex sets of factors that
may not be fully appreciated by overspecialised analysts, yet they must be carefully
taken into account when studyin g a given
housing nance system. These three sets of

DE VE LO PIN G COU NT RIE S

factors are: the macroeconom ic and nancial

policies pursued by that country; the quality
of its nancial infrastructure; and, urban
laws, policies and practices. Typically, local
operators take this environm ent as given and
aim to im prove their ow n perform ance at the
margin, one step at a tim e. Given the present
goal of a monetary union and uni ed
nancial markets and their need for constant
consultation, members of the EU are gaining
a better understanding of the in uence of
these three very different sets of factors than
countries in most other parts of the world.
These three sets of factors are fundam ental in
shaping the developm ent of a housing
nance system. Their main constitutive elements are as follow s:
(1) M acroeconom ic and nanc ial policie s
Integration with world econom y;
E xchange-rate policy;
Interest-rate and credit policy;
Associated level of dom estic price stability.
(2) F inancial infrastructure
L aws;
Accounting systems;
Regulation and supervision;
Paym ent systems.
(3) Urban law s, polic ies and practices
Clarity of ow nership and enforceable
property rights;
E conom ically sound, market-sensitive
urban plannin g;
Predictable land development codes and
practices;
Coherent, stable nationa l and local taxation of housing and real estate.
From such a list, several consequences can
be inferred. First, a considerable amount of
local inform ation gathering and `due diligence is typically needed to understand
properly the performance of a given housing
nance system. Secondly, a give n reform of
the housing nance system will usually take
several years before becom ing fully operational through out the entire dom estic market. Thirdly, the sequence and type of actions
needed for the developm ent of a housing

767

nance system will differ across countries.

Among these three sets of factors, insuf cient development of the nancial infrastructure is usually the problem most
seriously underestim ated by policy-makers
dealing with housing nance.
5.2 A Typology
Housing nance systems differ considerably
from country to country , and so does the type
of nancing of social housing that can be
observed. The typolog y presented here regroups these systems according to their
dom inant features. T he main purpose is not
to generate a rigid classi cation that might
free analysts from carefully evaluating each
national system just the opposit e. The objective here is to emphasise that the prerequisites for the developm ent of market-based
housing nance differ considerably across
countries. Another im portant point is that no
rigid sequencing or `stages of developm ent
process is im plied by these six categories of
housing nance system. Given the exible
legal, institut ional and regulatory nature of
nancial systems, a country might shift directly from one category to another.
T here are considerable differences in the
relative size of housing nance systems com pared to the econom y. Figure 4 presents
these six main types of housing nance system in terms of the average size of their
outstanding mortgage portfolios and in terms
of annual mortgage loan originations as a
ratio to GDP based on a non-random sample
of countries.
1. Undeveloped housing nance systems.
These housing nance systems are found in
countries where the grow th of the econom y
is volatile due to dependence on a few export
com modities. Per capita incom e is low . The
basic nancial infrastructure is barely in
place. Such systems are dom inant in sub-S aharan Africa. T heir housing nance systems
are at a very early stage of developm ent. In
these countries, inform al nance is dom inant
due to low inform ation levels and the absence of the necessary professions as much
as to bad public policies. Low popula tion

768

BE RT RAND RE NA UD

60

Outstanding mortgage loans

New mortgage loans

Percentage of GDP

50

40

30

20

10

Undeveloped
systems

Missing
Fragmented
systems in and unstable
post-socialist
systems
economies

Segregated
but stable
systems

Sound and
integrated
systems

Advanced
systems

F igu re 4. Six types of housing nance system .

densities and inadequate inform ation infrastructure often add to high bank operating
costs.
In many of these countries, a strong push
for the developm ent of com mercial housing
nance is often prem ature because the basic
institutions of a nancial system are barely in
place. Com mercial banks remain weak in
their two basic roles: as utilities offering
paym ent services and funds transfer as well
as nancial interm ediaries betw een savers
and borrow ers. Credit management skills are
lim ited to a narrow range. Most lending is
very short-term. Often the core nancial institutions i.e. the com mercial banks are
poorly developed. In such countries, active
government intervention in housing nance
is often problematic. Also, the need to develop regulatory and othe r incentives that are
com patible with rapid priva te-sector developm ent is often not well understood or acted
upon.
In these underdeveloped housing nance
systems, priority should go to the development of solid housing markets. Improvements to urban laws, policies and practices

affecting housing and real estate are a top

priority.
The
developm ent
and
the
clari cation of `traditional property rights
should com e rst. E conom ically sound urban
plannin g better focused on prim ary infrastructure and consistent with the purchasing
pow er of the populat ion is usually a prim ary
requirement for speeding up the growth
of the housing nance system. Rather than
focusing on housing per se, public efforts
toward the extension of basic urban infrastructure and the supply of serviced urban
land and land titling are likely to have a
greater initial im pact. Then land registration
systems appropr iate to foreseeable econom ic
needs and means should follow , together
with the development of secured lending ,
credit and collateral laws and practices.
2. M issing housing nance systems in form er
centrally planned economies. The absence of
a com mercial housing nance system is one
of the num erous problems of transition econom ies em erging from central planning such
as the republics of the form er Soviet Union,
central and eastern E urope, China or Viet-

DE VE LO PIN G COU NT RIE S

nam . W ithin this group, there are substantial

differences. For example, som e countries like
Russia are fully urbanised, while others are
just starting to urbanise.
Interestingly, these housing nance systems are not performing well because their
previous housing policies treated housing exclusively as a social issue to be met by the
state and they failed to appreciate the com plex and speci c features of housing as a
major sector in any econom y. Considerable
progress has taken place in som e of these
countries since 1989. However, most still
share the follow ing shortcom ings:
weak private property rights inherited
from the past system of state control of
land, nance, and construction;
a legacy of confusion between `housin g
nance and `housin g subsidies ;
privatisation, rent reform s and a legal
framework for real estate are a prerequisite
for com mercial housing nance;
currently, reform policie s are facing a dualistic housing system with a large, stagnant state system overshadowing a small,
but often rapidly growing, private system;
as usual, the legal and regulatory reform s
of the bankin g system are a prerequisite to
housing nance proper: in countries of
central Europe such as Poland and Hungary, the housing nance systems are
nally on the verge of signi cant expansion after a decade of reform efforts;
so far, private housing nance remains
lim ited, experim ental and for high-incom e
groups.
In such housing nance systems, the co-ordinated im provem ent of prim ary mortgage
lenders and the developm ent of secondary
market facilities are needed for safe and
sound expansion (see Jaffee and Renaud,
1997).
3. Fragmented and unstable housing nance
systems. Such systems result from high
in ation and macroeconom ic instability com bined with directed credit and nancial repression. T hey are fairly frequent in Latin
America, and were especially so during the

769

1980s. These housing nance systems tend to

be very small in relation to the size of the
urban econom y and the GDP as a result of
recurrent macroeconom ic mismanagem ent
and/or external shocks. T ypic ally, high and
volatile in ation has led to a high-ri sk premium which translates into very high real
interest rates that are particularly devastating
for all form s of long-term nance including
housing nance.
T hese countries are marked by the dom inant role of government in housing . Such
state dom inance is partly caused by severe
incom e inequalities and the inability of the
majority of popula tion to afford mortgage
nance. In such socioeconom ic environments, housing nance is rst a victim then it
becom es a contributor to in ation through
hardly controll able subsidies. Dom inated by
state programmes, these housing nance systems are small, fragm ented and usually replete with costly distortions. A low level of
nancial savings then forces dependence on
central bank re nancing. In turn, such central
bank re nancing and related `moral hazard
causes large scal and quasi- scal de cits.
During the 1980s, housing nance and the
nancing of `social sectors were often at the
`epicentre of nancial crises in this group of
countries (Argentina, Brazil).
In these countries, the separation of subsidies from nance and the targeting of subsidies for social housing are essential
ingredients of lasting reform s.
4. Segregated but stable housing nance systems. These housing nance systems result
from long periods of directed credit and
nancial `repression in the technical sense
analysed by McKinnon (1973 and 1991).
They are found in countries that have managed their macroeconom ic polic ies relatively
well, but have adopted strong econom ic planning policies giving emphasis to `priority
sectors where housing usually did not t.
Such housing nance systems are frequent in
east Asia, in the M iddle East, and have also
occurred in India.
Under policie s of directed credit, the
nancial sector is not considered as an auton-

770

BE RT RAND RE NA UD

om ous sector that should be run privately.

Rather, the nancial system is used as an
instrum ent of the state plan to direct resources to the `priority sectors of the plan.
In these systems, government debt has been
monopoli sing the long-term markets and
crowded-out bond issuers until the 1990s. As
a result, reform s must address the problem s
of interest controls, the absence of a yield
curve and the lim ited scale of xed-incom e
securities markets. The stability of this type
of housing nance system should not be
overem phasised because it is due to heavy
regulation and poor com petition and not to
ef cient risk allocation. Stability m ay well be
more apparent than real. Poorly managed
liberalisation and deregulation could reveal
abruptly and in a costly way the underlying
risks and ef ciency problem s that are
presently hidden .
In these systems, housing nance is segregated into a lim ited num ber of institutions
subject to a mix of restrictions and special
advantages. These systems usually provide
poorly targeted subsidies com mingled with
nance throug h preferential rates. Housing
nance policies are usually dom inated by
housing ministries preoccupied with quantitative physic al output targets. The overall
outcom e is a lim ited level of form al nancial
intermediation in the housing sector that is
juxtapo sed with a signi cant volum e of inform al nance leading overall to a high im plicit cost of capital for housing .
5. Sound and integrating housing nance
systems. It would be wrong to conclude from
the previous elements of this typolog y that
all housing nance systems in developing
econom ies are too small, too inef cient or
too unstable. T here are also sound systems
that are growing rapidly. Much has been
made of an east Asian `miracle in the recent
past, but in housing nance it would be much
better to speak of a south-east Asian `miracle . Som e of the most interesting exam ples
of housing nance systems at relatively low
incom e levels can be observed in Thailand
and in M alaysia. In fact, owing to a series of
reform s that took place in the mid 1980s,

Malaysia has one the most developed

nancial sectors for its level of incom e. The
substantial dam age sustained by these systems after the 1997 crisis originated outside
the sector and resulted from recent central
banking and m acroeconom ic errors that have
been ampli ed by foreign lenders and investors behaviour.
T hese housing nance systems are found
in econom ies with outw ard grow th strategies
that are integrating well into world markets.
These countries have basically sound external and internal m acroeconom ic management. Their nancial legal, regulatory and
supervisory fram eworks are in place. Credit
and collateral laws function adequately. Interest-rate liberalisation has already taken
place and perm its the developm ent of secondary mortga ge markets. There are rapidly
grow ing contractual savings institutions and
other institutional investors. Good bankers
want good developers; or, as McKinnon has
noted,
apparently the quality, if not the quantity
of investm ent im proves signi cantly when
nancial interm ediation is robust (McKinnon, 1991, p. 22).
As a result, a basically sound real estate legal
framework has suppor ted the emergence of a
com petitive real estate industry. As nancial
markets deepen, there is a continuing developm ent of the secondary mortgage market,
with the emergence of asset securitisation for
a variety of bank assets, with mortgage securitisation being much less frequent. A
signi cant aspect of technology transfer is
that private nancial institutions in these
housing nance systems are able to seek
speci c technical innova tions transferred directly from the international markets.
6. Advanced housing nanc e systems. The
advanced housing nance systems can be
found in the mature econom ies of OE CD
countries. These systems grew out of tw o
main traditions going back to the 19th century. T here is the `thrift tradition of AngloSaxon system s where the buildin g societies
of the UK and the savings and loans from the

771

DE VE LO PIN G COU NT RIE S

60

Outstanding mortgage loans

New mortgage loans

Percentage of GDP

50
40
30
20
10

Mexico

Columbia

Malaysia

Hong Kong

USA

UK

Figure 5. Six exam ples of housing nance system s, 1993/94.

US are m utual form s of housing nance.

There is also the mortgage bank tradition of
continental E urope where term fundin g was
mobilised through bond markets. Particularly
strong in northern European countries such
as Denm ark and Germany, institutions based
on this model exist in most of continental
Europe. Today, the mortgage market share of
these special housing nance circuits is
shrinking as nancial systems evolve and
converge steadily due to nancial innovation,
the digital revolution and the globalisation of
capital m arkets. As already stressed, emphasis is shifting from specialised institutions to
specialised nancial services in what is today
a remarkably dynam ic mortgage nance industry.
To com plem ent earlier average data,
Figure 5 presents the recent size of six housing nance systems including those of two
Latin American countries. Mexico has an
unstable system (1994 per capita GDP
$4180) and Colum bia has a deeper and more
stable one in spite of a lower per capita
incom e level ($1670 ). The two south east
Asian econom ies: Malaysia ($3480 ) and
Hong Kong ($21 650 per capita) have much
depth and high incom e levels. Finally, there
are two industrial countries with highly developed housing nance systems: the US
($25 880 per capita) and the UK ($18 340).

6. Conclusion
The housing sector is the last major sector of
the national econom y for which international
standards of econom ic evaluation have develope d. For a long tim e, com parative analyses in housing policy and housing nance
were inadequate com pared with the much
stronger foundations of trade, nance and
industrial policy. T oday, however, there is a
deep and expanding body of basic research
and policy analysis that can be shared for the
design of housing policies and housing
nance institut ions whether it is in the E U or
in developing countries. Obviousl y, social
and econom ic contexts as well as wealth
levels differ greatly and com mon analytical
foundations will lead to very different prescriptions as suggested by the typolog y of six
classes of housing nance system outlined
here. In som e countries, the institutions of
the markets are so deep that we may no
longer be fully aware of them . In others, they
barely exist. Everywhere, we face the everchanging bounda ry betw een public and private actions in housing policy and housing
nance. Starting from the deep analytical
foundations that we now all share, this
overvie w has aimed to show why a sound
perspective giving priority to a housing
nance system that is well integrated within

772

BE RT RAND RE NA UD

the overall nancial sector is central to success in nancing social housing .

Notes
1.

2.

3.

4.

5.

6.

T here is an interesti ng parallel here with the

fact that what drives a private develop er is
the creation of `m axim um value while a
public agency is m ostly concerne d w ith minim ising costs.
It can be mentioned in the present review of
social housing policy that ILO (Intern ational
L abour Organisat ion) had com m issioned
Strassm ann s em pirical study. E ventuall y,
the ILO declined publicat ion under its label
due to pressure from its represen tatives from
centrally planned econom ies who rejected
ndings that are now an unchalle nged part of
the m ainstream of housing policy.
Of course, national and internat ional com parisons and exchang es of inform ation will
alw ays improve understa nding of possible
rem edies.
In the case of developi ng countrie s, Strassm ann (1977, 1982) develop ed a sim ple but
useful tool for local urban planning analysis
nam ed `the stock-us er m atrix that highligh ts
(without saying so!) the im pact of the incom e distribu tion on effective housing dem and and m ortgage nance in a speci c
m arket.
T hey are increasin gly called `afford able
housing program m es (van Vliet, 1997) according to the present zeitgeist that avoids
labelling social program m es too speci cally.
As show n by Miles (1994), rational expectation theory has very signi cant implications for the m odelling and analysis of
long-ter m investm ents like housing.

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