Why Housing Finance Matters to Development

When housing finance works well it contributes to economic growth, household savings, and resilence to economic shocks.  However, housing is a basic requirement that remains unsatisfied in many countries. 

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 upfront by most individuals. 

When the financial system does not provide funding at affordable conditions – meaning, in particular, offering repayment periods long enough to be compatible with individual incomes – the imbalance is overcome through three types of undesirable situations:

1. Only the top income groups can afford comfortable housing and build up real estate assets which will contribute to widen wealth gaps;

2. Most households are condemned to leave in sub-standards conditions, which at best are improved in an incremental way over many years; and

3. Governments are tempted to provide assistance, or even directly housing, to a large  share of the population, an intervention that very generally exceeds the capacity of public finance and have highly negative social and financial implications.

The goal of the housing finance team is to help client countries reform or develop market-based systems that are able to cater to a large portion of the demand and that enable governments to focus on the neediest groups. 

In that endeavor, a critical challenge most of the time is to deal with the underdeveloped stage of the capital market, which does not provide sufficient resources of the required maturities. 

The Housing Finance team is also confronted with many other issues: weaknesses in the market infrastructure – legal status of property rights, land registration systems, enforcement of mortgage collaterals, – efficiency and risk management capability of the lending systems, adjustment of savings and lending products to instable environments, efficiency of subsidy schemes, adequateness of regulatory and supervisory frameworks.

The variety of issues and the cross-cutting aspects of many of them lead the group to regularly team up beyond the financial sector, and primarily with the Urban Development, Housing and Land Department, and the urban network.