Introduction: Deregulation and Reform of Housing and Housing Finance Markets: Recent Lessons from Western and Central Europe

By Dale-Johnson, David; Gabriel, Stuart A. | Real Estate Economics, Winter 1995 | Go to article overview

Introduction: Deregulation and Reform of Housing and Housing Finance Markets: Recent Lessons from Western and Central Europe


Dale-Johnson, David, Gabriel, Stuart A., Real Estate Economics


Recent years have seen the emergence of substantial scholarly research devoted to cross-national comparisons of real estate markets and financial institutions. In part, these analyses evaluate real estate market efficiency and the distributional outcomes associated with diverse institutions and economies. Further, these analyses draw from the experience of different markets and institutions in a normative sense, so as to help facilitate the development of appropriate real estate market mechanisms and policy in emerging market economies.

This special issue of Real Estate Economics follows in a similar vein, focusing on topics of deregulation and the reform of housing and housing finance markets in Western and Central Europe. This volume is comprised of five papers; of those, papers by Chinloy and Eicholtz offer new analyses of economic fluctuations and mortgage default risk with applications to the U.K. and the Netherlands, respectively. Deutsch and Tomann explore the structure of housing finance institutions, policy and market outcomes in Austria and Germany. Finally, papers by Pogodzinski and Laakso and Loikkanen focus on the impacts of economic reform and housing policy in such emerging or more highly regulated economies as Poland and Finland.

This collection of papers provides some evidence of adverse and unintended housing market effects of larger financial market and economic reforms. In the case of Poland, broad-based economic reforms have resulted in the migration of labor into urban areas and concomitant increases in demand for urban housing. Unfortunately, with only limited deregulation of Polish housing production and short-run housing supply inelasticity, severe housing shortages have resulted. Thus, constraints on housing supply have inhibited the spatial reallocation of Polish labor, and accordingly have served to limit the efficacy of the larger reform effort.

In the U.K. and Finland, significant deregulation of housing finance markets during the mid-1980s, which lowered home ownership user costs and boosted nominal housing affordability, also served to exacerbate the recent boom-bust cycle in residential real estate markets. Results from the U.K and Finland analyses indicate that financial market de-regulation may have important implications for housing access, home ownership equity and mortgage default, not well anticipated by policymakers at the outset of the deregulation process.

Government financial market regulation may also work at cross-purposes to distributional goals of housing policy. For instance, the relatively low home ownership rates in Austria and Germany appear to derive in part from the conservative underwriting stance of the mortgage lending institutions. At the same time, these policies have helped Austria and Germany to avoid the boom-bust housing cycle exhibited in other Western European countries including Sweden, Finland and the U.K.(1)

Finally, a fully subsidized system of mortgage insurance funded in equal shares by federal and local government, as in the Netherlands, suggests asymmetric risk to local government entities, to the extent regional default risk is not diversified away at the local level. Furthermore, the provision of mortgage insurance at no cost to the borrower should reduce the sensitivity of housing demand to variations in regional economic risk. Such a system of mortgage insurance has the potential to exacerbate housing market cycles -- as reflected in house price fluctuations and patterns of mortgage default -- in riskier regions.

Chinloy's paper provides theoretical and empirical modeling of mortgage delinquency and default, with application to the U.K. over the prolonged real estate downturn of 1988-1993. In so doing, the paper adds to the large number of recent scholarly contributions which focus on the determinants and pricing implications of mortgage performance.(2) Further, the paper is part of a growing literature that seeks to draw important and more general lessons from the recent and severe housing recession in the U. …

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Introduction: Deregulation and Reform of Housing and Housing Finance Markets: Recent Lessons from Western and Central Europe
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