In: Root » Legal and finance » Market and Finances
Emerging economies face a myriad of issues andquestions pertaining to housing finance andhousing market reform. To what extent are supply of housing credit andd emandfor housing constrainedby the existing financial systems? What are the bottlenecks andrigid ities in the existing institutions, norms and regulations surrounding land, construction policy, urban planning andinfrastructure? What is the correct role for primary/secondary institutions andmarkets in these circumstances? What shouldbe the role of the public sector in housing andhousing finance? In this chapter we looked at some of these issues through the prism of a systematic transition taking place in these countries as well as taking into account the historical legacy andthe context of the previous socioeconomic system. Using data from 18 OECD countries, we developed a benchmark metric for explaining the relationship between a country's mortgage market size andsocioeconomic explanatory variables. The empirical results are consistent with the expectations of economic theory andfit the data relatively well. This is perhaps a surprising result given the substantial variation within the underlying OECD dataset. In utilizing our estimated benchmark for the OECD countries, a rough hypothetical calibration for the expectedsize of the mortgage markets for Russia, India and China suggests an impliedsignificant 'shortfall' between the expectedandactual amount of mortgages. We interpret this mortgage short-fall to signify that the new economic reforms andhousing market policies now being implementedin each of these countries may be in early stages of development. Our results suggest that, to the extent that the mortgage market reforms can be implementedto bring the emerging nation mortgage markets in sync with the mortgage markets of developed nations, there is a substantial growth potential for the mortgage markets andthe housing sectors for these three emerging economic giants. Russia appears to have the greatest mortgage 'short-fall' among the three, given the urban share of the population, the small householdsize of its population, andso on; both the projection andactual amount for India are much lower, and China's shortfall occupies an intermediate position with respect to the other two countries. Socioeconomic variables, such as the urbanization rate andhouseholdsize tendto play an important role in the determination of the shortfall. Of course, considering the potential inconsistency of data across diverse countries and the endogeneity of many variables, particularly in a benchmarking-calibration context, we recognize that our results shouldbe taken as 'suggestive', requiring additional empirical refinement.
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