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Winter 2013
HOUSING FINANCE
INTERNATIONAL
The Quarterly Journal of the International Union for Housing Finance
Implications of housing privatization Mortgage practice in Egypt
for Europe
ortgage guarantee:
M
Housing finance and the housing market; a concept paper
lessons from the UK?
ublic housing in Shanghai:
P
a tool with multiple purposes
Autumn 2013
International Union for Housing Finance
Housing Finance International
Housing Finance International is published four times a year by the International Union for Housing Finance
(IUHF). The views expressed by authors are their own and do not necessarily represent those of the Editor or
of the International Union.
IUHF Officers:
resident:
P
Contents:
ANDREAS J. ZEHNDER,
Germany
4. . . . . . . . . Editor’s introduction
F irst Deputy President:
CAS COOVADIA, 5. . . . . . . . . Contributors’ biographies
South Africa
6. . . . . . . . . R
egional news round-ups
E xecutive Committee Members:
Johann ERTL, Austria 15. . . . . . . I mplications of housing privatization for Europe
JIRI SEDIVY, Czech Republic Wolfgang Amann and Katerina Bezgachina
PEKKA AVERIO, Finland
RENU SUD KARNAD, India 21. . . . . . . H
ousing finance and the housing market; lessons from the
KAPIL WADHAWAN, India UK?
JORGE YARZA GARRIDO, Mexico Peter Williams
HERBERT PFEIFFER, Slovakia
CHATCHAI SIRILAI, Thailand 27. . . . . . . P
ublic housing in Shanghai: a tool with multiple purposes
ADRIAN COLES, United Kingdom Ying Chang and Jie Chen
EMILE J. BRINKMANN, United States of America
COLIN CHIMUTSA, Zimbabwe 35. . . . . . . M
ortgage practice in Egypt
Mona M.T. Mostafa
ecretary General:
S
Hartwig Hamm, 42. . . . . . . M
ortgage guarantee: a concept paper
E-mail: hamm@housingfinance.org Vibha Batra and Kalpesh Gada
Head of Department of Economic Affairs:
Mark Weinrich,
E-mail: weinrich@housingfinance.org
ublisher:
P
HARTWIG HAMM
E ditor:
ANDREW HEYWOOD
ubscriptions:
S
ISSN: 2078-6328
Individual Regular Annual Rate €135;
Vol. XXVIII No. 2
Individual Three-Year Discounted Rate €360.
Institutional Regular Annual Rate €155;
Institutional Three-Year Discounted Rate €420.
For further details, please contact Anja Gruhn
(gruhn@housingfinance.org)
International Union for Housing Finance
Rue Jacques de Lalaing 28, B 1040-Brussels - Belgium
Tel: +32 2 231 03 71
Fax: +32 2 230 82 45
www.housingfinance.org
Secretary General: Hartwig Hamm
Copyright © 2013 International Union for Housing Finance
Winter 2013 Housing Finance International 3Editor’s introduction
Editor’s introduction
No room at the inn?
By Andrew Heywood
The public provision or promotion of new hous- class” of younger, more educated and higher at the highly successful IUHF congress in Vienna
ing is usually motivated in part by a desire to skilled workers2. In his round up of events in in June 2013. The article focuses particularly
foster economic growth. As Homes for London: South America Ronald Sanchez Castro refers to on the period since 2007 and the banking cri-
the draft London housing strategy 2013, which programmes in Chile for directing subsidies to sis. Professor Williams highlights the impact
was launched in November points out: the “emerging middle class”.3 of the crisis and the UK Government response
together with the implications for the wider
“Every new home built creates two jobs for at Although London will also introduce a new more housing finance community. He also provides
least a year, and house builders are significant heavily subsidised tier of Affordable Rent hous- a valuable overview of trends in the UK housing
providers of apprenticeships. Every £1 of invest- ing to cater for those on the lowest incomes the market including the decline in home ownership
ment in construction is estimated to generate a above example from the UK capital does serve to and social renting together with the rise of the
total of £2.84 in total GDP. “ remind us that at a time when public resources private rented sector.
are limited there can be a real tension between
Thus far few would disagree with the sentiment;
directly assisting those most in need and promot- Ying Chang and Jie Chen offer a valuable analysis
governments have long used investment in hous-
ing economic growth that should, ultimately be of public housing in Shanghai, a city of over 23
ing to generate accelerated economic growth
for the benefit of all. Such tensions are not easily million inhabitants. Their article covers not just the
and such investment has frequently been used
resolved by those with responsibility for housing Public Rental Housing Programme but traces the
to smooth out the impacts of the economic cycle.
policy since they touch not just on our aspirations development of a range of programmes that aim
Peter Williams in an article in this journal draws
for prosperity but on fundamental issues of moral- to tackle the formidable housing issues thrown
attention to just these effects1. Economic growth
ity. At this time of the year the Christmas story up by this burgeoning urban environment and
is a key factor and within England London has an
of the birth of Jesus whose mother Mary “laid by the need to promote economic growth from
economic growth rate almost twice that of the
country as a whole. him in a manger; because there was no room for a neo-liberal political perspective.
them in the inn” provides a poignant reminder
The position can become more contentious that for humanity questions about aspiration and Egypt has not so far been well-represented in the
in housing policy terms where economic fac- assistance and the degree to which we should pages of HFI. We are therefore pleased to include
tors influence who should be housed. The draft subordinate direct offers of help to the needy in an article by Mona Mostafa, Mortgage practice
London strategy states: order to indirectly promote greater economic in Egypt. Ms Mostafa focuses on the relatively
well-being are never easy to resolve4. underdeveloped state of the Egyptian mortgage
“In 2012 the Mayor launched his Housing market, which currently amounts to less than
Covenant. The premise is simple: those who In addition to the usual updates of news and 1% of GDP. Using a series of personal interviews
contribute through hard work to London’s suc- events from the global regions we have five with experts and market players, she offers their
cess should expect a reasonable offer in return.” significant full-length articles in this issue of HFI. insights into the issues facing those who wish
to expand the market together with a number of
The strategy identifies “professional, senior Housing privatisation has been a feature of significant recommendations for improvement.
managers or associated professional and tech- housing policy in Western Europe and the
nical jobs” as key in this respect and states that so-called transition economies for over two Our final article by Vibha Batra and Kalpesh Gada
“failure to provide homes for this group could decades. In their article Implications of housing examines the role that mortgage guarantees
have a disproportionate negative impact on privatisation in Europe, Wolfgang Amann and (otherwise known as mortgage insurance) could
London’s economy as many move out of the Katerina Bezgachina offer an important analysis play in the Indian mortgage market by using
capital in search of adequate housing.” London of the privatisation of public housing stock and risk transfer from the lender to the Mortgage
is not unique in focussing on groups with a key set out some of the positive and negative les- Guarantee Company to improve a number of
economic significance. In a fascinating article sons that should be learned by policy makers indicators including levels of regulatory capital
in this issue Ying Chang and Jie Chen examine and politicians. required and profitability.
housing policy in Shanghai, a city with over twice
the population of London. Amongst a range of The article by Peter Williams, Housing finance Having briefly described this excellent issue of HFI
policies they point to the Public Rental Housing and the housing market; lessons from the UK? it only remains for me to offer seasonal greetings
Programme and its role in housing the “talented (referred to above) derives from a presentation to all our readers.
1
Peter Williams: Housing finance and the housing market; lessons from the UK? 3
Ronald Sanchez Castro: Housing finance in South America 2013
2
Ying Chang & Jie Chen: Public housing in Shanghai: a tool with multiple purposes. 4
St. Luke Chapter 2 verse 7, The Bible, Authorised Version.
4 Housing Finance International Winter 2013Contributors’ biographies
Contributors’ biographies
Associate Prof. Dr. Wolfgang Amann; as Ying Chang is Assistant Professor, Department Kecia Rust is the coordinator of FinMark Trust's
director of IIBW, the Institute of Real Estate, of Urban Planning and Design, Xi’an Jiatong- Centre for Affordable Housing Finance in Africa,
Construction and Housing Ltd., Vienna/Austria, Liverpool University, 111 Renai Road, Dushu and manages the Secretariat of the African Union
Wolfgang Amann has executed some 300 Lake Higher Education Town, Suzhou Industrial for Housing Finance. She is a housing policy
research and consulting projects on housing Park, Jiangsu Province, PR China 215123. Email: specialist and is particularly interested in access
finance, housing policy and housing legislation Ying.Chang@xjtlu.edu.cn. to housing finance and the functioning of afford-
in Austria, the EU and many CEE and transition able property markets. Kecia holds a Masters of
countries. He is a consultant to the UN and World Jie Chen is Professor, at the School of Public Management degree (1998), earned from the
Bank and teaches real estate economics on Economics and Administration, Shanghai Graduate School of Public and Development
several graduate programmes in Austria. Email: University of Finance and Economics, Shanghai, Management, University of the Witwatersrand.
amann@iibw.at. 200433, China. Email: chen.jie@mail.shufe. She lives in Johannesburg, South Africa.
edu.cn.
Habib Attia is Donor Coordinator at the Making Ronald A. Sanchez Castro is Economist and
Finance Work for Africa [MFW4A] Partnership. Kalpesh Gada leads the Structured Finance Master of Finance at Federico Villarreal University
Prior to his position at MFW4A, he spent more Ratings team at the Indian Credit Rating Agency in Peru. He is a researcher and consultant on
than 10 years in financial sector development [ICRA], the Indian associate of Moody’s Investors finance, housing and urban development, and
in Africa and held successively different posi- Service and is also a member of ICRA’s Rating is Technical Secretary to the Inter-American
tions within Central Bank of Algeria, AFD, CGAP Committee. He has worked on securitization rat- Housing Union [UNIAPRAVI]. Email:rsanchez@
and MicroCred. A PhD candidate in Financial ings involving various asset categories including uniapravi.org.
Inclusion Strategy in the MENA region, Habib vehicle loans, home loans, unsecured personal
Attia holds a Master’s degree in Economics loans, small business loans, as well as corporate Mark Weinrich holds graduate degrees in politi-
from CERDI, University of Auvergne, France; loans. Email: kalpesh@icraindia.com. cal science and economics from the University
and graduated in advanced banking studies in of Freiburg, Germany. He is the manager of
Mona Mostafa holds a Master’s degree in Public the Department of International Affairs at the
Algeria. Email: h.attia@afdb.org.
Policy and Administration from the American Association of Private German Bausparkassen.
Vibha Batra is Co-Head Financial Sector Ratings University in Cairo, Egypt. Her research has He is the Head of the Department of Economic
at the Indian Credit Rating Agency [ICRA], the focused on the institutional capacity and chal- Affairs for the International Union for Housing
Indian associate of Moody’s Investors Service and lenges of the Egyptian mortgage market. Email: Finance in Brussels.
is also a member of ICRA’s Rating Committee. She monamt@gmail.com.
has worked on financial sector ratings covering Peter Williams was the Director of the University
Alex J. Pollock is a resident fellow at the of Cambridge Centre for Housing and Planning
banks and non-bank finance companies. Email:
American Enterprise Institute in Washington Research at the University of Cambridge with
Vibha@icraindia.com.
DC, USA, a Past-President of the IUHF, and was specialist interests in the areas of housing
Katerina Bezgachina is PR and Media Manager President and CEO of the Federal Home Loan finance, markets and policy and is now a
with Habitat for Humanity Europe, Middle East Bank of Chicago1991-2004. He can be reached Senior Visiting Fellow in the Department of Land
and Africa in Bratislava, Slovakia. She is involved at apollock@aei.org. Economy (from 1/1/2014). He is also Executive
in housing related research and communication Director of the Intermediary Mortgage Lenders
Zaigham M. Rizvi is Secretary General of the
about housing problems in Europe and Central Association. He was previously Chairman of the
Asia Pacific Union for Housing Finance, email:
Asia. Katerina holds an MA in International Government’s National Housing and Planning
zaigham2r@yahoo.com
Relations and European Studies from CEU and an Advice Unit [NHPAU], Deputy Director General of
MA in Journalism from the University of London. the Council of Mortgage Lenders and Professor
Prior to Habitat, she was a reporter and news of Housing at the University of Wales, Cardiff.
editor for print and radio, covering among other Email: consultpwilliams@btinternet.com.
things real estate in Russia and Central and
Eastern Europe. Email: kbezgachina@habitat.org.
Winter 2013 Housing Finance International 5Regional round up: news from around the globe
Housing finance news from Africa:
donors align efforts to support growth
in the housing finance sector
By Habib Attia, Making Finance Work for Africa and Kecia Rust, Secretariat,
African Union for Housing Finance
The growth and development of Africa’s hous- services; 12 percent provide supply-side sup- analysis of Africa’s housing market at the con-
ing finance sector has for some time received port and 12 percent are directed at research tinental level. It is expected to also propose
the attention of international development and knowledge. concrete policy recommendations to foster
finance institutions and donors, working along- private sector and DFI involvement in afford-
side either the private sector or government Given the breadth of this activity. MFW4A has able and quality housing on the continent.
in specific countries or regions, to support launched a Housing Finance Donor Working Mrs. Isadora Bigourdan reported that AFD’s
specific, targeted initiatives. For example, in Group [HF-DWG], to coordinate activities main focus in the housing sector was on sup-
recent months, the news has highlighted devel- between donors. The HF-DWG has four broad porting finance to the benefit of the middle
opments in Nigeria, Tanzania and Egypt where objectives: to low income households, and to promote
the World Bank has committed loan facilities Provide a platform for donors to exchange green and sustainable housing initiatives.
to support the housing finance sector. The information on innovative housing finance AFD has also developed a strong partnership
French Development Agency [Agence Francaise products and business models; with Shelter Afrique, supporting their social
de Development, AfD] has signed loan agree- housing programme with soft loans and a
ments with Shelter Afrique to support housing Promote the broad use of long-term financial grant directed at financial innovation. DiD’s
microfinance, and with Nedbank, one of the services as a key solution for the housing Francois St Pierre explained that their focus
largest banks in South Africa, to promote con- finance gap in Africa; was primarily on the development of appro-
sumer education on housing. Moreover, AfD, Encourage joint donor interventions on hous- priate housing microfinance approaches that
in partnership with Lafarge, has also extended ing finance issues in Africa; and would be suitable for addressing the breadth
a long term line of credit to LAPO (Lift Above of the need in most African countries. Finally,
Poverty Organization), a Nigerian micro-finance Create an enabling environment for raising IFC’s Britt Gwinner reported that with 19 per-
institution, to support the development of new capital towards the housing finance sector cent of IFC’s $18,3 billion in commitments
housing products. The European Investment in Africa. going to sub-Saharan Africa, the region was
Bank [EIB] is also working in South Africa, pro- Members of the HF-DWG include MFW4A, AfD, a priority for IFC, second only to Latin America
viding a loan facility to support the funding of AfDB, Developpement international Desjardins & the Caribbean. IFC provides investment
affordable and social housing. [DiD], EIB, FinMark Trust, the FIRST initiative, the services, advisory services and the investment
German development bank GIZ, the International of third party capital through an asset man-
In an effort to begin to keep track of these Finance Corporation [IFC], the MasterCard agement company. Britt Gwinner highlighted
initiatives, Making Finance Work for Africa Foundation, UN Habitat, and the World Bank. the opportunity that the donors and DFIs were
[MFW4A], a G8 initiative established to support The group presented their goals and programme seeking to maximise with their public and
the development of African financial sectors, of work at the recent AUHF Annual Conference, private sector counterparts. With a strong
has developed a Financial Sector Development held in Mauritius in September 2013. demand for housing finance across Africa,
donor projects database. The database, avail- public authorities in many countries have made
able on the MFW4A website (www.mfw4a.org), During the panel discussion, Dr Issa Faye reforms in recent years that make investment
shows a total of more than 1,500 projects, of of the AfDB, presented on that institution’s in the sector much more attractive. However,
which a total of 57 donor and development plans to undertake research into the state of there was insufficient residential developer
partner initiatives are somehow involved in Africa’s housing market. The research initia- and builder capacity. Banks could only make
housing finance in Africa. The majority of inter- tive, which is expected to begin at the end of affordable mortgages if the formal sector was
ventions are loans and just under half of the 2013, will commission a series of thematic building affordable houses. Unfortunately,
initiatives focus on the development of financial papers which will then be presented to five explicit attention to what would constitute
products; 36 percent on policy and regulation. regional workshops, across Africa. The core an enabling environment for business in the
About a fifth of the initiatives provide advisory output of the study will be a comprehensive housing construction and finance sectors was
6 Housing Finance International Winter 2013Regional round up: news from around the globe
still weak – donor and DFI advisory services Knowledge management and dissemination: More details on MFW4A can be found on www.
were therefore targeting these issues. Lastly, advocating for better and more unified data mfw4a.org. The various presentations made
macro-economic factors also begged for atten- on housing finance, and data sharing among by the DWG members at the AUHF Conference
tion: interest rates specifically remained far WG members; are available on the AUHF website: http://www.
too high. auhf.co.za/conference/mobilising-capital-for-
Projects’ support: using lessons learned from
housing-finance/
other parts of the world and pilot projects, to
By coming together in a HF-DWG, the donor and
identify one or several models that could be
development partner members of the HF-DWG
applied for the provision of housing finance
hope that they might realise the opportunity set
in Africa; and
by the demand and overcome the challenges
that they were each facing individually. Promote an enabling environment for hous-
ing finance in Africa, working together and
The MFW4A will coordinate the group’s objec- engaging with relevant African stakehold-
tives in a way that supports the broader growth ers in the sector to support policies, expand
of the housing finance sector across the con- access to finance for housing, increase
tinent. The DWG has agreed a work plan with awareness of the importance of housing
the following activities, and driven jointly by finance and improve investors’ confidence
HF-DWG members’ organisations: on housing investments.
Winter 2013 Housing Finance International 7Regional round up: news from around the globe
Asia-Pacific Union for Housing Finance:
News Update Q3-2013
By Zaigham M. Rizvi, Secretary General APUHF
The Government of Afghanistan has approved insurance companies for the facility of Mortgage people as possible. Copies can be obtained from
the formation of a Mortgage Department. This Insurance and expects to apply the insurance GH Bank’s Research and Information Services
unit of the Central Bank of Afghanistan [DAB] scheme next year. The company's rejection rate Department or could be downloaded from the
would exclusively be dedicated to the develop- is now 22-23%, the same as last year. Pruksa GH Bank web-site.
ment of mortgage policies, guidelines, products now helps customers obtain mortgage approv-
and various other functions. It is expected to play als by offering a variety of mortgage packages Bangladesh is geographically standing in
a proactive and pivotal role in the promotion of from 13 financial institution partners and by a calamity-riven area, faced with frequent
housing and housing finance in the country. The self-screening customer qualifications. The calamities of river erosion and fire in boats/
Central Bank is currently in negotiations with the Quality Housing Thailand [QH] President Mr. Rutt slums, forcing around 10% of people to lead
Asian Development Bank [ADB] to seek technical Phanijphand has announced that QH has bumped a sub-human life. Around seventy six percent
and financial assistance for the advancement up its down-payment rate for a condominium of people reside in slums and risky temporary
of housing and housing finance in the country. to 15-20% of the unit price from 10-15% in its houses. According to a recent report by the
The DAB is also pursuing Islamic finance includ- own bid to cap mortgage rejections at 10%1. Bangladesh Statistics Bureau, only 4% of the
ing Sharia-compliant housing finance. The DAB people of Bangladesh have safe and secure
already has an Islamic Finance Department, and Bangkok's condominium market showed signs homes in well constructed residential buildings.
is now selecting a Sharia Advisory Board as well. of slowing in the suburbs in the third quarter, As a result, close to 96% people are suffering
The country is currently at an advanced stage according to a report by Colliers International from the shortage of decent housing units. The
in setting up a Credit Bureau as well, which is Thailand. The number of new projects decreased Bangladesh House Building Finance Corporation
likely to be operative by February 2014. The by 10.5% from the previous quarter. The [BHBFC] and National Housing Authority [NHA]
DAB is also currently working to have a trained decrease was because developers were regulate and promote housing on behalf of
work-force for property appraisal and valuation concerned about household debt in the middle- the government. Both the BHBFC and the NHA
and is planning to initiate a training/certification to-low-income market and focused more on have been addressing the issue of housing in
program for the purpose. The country essentially the higher-income urban market and along the Bangladesh, more so in the low-income afford-
needs property registration and transfer to be extensions of mass transit systems. able housing segment. The BHBFC, since its
both cost and time efficient, and is exploring inception, has disbursed 43930 million Taka
possible technical assistance for the purpose GH Bank Thailand is celebrating its 60th anniver- to help the construction of 18 million housing
from the World Bank/International Finance sary with two commemorative publications, in units, which however is merely nominal when
Corporation [IFC]. both the Thai and English languages. The Thai set against the existing backlog and incremental
publication is based on a “60 years building demand. The BHBFC has approached the gov-
In Thailand, the "Mortgage rules will be stricter foundations for happy homes,” theme and the ernment to turn BHBFC in to a specialized bank.
next year and interest rates likely higher,….We English publication is entitled “Happiness and The BHBFC has also submitted a proposal to the
need to find supportive measures to help cus- Warmth, 60 years building foundations for Happy World Bank requesting a sum of US$120 million
tomers receive mortgage approval and reduce Homes”. The English publication will provide for a rural-based housing project.
rejection rates." , said the former president of the readers with a deeper insight into how GH Bank
Government Savings Bank. Pruksa, the leading has successfully achieved its vision and mis- In Pakistan the new Government of Prime
real estate institution is negotiating with local sion to provide dream homes to as many Thai Minister Nawaz Sharif has announced that it
1
uality Houses Public Company Limited is a Thailand-based company engaged in the residen-
Q
tial and commercial property development businesses.
8 Housing Finance International Winter 2013Regional round up: news from around the globe
intends to build 500,000 low-cost affordable The Prime Minister of Pakistan, Mian Muhammad panied the Prime Minister in his recent visit
housing units during the next five years. For the Nawaz Sharif recently visited Turkey's low cost to Thailand, had also visited the Government
purpose, wherever possible, the Government will housing project TOKI, with the view of replicat- Housing Bank of Thailand and National Housing
provide developed land either at nominal or no ing the project in Pakistan. Turkish Minister for Authority of Thailand to study their business
cost so as to make the housing affordable for Housing Erdogan Bayraktar briefed the Prime models for providing low-income affordable
the low-income segments of the population. Minister about the housing project and told him housing in the country.
To implement the program, the Government that TOKI constructs houses for low income
has set up a high powered steering committee families at affordable prices. He apprised the A Mission of the IFC visited Pakistan during the
under the chairmanship of the Finance Minister, Prime Minister that under this project, Turkey's quarter under review. The Mission held meetings
with representation from the public and private slum areas had been developed into beautiful with various stakeholders for the revalidation of
sectors. The Government is also setting up a residential schemes. He expressed the inter- the business plan and feasibility report of the
housing production company in the public sector est of the Turkish government in investing in Pakistan Mortgage Refinance Company [PMRC]
based on the business models of TOKI of Turkey Pakistan's housing sector. A delegate from the which is under active consideration by the IFC.
and the National Housing Authority of Thailand. Ministry of Housing in Pakistan, who accom-
Winter 2013 Housing Finance International 9Regional round up: news from around the globe
Europe: a shifting regulatory landscape
By Mark Weinrich, Manager of the Department of International Affairs
in the Association of Private German Bausparkassen
For many players in the housing finance sec- warned that they might need to start charging assessment than is the case for residential
tor the operational management of the new customers and companies for deposits if the US mortgages.
regulatory requirements is currently the major Federal Reserve cuts the interest it pays on bank
Creditors are obliged to conduct a thorough,
focus. The high frequency of regulatory projects, reserves further. While similar comments have
documented creditworthiness assessment
increasing complexity due to interdependencies not been heard in Europe so far, the statement
before granting credit; i.e. they have to con-
between the rules and great uncertainty as to by the US banks makes clear how challenging
duct a qualified test but they do not have
the final implementation of various initiatives a low interest rate environment is. In addition,
the “duty to deny credit” in the case of a
involve higher operating costs, so that other regulatory restrictions and intense competition
negative assessment as an earlier proposal
issues are pushed into the background. However, limit the possibilities for action.
suggested. The solution found is consumer-
regulatory requirements have an ever increas-
friendly and avoids legal uncertainty and
ing impact on strategic issues and business It is therefore good news that an agreement
litigation for the lender.
alignment. In addition, the sector is character- between the European Parliament (EP) and
ized by continuing low interest rates, increasing Council over the way in which Member States The MCD grants consumers a general right
competition and limited prospects for growth in should report how they have transposed to repay their loans early but gives Member
saturated markets, implying a growing pressure Directives has been found. This clears the way States the discretion to decide that creditors
on margins. for the several times postponed EP Plenary are entitled to fair compensation for costs
vote on the Mortgage Credit Directive (MCD). directly and exclusively linked to early repay-
Housing financiers that mainly rely on retail On December 10 the EP approved the new rules ment. This compromise gives Member States
business are particularly likely to see increas- on mortgage credit lending in respect of resi- with a tradition of fixed-rate mortgages the
ing pressure on their earnings because of the dential property. This is good news because the possibility of avoiding negative impacts on
low interest rate policy. The European Central compromise found on the MCD in often difficult lending business and refinancing arrange-
Bank cut interest rates again to a record low trialogue negotiations balances the interests ments. This is because an entitlement to
on November 7 and said it could take them of consumers and the housing finance sector compensation for costs directly linked to early
lower still. The main refinancing rate was cut very well: repayment allows lenders the freedom to
by 25 basis points to 0.25 percent. The move make contracts with or without indemnity,
The MCD generally follows a principle-based
came days after the October inflation report thus safeguarding product variety and lower
approach with minimum harmonisation of
indicated that inflation in the Euro-zone fell to interest rates for fixed-rate loans.
detailed rules so that the differences between
0.7 percent year-on-year in October. The record
national mortgage markets and their spe-
low lending rate has raised concerns that the After the EP has approved the MCD, a final
cificities are both appropriately taken into
ECB is running out of tools – or that the tools implementation date of early 2016 is likely and
account – which in turn makes better out-
still available might have severe side-effects. the focus shifts from the European arena to the
comes for consumers more likely.
The ECB is already contemplating imposing Member States and how they will transpose and
negative interest rates on credit institutions who Buy-to-let and part residential/ part com- implement the Directive into national legislation.
deposit cash with it. What extremely low or even mercial properties are rightly not within the Having in mind the challenges in transposing and
negative rates might mean for savers is already scope of the MCD as loans for these property implementing the Consumer Credit Directive, this
an issue in the US. Here, retail banks recently types require a different creditworthiness will not be the end of the story.
10 Housing Finance International Winter 2013Regional round up: news from around the globe
Housing “wealth” and illusion
By Alex J. Pollock
Modern fiat-currency central banks are in the ers of a bubble asset try to sell their stake in it, Now, however, the Federal Reserve has on its
money illusion business, which turns into the the bubble collapses, the evanescent “wealth” own balance sheet about $1.5 trillion of mort-
wealth illusion business, notably when it comes disappears, and the long-term trend reasserts gage securities, making it the biggest savings
to housing and the “wealth” represented by itself, as Figure 1 shows. and loan in the world. Under the prompting of
houses. the Fed’s bond market manipulation, U.S. house
Consider the long-term path of U.S. house prices prices again are moving above the inflation line.
Before 2007, central bankers in the U.S. and relative to inflation. Graph 1 displays a sixty year In my opinion, this is a central bank-induced
Europe managed to convince themselves they history, 1953-2013, setting the U.S. Consumer asset price distortion. When the Fed ultimately
had created a new era, “The Great Moderation”- Price Index and average American house prices stops buying bonds, and long-term interest rates
but what they actually presided over was the Era both equal to 1953=100. The high correlation rise to normal, significantly higher, levels, it will
of Great Bubbles. of general inflation and house prices over time put downward pressure on these artificially-
is obvious. Equally obvious is the huge devia- boosted house prices.
In the U.S. we had first the Great Overpaying tion from the trend relationship created by the
for Tech Stocks in the 1990s, then the Great housing bubble. Note especially how the shrivel In any case, the long-term trends suggest that
Leveraging of Real Estate in the 2000s. (Of took house prices all the way back to the long- there is little, if any, increase in U.S. house prices
course, the Great Leveraging of Real Estate also term inflation line. on an inflation-adjusted, or real, basis which is
occurred in other countries at about the same
time, and Europe in addition managed to create
the Great Sovereign Debt Mistake.)
Figure 1 Nominal House Price Index vs. Consumer Price Index, 1953-2013
Bubbles make a great many people very happy
while they last, because they think they are
becoming wealthier. But this so-called “wealth” 1,400
is an illusion, as they discover afterwards. 1,300
Nominal House Price Index
Inevitably following each bubble is a price shrivel, 1,200
Nominal House Price Index
as of course happened with U.S. house prices, 1,100
1953 Q1=100
which fell on average over 30%. Then many 1,000
American commentators talked about how peo- 900
ple “lost their wealth,” with statements like “in Nominal House Price Index
800
the housing crisis households lost $7 trillion in 700
wealth.” But since the $7 trillion is based on the
600
house prices of the bubble, it was never really Consumer Price Index
500
there in the first place, so it wasn’t really lost.
400
300
Common calculations of aggregate “wealth” take
the entire stock of an asset class and multiply it 200
by the bubble prices, on the theory that finan- 100
cial value is what you can sell something for. 0
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Of course, some clever or lucky individuals do
succeed in selling at the bubble highs, but the
aggregate bubble prices can never be realized Source: MGIC
by sale. As soon as large numbers of the own-
Winter 2013 Housing Finance International 11Regional round up: news from around the globe
sustained over time. The trends do suggest that since then gone to levels far above the U.S. peak. U.S. and other countries have, or not? Here is a
houses are, on average, a good hedge against Will the Canadian housing finance structures North American study in contrast, so far, and a
the inflation that fiat-currency central banks handle a shrivel, if it comes, better than the housing finance drama to watch.
intend to and do create.
Let us turn to another trend–that of wealth
owned by U.S. households per capita, both Figure 2 Inflation-Adjusted U.S. Net Worth Per Capita, 1953-2013
houses and all financial assets, including pen-
sion funds. As shown in Graph 2, the tech stock
$200
and housing bubbles created big, non-sustaina-
ble departures from the long-term trend, which $180
then disappeared.
2% Annual growth
$160 US Household Net Worth Per Capita
Considered over the long term, however, netting
Thousand of 2000 dollars
out the bubbles, Americans have still achieved $140
2% Annual
impressive increases in their ongoing wealth. growth
The trend is for inflation-adjusted, per capita $120
wealth in the U.S. to increase by about 2% per
year. The rate of increase may seem modest, $100
but in fact represents a miracle of the mar-
$80
ket economy. Figure 2 is the sixty year record,
1953-2013.
$60
The Era of Great Bubbles is readily apparent, $40
as is the subsequent regression right back to
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
the trend. Equally apparent is the long-term
In constant 2000 dollars
trend itself, rising at 2% per year compounded
on average.
Source: Board of Governors of the Federal Reserve and Bureau of Labor Statistics
Why should it be 2%? Increasing real aggregate
wealth can only result from increasing produc-
tion. From 1953-2013, U.S. real GDP grew by
approximately 3% a year; the U.S. population
by about 1%. Thus it makes sense that on the Figure 3 Housing Contrast: Case-shiller U.S. Home Price Index versus
trend, per capita wealth of the sustainable kind
Teranet-National Bank (6-City) Canadian Home Price Index, 2000-2013
grows at about 3% minus 1%, or 2%, once the
up and down excesses of bubbles have netted
230
themselves out. With a 2% trend increase, in a Teranet-National Bank Canadian Home Price Index
lifetime of 83 years, Americans will on average 220
S&P Case Shiller U.S. Home Price Index
grow five times as wealthy. 210
200
Home Price Index (Year 2000=100)
2006 Q2, 189.9
But along the way, they should avoid confus- 190
ing the “wealth” of bubbles with actual wealth. 180
They should most especially avoid incurring a 170
lot of debt, which will prove to be quite real, 160
against bubble asset prices, which will prove 150
to be illusions. 140
130
Moving to a North American context, it does
120
appear that Canada is experiencing a build-up
110
of illusory housing wealth. Figure 3 shows the
remarkable contrast between Canadian and U.S. 100
house prices, indexed to the year 2000=100. 90
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Where and how this Canadian house price run-
up will end is continues to be debated. The peak
of the U.S. housing price bubble was in the sec-
ond quarter of 2006, more than seven years ago.
With an interim correction in 2008, Canada has
12 Housing Finance International Winter 2013Regional round up: news from around the globe
Housing finance in Latin America 2013
Ronald A. Sanchez Castro
In Latin America, the realities within individual Paulo; in the first quarter sales grew 27.1% and In Ecuador, the housing finance role of the
countries are very different; however the coun- in the first semester sales grew 13 %. Ecuadorian Institute of Social Security [BIESS] has
tries of the region agree that to palliate the high been highlighted, accumulating 21,696 mortgage
housing deficit it is very important to secure joint In Chile, this year the State has launched a loan contracts from January to September 2013,
participation of the public and private sectors in program for directing housing subsidy to the an increase of 16.7% compared to the previous
both the financing and construction of housing. emerging middle class that in September 2013 year. Also, it has implemented policies such as
benefited 10,400 families. It also launched direct increasing the maximum repayment period to 30
In Argentina, despite the particular momentum of subsidies for the middle class in March and June years for such credit, to make it more affordable
the PROCREAR state program, which in October of 15,000 and 6,000 respectively. In August, the to poorer families.
reached record levels of 130,000 mortgage stock of mortgage credit to the private sector
loans, the real estate market still continues to be amounted to $ 48.820 US million, but given In the case of El Salvador, this is one of the
depressed. The PROCREAR program helped boost the heating of the economy that has been evi- worst years for the industry. Funding levels have
the construction sector, which had positive levels dent since late last year the Central Bank has decreased by more than half in June compared to
of growth for May. However, the real estate sector increased referral rates as measures to control the same month last year, also the housing con-
shows levels of contraction for the first quarter the strong growth of this type of credit. This has struction sector reported in June a drop of 55%.
of 30% from the previous quarter, and in recent been reflected in the fall of 4.35% in home sales
months fell 44.7 %, 22% and 19.4 %, in June, July in Santiago in the second quarter. In the case of Panama, the country is having a
and August respectively compared to the same good period for the housing sector. Mortgage
month in the previous year. This was because the Colombia, since the middle of last year, has lending growth is about 6% in each month of
mortgage system in Argentina is stuck, due to June, July, and August compared with the same
established greater State involvement in financ-
exchange rate problems that limit sales. In May months last year. Also it has introduced policy
ing housing construction through the program
this year the stock of mortgage loans fell 2.6% measures to expand credit ceilings, such as the
for 100,000 units of free housing, and through
compared to the same period last year. The State amendment of Article 5 of Act 3 that allows for
extending the subsidizing of interest rates for
also launched the CEDIN (investment certificates) a new maximum of $ 80,000 of credits for the
home purchases mainly for low-income families.
in mid- year, as a mechanism to “whiten” dollars program of preferential interest mortgage loans.
The State has allocated 1.3 and 1.7 billion pesos
and boost the real estate transactions; however
it was not as successful as had been hoped. for financing the housing sector in the first and Mexico is one of the most developed countries
second quarters respectively. This invigorated the of the region in respect of mortgage finance,
In Brazil, there is a strong and significant the level sector which showed growth levels in construc- with extensive coverage by institutions spe-
of housing finance, driven by both the private tion of 12.9 and 7.9% for the first and second cializing in housing finance. However, during
and public sectors; the public sector through the quarters respectively. this year the critical financial situation of the
subsidies programs. The Brazilian Association most important construction companies in this
of Real Estate Credit and Savings [ABECIP] In Costa Rica, there has been a strong tendency Sector has been highlighted (Homex, Urbi and
reported that during this year it has seen posi- to stimulate the housing sector through providing GEO). That is why throughout this year there
tive levels of funding amounting between January more liquidity by eliminating the legal reserve has been strong support from the State to
and September to R$ 79.3 billion. The Federal held at the Central Bank in respect of resources boost the supply of housing through programs
Economic Bank, reported significant amounts for housing, increasing the credit limit given by such as Guarantees for Construction and Fund
of funding, amounting to R $ 66 billion during the Mortgage Bank to ¢ 300,000, and creating a Stimulus Vertical Housing. Another important
the first semester. Likewise, the MIHA CASA fund to finance the middle class. The aim is not aspect is that the incomes of the population
MIHA VIDA state program has completed the only to provide access to housing for low-income have declined, so default on loans has increased
delivery of 28,000 housing units, which ended families but also to encourage the private sector and represented 14% of the portfolio in August.
up benefiting more than 120 thousand inhabit- in housing construction, because since the first Credit has also become more expensive and
ants by September 2013. The housing market quarter activity by the construction sector showed during the first half rose 3.44% compared to
also showed positive levels of home sales in Sao a decrease of 4.06%. the previous year. Still very important are the
Winter 2013 Housing Finance International 13Regional round up: news from around the globe
roles of the National Institute Housing Fund for year mortgage credit grew 25.26%, compared creating an obligation on banks that 20% of
Workers [INFONAVIT] and the Housing Fund of to the same period last year. It can be seen that their lending resources must be directed to
the Institute for Social Security and Services for the provision of mortgage credit in domestic mortgage financing. The subsidy ceiling has
State Workers [FOVISSSTE], which despite the currency has become stronger that in foreign been increased to 350 thousand bolivars,
collapse in their credits in the first half year (5% currency. The MIVIVIENDA state program and which represents an increase of 29.6% and
and 12%, respectively) have now succeeded in other new state programs such as Purchase the interest rate was reduced to a maximum
reversing these drops. INFONAVIT has exceeded Housing of Second Use have been highlighted of 10.66% for mortgage loans, among others.
the credit goal for 2013, more than the 545,000 and have boosted the construction sector so that The State also runs the Great Housing Mission
individual loans projected. in July it had a growth rate of 11.41%. program [GMV], which in September reported
an advance in project implementation of only
In Peru, since last year there has been a rapid In Venezuela, the housing sector is led by the 19% of the projected level. Also the levels of
growth in the real state sector. Despite measures public sector, while private participation in the growth of the construction sector for the first
to control the rapid growth in mortgage lending, construction of homes or properties is quite and second semesters have shown negative
this year has seen lending still growing, although depressed. So far this year various measures numbers 1.2% and 6%, respectively, compared
more slowly than last year. During the first half by the State have been implemented, such as to same period last year.
14 Housing Finance International Winter 2013Implications of housing privatization for Europe
Implications of housing
privatization for Europe
By Wolfgang Amann and Katerina Bezgachina
1. Introduction in the region. The Central Eastern European EU the ownership rate in the 12 new EU member
member states have an average ownership rate states increased by around 8 percentage points,
Changes in tenure structure in Europe over the of 81%, South Eastern European countries of 92% whereas it decreased by 4 in the EU15 (EU-SILC).
past decade show an interesting pattern. In and many former Soviet Union countries even
most western European countries ownership higher rates with an average of 89%. Mass privatization and a lack of new rental
rates are decreasing, whereas they are still housing construction led to a sharp decrease of
rising in Central Eastern European countries, 2.2 Tenure structure in the course of rental housing in all transition countries. Today,
yet from a far higher starting point. Housing transition the majority of them may be classified as Super
policy orientation on tenure structure seems to Homeownership States (Stephens, 2005) with
change. Increasing ownership rates used to be All transition countries had strongly increasing ownership rates above 90%. Rental housing has a
the mantra of housing policy in many Western ownership rates during the 1990s. In the 2000s decreasing significance in all transition countries.
countries until the 1990s and in most transition dynamics decreased. In recent years some of
countries until recently. One of the main drivers them, such as Poland or the Czech Republic, still However, this data hides important differences in
to increase ownership rates is mass housing have significantly increasing ownership rates, rental tenures. For example, housing organised
privatization. whereas others, such as some Baltic states, fol- by co-operatives has to be classified somewhere
low a reverse trend. Between 2007 and 2011 between rental and owner-occupied housing. In
In this article we analyse the present situation of
tenure structure and privatization strategies all
over Europe and Central Asia [ECA] and assess
the benefits and disadvantages of this impor-
tant housing policy tool. Finally we discuss the
criteria for a rational segmentation of housing Figure 1 Ownership rates in selected European countries, 2011
markets consisting of different tenures to allow
100%
for effective consumer choice. 98%
100%
93%
92%
90%
90%
90%
89%
Data on housing privatization in the ECA region
86%
84%
90%
have been scarce and rather fragmented until
81%
80%
77%
recently. We mainly refer to the current study of 80%
71%
IIBW conducted for Habitat for Humanity Housing
68%
68%
67%
Review on 23 countries in the Europe and Central 70%
63%
Asia region from 2013. This study appears to offer
56%
reliable data on this issue in a way that allows 60%
for conclusions for the entire region.
46%
44%
50%
2. Housing tenure in the ECA 40%
EU28
� CEE
� SEE
� CIS
CH
DE
AT
FR
NL
UK
TR
PL
CZ
RS
RU
HU
SK
HR
UA
UZ
AL
region
Re.: In few cases older sources than 2011;
2.1 Development of ownership rates
Country acronyms use endings of Internet country domains; regional data weighted;
Central and Eastern Europe countries (CEE): Czech Republic (CZ), Hungary (HU), Poland (PL), Slovak
Countries of the ECA region show a big variety of Republic (SK), Slovenia (SI); South Eastern Europe countries (SEE): Albania (AL), Bosnia-Herzegovina (BA),
ownership rates with Switzerland at one end with Bulgaria (BG), Croatia (HR), Macedonia (MK), Romania (RO), Serbia (RS); Commonwealth of Independent
only 44% and Albania at the other end with report- States countries (CIS): Armenia (AM), Azerbaijan (AZ), Kazakhstan (KZ), Kyrgyzstan (KG), Moldova (MD),
edly 100% (2011, Figure 1). The EU average is Russia (RU), Tajikistan (TJ), Ukraine (UA), Uzbekistan (UZ)
71%, which is quite similar to the USA or Australia. Source: Eurostat EU-SILC, National Statistical Offices, Euroconstruct, BuildEcon, AHML, IIBW estimates (AL, UZ)
But this is different for the transition countries
Winter 2013 Housing Finance International 15Implications of housing privatization for Europe
some countries, tenants of co-operative housing Currently, the EU average share of social rental at approximately half of market prices on average.
have tenancy rights close to ownership, but in housing is 11% (EU-SILC, 2011). In the whole As a result, the ownership rate in the UK increased
other countries such dwellings are clearly rentals. region though, social rental housing has quite during the 1980s by 12 percentage points to
In some countries, such as Poland, both types a diverse significance, with less than 5% of the 67% (Whitehead 1993). Between 1980 and 2010
exist side by side. housing stock in Slovakia, Romania, Ukraine, British municipalities privatized some 2.3 million
Hungary and Armenia, but above the EU aver- apartments and gained revenues of roughly £ 40
On the other hand, an informal rental market has age in Slovenia, Poland, Czech Republic, Russia billion, which was shared between local authori-
emerged in all transition countries. Privatized and Azerbaijan. ties and the Treasury. Housing privatization in
owner-occupied apartments are rented out, the UK is today assessed ambivalently. Only a
mainly serving demand at the lower end of the Market rental sectors differ even more from EU small share was invested to refurbish remaining
market. This tenure is mostly unregulated, with levels. Whereas 18% of the total housing stock social housing stocks. But due to cost degres-
hardly any tenant protection. Despite its consider- in the EU is rented out under market conditions sion refurbishment became more expensive for
able size, this tenure sector is statistically elusive, (EU-SILC), that figure is less than 2% in most the single unit. At the same time privatization
with no real data available. Hence, the docu- SEE and CEE countries and only slightly higher in affected those parts of the stock in better locations
mented ownership rates have to be discussed the CIS region (not considering informally rented and better technical condition. The municipali-
as an approximation, which makes cross-country private apartments). ties were left with residual parts of the housing
comparison quite difficult (Amann & Lawson, stock with a much more problematic social struc-
2012; Amann & Mundt, 2011; Andrews, Caldera There is a clear link between the rise in house ture. Privatization contributed to residualisation
Sánchez, Johansson, 2011). prices – and the resulting affordability problems and hence to a stigmatization of the remaining
– and the demand for public and affordable hous- municipal housing stock (Brown, Sessions 1997;
Before transition, the significance and institutional ing. The constant reduction of public housing has Goodlad, Atkinson 2004). Unbalanced privatiza-
setting of social rental housing was quite diverse. resulted in long waiting lists, keeping a large tion led to local shortages in affordable housing.
The public rental sector occupied more than 50% number of people in inadequate housing condi- Supply remained higher in run-down areas, but
of the housing stock in the Soviet Union, about tions or affecting their expenditures in other areas, became scarce in prosperous regions. Altogether,
28% in Central and Eastern Europe countries, such as food, clothing and health (UN Special the right-to-buy scheme contributed to a sub-
and below 20% in South-Eastern European coun- Rapporteur 2009: paragraph 34). Having a suffi- stantial devaluation of municipal assets (Wieser,
tries such as Albania, Croatia and Bulgaria. It cient supply of affordable housing affects different Mundt & Amann 2013).
was primarily state-owned in the CIS countries areas of development. It is important not only for
[Commonwealth of Independent States = for- shelter purposes, but also for the formation of a After an increase of the ownership rate in UK
mer Soviet Union], but enterprise-owned in the cohesive, inclusive society and for a country’s to 76% in the early 2000s the share has again
countries of the former Yugoslavia. There, social decreased to 67% in 2012, a stable share of 18%
economic development.
ownership titles could be inherited and swapped comprises social rent (Eurostat).
for private ownership. Consequently, a social
3. Housing privatization 3.2 Germany
rental sector as such did not exist in the former
Yugoslavia before transition. The homeowner- in Western Europe
ship sector in Bulgaria or the co-operatives in Germany had a strong limited-profit housing sec-
Czechoslovakia functioned quite similarly (Amann Public housing stocks have been privatized all tor until the late 1980s, when the underpinning
& Lawson 2012; Council of Europe 2002: 12-13; over Europe. But strategies differ a lot, both legislation was repealed. Since then the concept
Charles Kendall / Eurasylum 2009: 7). concerning the beneficiaries of privatization of social housing has changed fundamentally.
(social landlords, commercial investors, or sitting Today social housing is not any longer defined
But in the socialist housing system, the definition tenants), the quality of transfer of titles, freedom by the legal form of the housing provider, but
of social housing was quite uncertain, as the state of decision for landlords versus legal obligation by a public right of allocation and public control
housing policy followed a “unitary” structure, and last but not least purchase prices. Even of rent levels, which is usually connected to
to use the term coined by J. Kemeny (Kemeny regarding policy targets for privatization big public subsidies.
1995, Kemeny et al. 2001, Kemeny et al. 2005), variations are detected. In some cases it was
which meant that state-subsidized housing (both aimed at increasing ownership rates, mainly In addition to social landlords turning to mar-
in the public and in the owner-occupied sector) for ideological reasons, in others it was about ket orientation, public authorities and formerly
was open to a wide range of different income raising funds for public budgets or reinvestment public enterprises such as German Railways or
and professional groups (Amann, Hegedüs, Lux in social housing construction. Finally, some Deutsche Post started to sell their social rental
& Springler 2012). initiatives aimed to improve housing manage- housing stocks. But in contrast to the UK, pri-
ment with new owners. The cases of the UK vatization targeted not the sitting tenants within
By the 1980s, it became clear that governments and Germany demonstrate two quite different a right-to-buy scheme, but private investors. In
were failing in their constitutional responsibility for approaches (Mundt 2008: 338 ff.). several cases such deals involved up to 50,000
the provision of adequate housing. Countries such units, with a peak of transfers between 2000 and
as Hungary and Slovenia decided to maximize 3.1 United Kingdom 2005. Sitting tenants are protected from irregular
the resources of the population to address the rent increases or other immediate deterioration
persistent housing shortages. As a result, their Even before Margret Thatcher took office in 1979 of rent conditions by valid subsidies, retention
share of state-owned housing decreased. Other municipal rental apartments were sold to sitting periods, the strict German rent law and individual
countries, such as Russia, devoted more budget tenants. The new feature of her policy was a legal social charters. To achieve the expected returns,
resources to housing production, thereby retaining right to buy for sitting tenants and active promo- the private investors focus on sales of individual
the emphasis on state rentals (Roy 2008: 136). tion to do so. Sale prices were strongly discounted apartments. But due to strict rent protection this
16 Housing Finance International Winter 2013You can also read
