Comparatively little attention has been paid to the housing finance constraint to dealing with severe housing problems. That is, even if there are projects which can improve housing conditions, and even if affordable housing units can be built, progress still may be frustrated if financial mechanisms are inadequate to enable house purchase and improvement to be effected. Here the differences between developing and industrialized countries can be as significant as those in respect of housing itself.
In most industrialized countries there is no longer a housing finance constraint to the achievement of housing objectives. That is, where people can afford to buy houses there are financial mechanisms which will help them to do so.
However, even this does not hold true in all industrialized countries today, and only recently have housing finance obstacles been removed in others. For example, the maintenance of interest rate controls in New Zealand has made for an inefficient housing finance market which has filtered through to the housing market itself. In the United States, regulations which forced savings associations to borrow short and lend long led to massive problems in the housing finance industry in the early 1980s, which fed through into housing itself, and the recent adoption in the United States of the adjustable rate is held to have contributed to the recovery of housing starts. In France the establishment of the mortgage market in the 1970s contributed to an easing of the problems which people faced in acquiring homes, and much the same applies in respect of the establishment of mortgage insurance in the 1960s in Australia.
This brief analysis in itself suggests that developing countries can learn from industrialized countries, particularly their mistakes. However, it is clear that developing countries face far more severe problems in respect of housing finance that are specific to them. These problems basically are the lack of financial markets generally and unfamiliarity with basic concepts such as long-term loans, interest, and repayments.
The chapter begins with a brief analysis of types of housing finance institutions in order to put the position of developing countries in context. It then goes on to consider the development of retail financial institutions and housing finance in developing countries, before concentrating on the need to encourage the mobilization of savings and how this can be achieved.