Housing Finance and New Housing Provision

In the 1990s countries in the region underwent structural reforms associated with privatisation of their centrally planned economies, and specifically with institutional, banking and financial reforms. This adjustment considerably affected the macroeconomic characteristics of emerging housing markets. Declining output, collapsing state industries, tight monetary policies and high inflation indicated a difficult process of macroeconomic transition from planning to markets. Further detailed discussion on the relationships between macroeconomic developments and the housing sector is beyond the scope of this research. Nevertheless, and despite the complexity of those interlinkages, several statements relevant to the study can be made. The housing sector is particularly sensitive to pressures created by economic recession and high inflation. In addition, austere fiscal policies contributed to decreasing levels of state and private investment in housing. Not surprisingly, housebuilding in South East Europe collapsed. Housing demand also contracted as a result of high interest rates, unemployment and slow wage adjustment. More importantly, the economic crisis in the region considerably affected the performance of mortgage markets and made housing finance reforms much more difficult. This chapter explores the transformation in two critical and most dynamic sectors of the housing system — housing finance and the provision of new housing. The comparative evaluation addresses two important questions: First, did the reforms establish a well developed system of housing finance? Second, is the market-based provision system for new housing more efficient in economic and social terms?