Blog » Housing Finance
This article is originally posted here.
The world’s population is growing and moving into urban areas rapidly. This puts a double strain on existing housing resources. Many countries are unable to keep up with the demand, and the result is burgeoning areas of informal housing, overcrowding, and slums.Addressing these challenges requires large-scale investment in housing production. Governments alone cannot meet this burden, so private sector funds need to be channeled into housing investment. This requires a housing finance system to be functional for home buyers and real estate developers. One of the key challenges is overcoming the obstacles to creating a functioning housing finance market. These obstacles may include lack of credit risk management tools, difficulties foreclosing on property, difficulties registering title and land, lack of capacity among lenders, affordability when interest rates and inflation are high and, probably most critical of all, lack of access to long-term finance. Another challenge is how to develop affordable housing solutions for lower and informal income groups Whilst the usual building blocks of title registration, foreclosure, sound lending regulations, consumer information, long-term funding instruments, etc. remain paramount to the successful development of any system, increasingly, the focus has also moved to finding a means of expanding access to housing finance to lower and informal income households.A final key challenge in many middle-income countries and developed economies is the effect of the financial crisis on housing finance markets. This led to a sharp slowdown in lending and much reduced affordability because of higher deposit requirements or stricter underwriting rules.
The housing finance team works in coordination with other parts of the World Bank and IFC to provide a comprehensive approach that reaches across the entire housing value chain. The team’s focus is on five strategic areas to provide governments in client countries the tools to tackle the challenges listed above. These include:
Each of these areas is critical to build a sustainable and efficient housing finance system—a system that will benefit people from many income levels and will allow them affordable housing.
The most important aspect of the work, though, is creating systems that address the needs of households at different income levels, yet also building a system that can be sustained, scaled up, and oriented to the private sector.