East European Regional   

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Housing Sector Assistance Project   

and market research and consulting companies alike.  Similarly, construction companies,

builders, urban planners, realtors, and so forth are dependent not only on demand

forecasts but also on mobility estimates, tenure choice decisions, and the demand for

specific features of housing units and their location.

#

The Demand for Housing and the Demand for Mortgage Credit.

  It would

seem obvious that the demand for mortgage credit is closely related to the demand for

housing.  Although this is generally the case since most homes are financed with

mortgage loans in the United States mortgage credit is an independent variable in its

own right.  First, prepayment is not prohibited, and thus refinancing of existing loans

becomes very important if interest rates fall (by more than the transaction costs of

refinancing the loan).  Secondly, as mentioned above, consumers use home equity loans

for a wide variety of purposes; this is generally a cheaper form of financing than most

consumer loans.  Thirdly, RAM products allow elderly households to actually  consume 

their home equity without selling their homes.  All of these factors complicate the intensity

and direction of the relationship.

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#

The Demand for Housing and Mortgage Credit in Western Europe.

  The

majority of countries in Western Europe have a high rate of homeownership: a rough

average would be about 65 percent.  There is significant variance, however, from nearly

80 percent in Norway and Spain to over 65 percent in the United Kingdom to about 50

percent in Denmark and 45 percent in Germany. What is more surprising, however, is the

range seen across the countries with regard to the importance of mortgage debt relative

to GDP.  In the United Kingdom, Denmark, the Netherlands, Sweden, and Germany, the

ratio of mortgage debt to GDP exceeds 50 percent.  In contrast, for countries such as

Greece, Austria, and Italy, this percentage is quite low about 10 percent or less.  A

middle group includes France, Spain, Portugal, Ireland, Belgium, and Luxembourg, where

the ratio is about 25 to 30 percent.

The interesting result of these two trends is that the rate of homeownership and the

ratio of mortgage debt to GDP are not well correlated in Western Europe.  Obviously, then,

in some countries much of homeownership occurs without major use or any use of

mortgage credit.  Poland might investigate those Western European countries with high

or relatively high homeownership and smaller amounts of mortgage credit relative to

GDP Greece, Austria, and Italy as well as the  middle  group cited above. This is

especially true in Spain, Portugal, and Ireland, where Poland might look for suggestions.

In general, the trend in Western Europe is toward a quite rapid increase in the

amount of mortgage debt outstanding, both absolutely and relative to GDP. What factors

are contributing to this growth?  What barriers in real interest rates, in the attitudes of

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Furthermore, as discussed in section 3.0, some academics feel that theoretical models of the loan to 

value ratio that is, household leveraging are not yet sufficiently, or at least not empirically, tests.