The Feasibility of Estimating the Demand

for Residential Mortgage Credit in Poland

15

differ from those that impact the demand for credit, as clearly evidenced by the

(apparently) low utilization rates.

In combination, the rigidities of central planning and state owned housing

production, the remuneration of households to a substantial extent via in kind transfers,

and the distortions in the pricing systems whether of housing, interest rates, or consumer

goods have left the transition countries with very significant barriers to realization of

potential demand for housing.  Thus, a key problem in Poland is that of translating

 potential demand  for housing and residential credit into  effective demand.   This can be

a critical problem not only in the transitional economies but wherever government policies

and institutions have not been designed to be responsive to market signals concerning

demand and supply.

Problems of inadequate  effective demand,  as commonly perceived, can result from

policy failures on both the demand side and the supply side of the housing market.  For

example, households occupying heavily subsidized housing, who would, with smaller or

no subsidies, consider moving to another dwelling or even another city, may have little or

no incentive to move as long as subsidies persist.  Similarly, incentives to change

dwellings will be minimal if available housing is priced beyond the means of most

households perhaps as a result of government imposed restrictions on land development

or house construction.  With regard to mortgage credit, parallels exist concerning

demand  and supply side barriers to translating potential demand into effective demand.

If the possibility of government subsidized credit exists for a household (such as through

contract savings schemes), even if it must  wait for years to take advantage of it, the

household may be reluctant to seek credit at market rates of interest; this is a demand side

barrier to effective demand for private mortgage credit.  On the supply side, any policy that

either rations credit or increases its price (such as inefficient legal and administrative

practices in granting credit or failure to manage credit risk properly) will restrict the ability

to translate potential demand into effective demand.

Studies of the demand for housing and mortgage credit should seek insofar as

possible to identify the key barriers on both the demand and supply side of the market for

housing and credit and to quantify their relative impacts.  By so doing, priorities can be

established for policy, administrative, and institutional reform. They should then also

attempt to decompose the sources of shortfalls in effective demand for both housing and

residential credit according to both demand  and supply side policy shortcomings.  Some

of the constraints that have been cited as potentially damaging include the following:

!

Barriers to Effective Demand for Housing in Poland and Other Transition

Countries

  Mobility constraints

  Tenure choice barriers