East European Regional   

16

Housing Sector Assistance Project   

  Other supply constraints on housing types and locations

  Rent control (artificially lowers the cost of existing housing)

  Higher relative cost of housing

  Privatization policies confer ownership at little or no cost (sometimes with

low cost credit from gminas); also, occupancy rights already confer  sense 

of ownership, so owners do not privatize.

!

Barriers to Effective Demand for Mortgage Credit in Poland and Other

Transition Countries

  Liquidity constraints (inability to secure a sufficient down payment)

  LTV (loan to value) constraints by conservative lenders

  Relative cost of mortgage credit (high real mortgage lending rates); also, as

noted above, low cost gmina credit for privatization

  Expectations/attitudes regarding indebtedness (by households and lenders

both?)

  Expectations/attitudes regarding the cost of housing relative to other goods

(especially consumer durables) and to income

  Expectations regarding local and/or regional political and employment

stability

Mobility rates are indeed very low in Poland, which has been a topic of concern with

regard to the impact of low labor mobility on economic growth. Tenure choice and

locational barriers will gradually be overcome as the construction sector expands;

however, rent control will inhibit both the demand for other housing and the formation of

a dynamic, privately financed rental sector. Also, to the extent that occupancy rights in

various types of housing convey a sense of ownership,  formal  purchase is not made.

Furthermore, to the extent that privatized units are very deeply discounted, no mortgage

credit may be required (in some cities, it is also possible to pay over time at low interest

or no interest).

LTVs are on average quite low. And real lending rates in mortgage finance appear

quite high.

14

  Table 2 presents a series of interest rates and the rate of inflation for

comparison. The rate of inflation and cost of government debt are steadily falling;

mortgage lending rates remain quite high.

14

Interestingly, although real mortgage lending rates may be quite high in much of CEE, households may

not be very sensitive to this fact.  See Diamond, op. cit.; he estimates real mortgage lending rates to be 5 percent

in Poland and Slovakia, 4 to 8 percent in Hungary, but zero (or minus 1 percent) in the Czech Republic.  However,

the use of mortgage credit is uniformly low in all the countries at about 20 percent of those purchasing a house,

as was cited above.