East European Regional   

24

Housing Sector Assistance Project   

determinants of LTVs.  Despite its importance, house value alone certainly cannot fully

explain the demand for credit, and many household socioeconomic characteristics are

significant in the decision.   In addition, while the level and variabi

18

lity of household income

are important, including the manner in which current income constrains the amount of

credit that can be supported, there is no final verdict on the structure of the relationship.

19

Furthermore, both the definition and impact of  liquidity constrained  are still being

debated, but, in general, if households are somehow constrained beyond the normal

expectations of their income and wealth relative to the underwriting process, some sort of

market failure may be at play.

20

  Another theory is that non housing wealth is a substitute

for mortgage debt, but evidence in both directions has been found.

21

  Finally, the level of

mortgage credit in the United States was not found to change much following the

introduction of adjustable rate mortgages; on the other hand, U.S. households are in fact

highly sensitive to changes in the deductibility of mortgage interest.

22

What bearing do any of these findings have on the development of models and data

for Poland.  Actually, the  lessons learned  that can be derived from the debates and

estimations to date can probably save Poland considerable time in model building and in

guidance as to which data are most important for inclusion in a household level survey.

All five questions noted above are probably of interest to Poland (even estimating the

impacts of its current tax policies on demand).  For example, estimation of income and

price elasticities will help determine what the impact of macroeconomic changes in income

and the cost of credit will be.  New mortgage products for example, simpler adjustable 

rate products replacing more complex DIMs could have a beneficial effect in Poland. And

finally, Poland is quite likely to want to investigate the  liquidity constraint  issues, since

it might be expected that both lenders and borrowers would be climbing a learning curve

in the early days of market lending; rationalizing the underwriting/budget constraint rules

might have a reasonably large impact on affordability.  Thus, the purpose of this brief

review was simply to help Poland not  reinvent the wheel. 

18

See Hendershott, Lafayette, and Haurin, 1997.

19

See, for example, Follain and Dunsky, 1997, op. cit.; Cho, Kim, and Megbolugbe, 1996; and Ioannides,

1989.

20

See, for example, Linneman and Wachter, 1989; and Follain and Wong, 1995.

21

See, for example, Hendershott and Lemmon, 1975; Jones, 1994; and Cho, Kim, and Megbolugbe, 1996.

22

See Goodman, 1992; and Follain and Dunsky, 1997.