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Transcript of Asian Pacific Union of Housing Finance Conference Housing Finance: New Approaches for Access to...
Asian Pacific Union of Housing Finance Conference
Housing Finance: New Approaches for Access to Finance
April 11, 2013
Ira G. PeppercornHousing Finance GroupFinance & Private Sector Development
Shortage of Affordable, Safe Housing
2
• World Urbanization in 2010 – 50.5%• Slum Dwellers grew from 777mm to 850mm 2000-2010• Positive factor: 227 million moved from slums; doubling MDG goals• World needs 4,000 houses an hour to keep up with demand (UN-
Habitat)
0102030405060708090
100Northern America
Latin America and the Caribbean
Europe
Oceania
World
Asia
Sub-Saharan Africa
3
Nairobi
Why Does Housing Finance Matter for the World Bank and its Clients?
• Many households aim to improve living conditions and are
in need of finance; self construction often slow
• Housing Finance helps make long term investment into
housing more affordable and accessible for households
• Housing Finance can help to support housing demand
which is a key economic driver and job creation engine
4
World Bank: Critical Factors for Development of Housing Finance Markets
• “Value for Money”, i.e. maximize the impact of public resources, leveraging government initiatives with the involvement of the private sector, with the goal of achieving a higher multiplier
• Coordination, i.e. ensure the coordination between administrations and public/private sectors, to maximize the efficiency and effectiveness of the programs
• Public sector role, i.e. from provider to enabler of housing
• Inclusive housing finance, i.e. include non-salaried borrowers
• Progressivity, i.e. ensure an equitable allocation of resources
• Incremental housing, i.e. consider alternative instruments and mechanisms to promote incremental housing products
5
6
North America
East Asia & Pacific
Europe & Central Asia
Middle East & North Africa
Latin America & Caribbean
Sub-Saharan Africa
South Asia
0% 10% 20% 30% 40% 50% 60% 70%
Mortgage depth (2006-2010) and Penetration (2011)
Mortgage Penetration
Mortgage Depth
The mismatch in housing finance market development is evident across regions, with North America, and East Asia and Pacific regions showing the highest mortgage depth and penetration, and South Asia and Sub-Saharan Africa the lowest.
North America
Europe & Central Asia
Latin America & Caribbean
Middle East & North Africa
East Asia & Pacific
South Asia
Sub-Saharan Africa
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%
Annual Urban Growth Rates By Region (2015-2050) Though the fastest growing urban
cities are located in South Asia and Sub-Saharan Africa, these regions currently have relatively underdeveloped mortgage markets.
Rising Demand is not Matched with Access to Finance
7
Development Challenges-Access to Finance
For lower income economies there is much greater reliance on informal sources of financing, e.g. family or friends
Home Loan Penetration by use of formal accounts – Adults ages 25+ with an outstanding loan to purchase a home or apartment
Source: 2012 Global Findex Survey
Challenges in Serving Low Income and Informal Borrowers (i)
• A large part of the population has non-salaried income, whose creditworthiness cannot be verified using conventional techniques
• The existence of a large part of the population that cannot afford the down payment needed for a mortgage
• The inexistence of deep and stable capital market that provides easy access to long term funding
• Lack of suitable products in area of rental, self-construction and home improvement finance
• Policy actions often not consistent with stated policies: i.e. low income policies and interest rate subsidies used with mortgages
• Legal and regulatory structure often undeveloped or ineffective
• Differentiation between regulation of mortgage finance and microfinance
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Challenges in Serving Low Income and Informal Populations (ii)
• Shortage of safe, affordable housing
• Many properties informal without title: lack of asset security
• Inconsistent or nonexistent standards for safe building
• Land and permitting regulations and processes inefficient
• Availability of inexpensive land in city centers
• Lower cost housing often far from urban core
• Infrastructure not always developed
9
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Port au Prince
Moving to Solutions: Some of World Bank Current and Forthcoming Partnerships
India: Funding and technical assistance for mortgage and housing microfinance for low
income people
Bangladesh: Cooperative housing finance for slum upgrading
China: Financing and managing public and social housing
Ecuador: Subsidy restructuring, construction finance for affordable housing, and access to
finance
Egypt: Liquidity facility and smart subsidies
Indonesia: Subsidy effectiveness, expand mortgage market, public rental housing and
housing microfinance
Tanzania: Funding and technical assistance for housing microfinance
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Low Income Housing Finance Project - India
• $100 million World Bank Financial Intermediary Loan Funder through IDA
• National Housing Bank is implementation agency
• Funds flow to housing finance corporations and micro finance institutions
• Distribution partnership with Small Industries Development Bank
• Target population: Income under Rs 15,000
• Main target: formal property; informal income
• Microfinance will be used
• Pilot projects for informal/informal
• Technical assistance key component
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Example: India Low Income Housing Finance Project
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EWS, LIG
75% of population
3% of housing loans
High Income
Low Income
India - Distributional benefits of expanding access to finance
0 10 20 30 40 50Average annual interest rate on housing loans, by source (%)
Govt. program
Bank
Credit group
Employer
Other
Relative
NGO
Friend
Money lender
Informal lenders charge higher rates...
0 20 40 60 80Borrowing from informal sources, by income decile (%)
10987654321
...and poorer households use informal lenders more.
-2 0 2 4 6 8Rate premium paid by the bottom 40 percent, by source (% points)
Govt. program
Relative
Bank
Credit group
Money lender
Other
Friend
Employer
NGO
Poorer households pay more to the same lender...
0 5 10 15 20Average income gain, by income decile (%)
10987654321
...and could benefit the most from switching to formal credit.
Source: Calculations using IHDS data, urban households only.
15
Delhi
Benefits of Increasing Financial Tools to Low Income People
• Low income people can enter formal financial markets
• Increase in demand through finance can motivate increase supply
• Houses can be improved or constructed faster and more efficiently
• Rental housing can be a component of home expansion
• Can integrate safety standards into loans
• Jobs can created in construction industries
• Improvement in housing can mean an improvement in people’s lives
16
Thank You
Download: Peppercorn and Taffin, Rental Housing atdocuments.worldbank.org
Contact Information
Michel Noel, Manager, Non-Bank Financial [email protected]
Alfonso Garcia Mora, Lead Housing Finance [email protected]
Simon Walley, Housing Finance Program [email protected]
Ira Peppercorn, Senior Housing Finance [email protected]
Tuo Shi, Housing Finance [email protected]