Housing finance systems should promote the attainment of adequate housing outcomes for all in an economy. But some are too small, unable to help ameliorate the substantial housing deficits faced in many countries. Others are quite large, apt (but not necessarily destined) to create instability and substantial volatility, as the global financial crisis has highlighted. While the financial instability of some large systems – notably that of the United States – has been the recent focus in many advanced economies, there are more countries with housing finance systems that are too small. Our aim in this paper is to provide countries that would like to grow their housing finance systems with a simple framework that highlights factors that are all within a government’s set of feasible instruments. The framework extends the Warnock and Warnock (2008) assessment of mortgage markets around the world. We gather data from many sources on the size of mortgage markets in 61 economies as of 2009 and show that there is substantial variation. a model of the size of a country’s mortgage market that will inform our reduced-form regressions. The model is similar to the one in Warnock and Warnock (2008, henceforth WW) which, using cross-sectional data from around 2005, studied 62 economies to examine the extent to which markets enable the provision of housing finance.

The study found that, after controlling for country size, economies with stronger legal rights for borrowers and lenders (through collateral and bankruptcy laws), deeper credit information systems, and a more stable macroeconomic environment have deeper housing finance systems. Not surprisingly, many factors associated with well-functioning housing finance systems are those that enable the provision of long-term finance (Burger and Warnock 2006; Chan, Davies and Gyntelberg 2006; Davies, Gyntelberg and Chan 2007; Burger, Warnock and Warnock 2012). The results and policy implications of the WW analysis have important lessons for emerging market economies looking to grow their mortgage sectors, showing empirically some fundamental preconditions that are necessary to develop mortgage markets.