Recent years have witnessed the fast development of residential mortgage markets all over the world. In countries such as India, China, Turkey, Mexico, and Morocco, the introduction of market-friendly reforms has permitted the private mortgage sector to start expanding rapidly. By contrast, rental housing remains underdeveloped and underfinanced in many emerging economies. An inhospitable environment facing the rental sector is directly reflected in the large portion of the housing stock that is outside the bounds of formality. Without alternatives to buying a formal dwelling, which is often unaffordable to a large portion of the income distribution, households resort to informal housing, be it owned or rented. Thus, in many countries a large informal rental market exists, in which the landlords are mostly individuals, not firms. Th e financing of this rental stock is overwhelmingly based on equity.1 By contrast, in developed countries a number of financing options for rental housing has developed over the years.

In many countries, the rental sector houses the youngest and poorest parts of the population. In emerging economies, many renters would not be able to buy property, even if mortgage finance were more developed. Th e challenge facing policymakers is thus to provide affordable rental housing opportunities for these categories. One of the tools that can be used to achieve this is rental subsidies. These subsidies must navigate between two conflicting goals: they have to enable the supply of affordable rental housing for low-income households, while at the same time not discouraging investment in rental housing; for example, maintaining attractive risk-adjusted returns for rental investors. Developed countries have put in place various types of rental subsidies, either for the sector as a whole in order to stimulate investment, or more targeted to middle- and low-income households. The main issue with these subsidies is that they are usually fiscally expensive, and therefore may seem beyond the reach of most countries, which face at the same time more pent-up housing demands and less favorable macroeconomic conditions. T h e main objective of this chapter is to take stock of the various ways by which residential rental housing in emerging economies could be financed and subsidized in order to enable the provision of affordable rental accommodation for middle- and low-income families.