Financial policies and practices that affect housing finance Accessibility and affordability by low income urban households

Abstract

Housing finance still remams the foremost challenge in the provision and accessibility of adequate shelter to the bulk of low income urban households. Today we witness predominance of two extreme outcomes of current shelter systems, adequate shelter that is unaffordable or affordable shelter that is inadequate. Formulating and implementing policies and strategies that can make shelter both accessible and affordable for the low income urban households remains the principal challenge to most countries today. This study reviews literature on accessibility and affordability of housing finance with a view of identifying the financial policies and practices that affect accessibility and affordability of housing finance by low income urban households. The study traces the evolution of housing finance policies. Theories which inform housing finance accessibility and affordability by low income urban household, as well as the current theoretical perspectives are also looked at. Finally, empirical literature review on fiscal and monetary policies that affect housing finance accessibility and affordability by low income urban households, practices by HFIs that inhibit housing finance accessibility as well as incentives that facilitate accessibility of affordable housing by low income urban households is undertaken. This is done with a view of determining whether they have enhanced accessibility of housing finance by low income urban households. Firstly, the study affirms that accessibility and affordability of housing finance for low income urban households is a widespread problem in both developed and developing countries. In addition factors contributing to accessibility and affordability problems are complex and diverse with major driving factors found both within and beyond the housing system. Such factors ~ include the global rise in property prices over the past decade and, in particular the appreciation of housing prices in the inner urban precincts of larger metropolitan areas. Secondly, the study establishes that direct access to housing finance from banks for the low income urban households, is extremely difficult due to lending practices, product design and selection criteria. HFI's require that borrowers have a stable source of income; they prefer dealing with large loans in small numbers to minimize administration costs as well as collateral with a clear title. Low income urban households on the other hand do not have stable incomes, they would be better served with many small loans and they lack clear titles. Thirdly, the role of microfinance in improving low income households accessibility and affordability of housing finance in emerging markets has not been fully explored. Finally, the impact of capital markets in mobilizing pension funds for financing low income housing has not been adequately investigated particularly in the developing countries.