Asian Pacific Union of Housing Finance
Conference
Housing Finance: New Approaches
for Access to Finance
April 11, 2013
Ira G. Peppercorn
Housing Finance Group
Finance & Private Sector Development
Shortage of Affordable, Safe Housing
• 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)
100
90
80
70
60
50
40
30
20
10
0
Northern America
Latin America and the
Caribbean
Europe
Oceania
World
Asia
Sub-Saharan Africa
2
Nairobi
3
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
Rising Demand is not Matched with Access to Finance
Mortgage depth (2006-2010) and
Penetration (2011)
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.
South Asia
Sub-Saharan Africa
Mortgage
Penetration
Mortgage Depth
Latin America & Caribbean
Middle East & North Africa
Europe & Central Asia
East Asia & Pacific
North America
0% 10% 20% 30% 40% 50% 60% 70%
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.
Sub-Saharan Africa
South Asia
East Asia & Pacific
Middle East & North Africa
Latin America & Caribbean
Europe & Central Asia
North America
0.0%
2.0%
4.0%
6
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
7
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
8
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
Port au Prince
10
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
11
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
12
Example: India Low Income Housing Finance Project
High Income
75% of
population
3% of housing
loans
EWS, LIG
Low Income
13
India - Distributional benefits of expanding access to finance
Informal lenders charge higher rates...
...and poorer households use informal lenders more.
1
2
3
4
5
6
7
8
9
10
Money lender
Friend
NGO
Relative
Other
Employer
Credit group
Bank
Govt. program
0
10
20
30
40
50
0
Average annual interest rate on housing loans, by source (%)
20
40
60
80
Borrowing from informal sources, by income decile (%)
Poorer households pay more to the same lender......and could benefit the most from switching to formal credit.
1
2
3
4
5
6
7
8
9
10
NGO
Employer
Friend
Other
Money lender
Credit group
Bank
Relative
Govt. program
-2
0
2
4
6
8
Rate premium paid by the bottom 40 percent, by source (% points)
Source: Calculations using IHDS data, urban households only.
0
5
10
15
Average income gain, by income decile (%)
20
Delhi
15
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 at
documents.worldbank.org
Contact Information
Michel Noel, Manager, Non-Bank Financial Institutions
Mnoel@worldbank.org
Alfonso Garcia Mora, Lead Housing Finance Specialist
Agarciamora@worldbank.org
Simon Walley, Housing Finance Program Coordinator
Swalley@worldbank.org
Ira Peppercorn, Senior Housing Finance Specialist
Ipeppercorn@worldbank.org
Tuo Shi, Housing Finance Specialist
Tshi@worldbank.org