Housing Finance in Transition Economies: The Early Years in Eastern Europe and the Former Soviet Union

The transition to markets dominates the development agenda of the 1990s. Financial sector reforms are central to a successful transition to a market economy. The author focuses on one dimension of these reforms: the development of housing finance institutions and services. He presents a progress report for the years since 1989, when the road to change opened with the collapse of communist regimes in most countries. Rather than a detailed account of reform in 25 countries, he offers a general framework for analyzing change and evaluating the prospects for rapid development of market-based housing finance systems. To understand why sound housing finance systems have not yet developed, one must consider factors in four key reform areas: the macroeconomic policies adopted to liberalize the economy and stabilize prices; privatization policies, in particular in housing and real estate; the strategies adopted - whether by design or by default - to reform the financial sector; the nature of the financial priorities and institutional constraints affecting housing finance reform strategies followed in different countries. Housing finance policy development has been somewhat haphazard in many countries. But the evidence suggests that the transition economiesthat have achieved low inflation, have adopted radical banking reforms, and seriously reformed and liberalized their real estate sector should be among the first to develop a modern system of housing finance.