Overview

Innovations have been remaking the U.S. system of housing finance over the past two decades. This revolution of privatization, securitization, risk shifting, and deregulation has not occurred in one country: globally, market-based mechanisms for supplying and financing housing are replacing government mechanisms. Is this revolution an inevitable result of financial integration? Does it mean that governments are withdrawing resources from housing finance and leaving housing to market forces? And will this financial transformation make housing finance systems more efficient? This paper investigates these questions by comparing the transformation in U.S. housing finance with concurrent changes in the United Kingdom, France, and Germany.

Other authors have argued that global financial integration is making housing finance systems more efficient by forcing the reduction of governmental subsidies, less risk bearing by lenders, and a higher relative price of housing credit. We come to very different conclusions here. First, global financial integration itself does not explain the marketization of housing finance in every country. Another aspect of globalization is driving this transformation – governments' global financial deregulation and their global retreat from supplying housing to needy households. National deregulation has affected the character of mortgage financing flows far more than has the actual or threatened movement of funds across borders.