Housing Finance in Developing Countries: The Role of Credible Contracts

In most developing countries relatively little mortgage credit is voluntarily supplied. In most countries, it is the cost of postcontract governance rather than the cost of producing contracts that explains the restrained supply of mortgage credit. An examination is made of the qualities of housing investment that affect the costs of contract governance. In addition, a discussion is presented of the gains implied by improved governance of mortgage contracts. The chief gain is that housing finance systems in most developing countries would be able to grow spontaneously and rapidly. This growth, in turn, would improve shelter conditions as well as the efficiency of financial systems.