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Housing Finance Panel: MANDATORY HOUSING FUNDS

Housing Finance Panel: MANDATORY HOUSING FUNDS. Bertrand RENAUD BRenaud@cal.berkeley.edu. - Session E-5 - Joint AREUEA-AsRES International Conference Seoul,KOREA, 4-6 July 2002. Mandatory Housing Funds. Legacy of directed credit policies: Korea: National Housing Fund

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Housing Finance Panel: MANDATORY HOUSING FUNDS

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  1. Housing Finance Panel: MANDATORY HOUSING FUNDS Bertrand RENAUD BRenaud@cal.berkeley.edu - Session E-5 - Joint AREUEA-AsRES International Conference Seoul,KOREA, 4-6 July 2002.

  2. Mandatory Housing Funds Legacy of directed credit policies: • Korea: National Housing Fund • Japan: Japan Home Loan Corporation • China: Housing Provident Funds (1994) • Philippines: HDMF-Pag Ibig • Singapore: Central Provident Fund • Mexico: Infonavit • Other cases in Asia, Latin America, Europe

  3. Rationale Behind Mandatory Funds • Increase individual saving rates • Mobilize more resources for the housing system and/or for the total economy • Raise L-T resources at a low cost • Relieve the government from its social burdens and reduce budgetary costs • Avoid adverse selection because everybody has to save a wage percentage for housing • Target more resources for middle- and low-income households

  4. Types of Problems • Weak legal charter and improper governance structure: savers’ right in decision-making are ignored. • In some countries like China, HPF quasi-fiscal resources for other projects than intended. • Regressive income redistribution.Successful loan borrowers represent a small proportion of total savers. Have the higher incomes. • Liquidity and funding risks • long-term sustainability

  5. Directions for Change • Mandatory funds must not undermine financial sector modernization. Impact on the savings market? Loan under-pricing? • Become a “second tier”financial institution • Governance structure • Consumer responsive rather than MOC and planner driven • Link contributions to benefits to avoid regressive outcomes (CSH) • No monopolistic distribution channel

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