Housing, Finance, Policy and the Wider Economy

Building an understanding of the complex dynamics between housing, finance, policy and the wider economy is a critical step towards the development of a strategy that permits policy makers to leverage resources and enable the housing market to function better in the pursuit of economic, financial and social objectives. Powerful real, legislative and financial circuits suggest that an enabling strategy for housing can support societal progress and wellbeing. By summarizing the key findings in the existing theoretical and empirical literature, this study helps to explain the complex interrelations between housing, finance, policy and the wider economy by using a simple model; it also deals with housing-related policies and their effects, examines the rational for housing market regulation, investigates whether housing market corrections threaten financial and macroeconomic stability, and asks whether policies are efficacious at controlling housing market outcomes. The important takeaways from this study are: (i) policy setting should be evidence-based, which necessitates further efforts to address existing data deficiencies; (ii) finance trends are in flux and policy effects can be asymmetric, which necessitates regular and critical housing market reviews to identify misallocation, dislocation and reform needs; (iii) improvement in the functioning of the housing market requires a coordinating authority that takes steps to reconcile the various housing market stakeholders¡¯ mutually incompatible interests and arrange for concerted policy and institutional reforms. The study closes with an outlook on future research.