HOUSING POLICY IN DEVELOPING ECONOMIES: Evaluating the Macroeconomic Impacts

This paper presents a view of the role of the housing sector in developing countries which emphasizes the potentially high macroeconomic costs of inappropriate housing policies. Traditional public finance perspectives on the role of the housing sector in the economy focus on efficiency and equity implications of the rather modest levels of government spending in the sector. This paper points out that this traditional approach is misleading in that it is less government's spending in the sector than its role in defining regulatory frameworks, pricing policies, and policies affecting the financial sector that comprise the major instruments for influencing the performance of the housing sector and, in turn, the way its performance affects the macroeconomy. The paper also presents a simplified framework for analyzing how housing policies influence the housing sector and the macroeconomy. Simple applications of the framework suggest that the macroeconomic implications of housing policy choices can be of major importance. This is emphasized by two case studies, of policies in Argentina and Poland, where recent housing policies appear to have had major impacts on levels of investment, price and wage levels, and savings rates.