Market Capitalization. Deep and efficient mortgage markets depend on long-term funding sources, which are rarely available through retail deposits and which come from non-banking financial institutions, including insurance companies and through financial markets. Securitization of mortgage portfolios requires deep and liquid markets, while deep public bond markets might provide the necessary pricing reference with a long yield curve. However, there might also be crowding-out effects from high public debt. We use stock market indicators as proxy gauges for capital market development, as bond market indicators are not available for as large a sample.

The results in Table 5 show that both Mortgage Depth and Housing Loan Penetration increase with the development of the insurance sector. Both Life Insurance Penetration and Insurance Assets to GDP enter significantly and positively in the regressions of both Mortgage Depth and Penetration, confirming that the development of the mortgage market goes hand in hand with the development of this financial sector segment so critical for longterm finance. We also find that a larger stock market is associated with higher Mortgage Depth, but not higher Housing Loan Penetration, while more liquid stock markets are associated with both higher Mortgage Depth and Housing Loan Penetration. While private bond market capitalization to GDP is significantly and positively associated with Housing Loan Penetration, but not Mortgage Depth, public bond market capitalization to GDP is negatively and significantly associated with both Mortgage Depth and Penetration. Undertaking the robustness tests of controlling for GDP per capita or Private Credit to GDP or limiting the sample to high-income countries broadly confirms our findings. In summary, these results confirm the importance of the development of non-bank financial institutions and financial markets for the mortgage segment of the financial system. It is interesting to note, however, that a larger public bond market—often conjectured to provide benchmark interest rates for mortgage finance products—is negatively associated with the depth and penetration of mortgage finance, which might be due to crowding-out effects.

Table 6 presents regressions of Mortgage Depth and Penetration on variables gauging different dimensions of the contractual and information framework in which banks operate. Previous research has shown the importance of the contractual and information frameworks for financial deepening (e.g., Djankov, McLiesh and Shleifer, 2007) and given the long-term nature of mortgage finance, theory suggests that they should be at least as important for the mortgage finance segment. In addition, we explore several housing-specific dimensions of the business environment. Specifically, we relate Mortgage Depth and Penetration to (i) the efficiency of credit registries, (ii) a creditor rights index, (iii) the costs of registering property, (iv) the costs of enforcing contracts, and (v) the number of procedures to obtain a construction permit. All five indicators come from the Doing Business database of the World Bank Group. While we expect a positive relationship between the development of mortgage markets and the efficiency of credit registries and creditor rights, we expect a negative relationship with a more cumbersome business environment and contract enforcement.

The results in Table 6 suggest that Mortgage Depth is higher in countries with a lower number of procedures for construction permits and stronger creditor rights, while it is not significantly associated with cross-country variation in the cost of property registration, cost 16