mortgage market development. Moreover, Buckley and Madhusudhan (1984) test a model of the relationship between housing investment and GDP, anticipated inflation, changes in inflation, and the extent of capital deepening across several developing and transition countries. They find that, holding all else constant, countries with deeper financial markets invest relatively more in housing.

Moreover, Haibin and Zhu (2006), by analyzing the structure of housing finance markets and house prices in selected Asian countries, find evidence that in economies with more flexible housing finance markets, house prices are more responsive to overall changes in market conditions, particularly equity price movements. The main explanatory variables used were GDP, bank credit, equity prices, short-term rates, consumer price index, and the exchange rate.

In addition, Besley et al. (1992), showed that the Rotating Savings and Credit Associations (ROSCAS) achieve much higher allocative performance than other types of finance do—an indication that informal finance matters in long-term finance. Their result highlights the need to verify whether ROSCAS can be used as a housing finance alternative in Africa, where this type of financial institution is very common. The fact that the formal housing finance system is limited in SSA countries underscores the need to investigate the alternative of informal housing finance systems.

Finally, many studies show that government involvement is not one of the determinants. For example, Badev et al. (2014) show that neither government subsidies, nor government support of housing financing through state banks dedicated to housing finance, has been proven to spur the housing sector. In fact, many developing countries have had such banks for many decades, but their housing finance sector remains miniscule.

# **2.2. Channels used by housing finance to impact growth and inequality**

The literature indicates that housing finance affects economic growth by reducing the cost of capital, increasing savings, increasing tax revenues, increasing investment in education, reducing vulnerability, and increasing financial deepening. By reducing the cost of capital, housing finance can spur economic growth. In fact, Dubel (2007) provides a model analyzing the relationship between housing finance and housing affordability and shows that well-functioning housing finance reduces loan interest rates. That in turn results in greater affordability of housing, with a potential positive impact on economic growth.

_By increasing savings, housing finance can spur growth._ According to Buckley (1996), many reasons explain why improving housing finance may lead to increased savings in the economy. First, the returns to housing will likely be positive. Second, housing provides the most secure collateral against market fluctuations and in immature markets can be easily expected to offer positive yields over the long run. Third, housing prices are less volatile than other asset prices. Fourth, the availability of housing improves labor mobility and therefore employment potential. Finally, the availability of affordable housing finance may lead to increased savings as potential homeowners save to make the required down payment and to maintain their assets. This saving will be an engine of investment, helping to stoke economic growth and development.

_By increasing tax revenues, housing finance contributes to the development of public infrastructure and ultimately to economic growth and reduction of inequality._ Hangen and Northrup (2010) and Econsult (2009) estimate that, in the United States, activity related to housing has a positive impact on revenues of states and other local governments. In the United States as well as in other countries, greater revenues to local government often translate into better infrastructure for the population and ultimately into reduced inequality. Moreover, using a large panel data set encompassing over 100 countries and over the period 4