yandraduth googoolye : the role of central banks in encouraging investment in housing address by mr yandraduth googoolye, first deputy governor of the bank of mauritius, at the annual conference of the african union for housing finance, flic en flac, 11 september 2013. * * * ladies and gentlemen a very good morning to you all. it gives me great pleasure to participate this morning in this annual conference of the african union for housing finance ( auhf ), being organised in collaboration with the mauritius housing company ltd ( mhc ). home ownership is one of the major aspirations of an individual. today, owning a house not only means having a shelter for the family. the house is a real asset that probably represents the largest investment undertaken by an individual during his lifetime. such a large sum of money may not initially be readily available for the average individual. it is primarily in this context that housing finance has been linked to the grant of credit facilities by banks and other mortgage institutions. investment in housing can be seen from different viewpoints. for a government interested in fulfilling its social mandate of facilitating access to decent housing for low - to middle - income families, the problem is finding the necessary resources to carry out public housing programs. let me set an aside here to dwell for a minute on the experience of mauritius where the government set up as early as 1963 an organism geared towards the provision of social housing. this organism evolved into the mauritius housing corporation ( mhc ), which is today the only finance institution – both in mauritius and rodrigues – that caters exclusively for the promotion of home ownership and the provision of housing finance. since july 2001, the mhc has been authorised to conduct deposit - taking business to finance its activities and is accordingly under the regulatory purview of the bank of mauritius. over the years, the mhc has been innovative. in addition to credit granted for housing projects, the company also provides architectural, technical, legal, insurance services, and accept deposits primarily for the purpose engaging the general public in savings for homeownership. more of this will be provided by the managing director of mhc. coming back to my main point, investment in housing, from the perspective of the household, is very often linked to the possibility of obtaining a loan at affordable terms. for the bank manager considering whether to grant a loan, the problem is how to expand the scope of financial services while managing risks appropriately. finally, from the

but in a union such as ours they are a clear common interest. euro area countries depend on one another for growth. and, more fundamentally, if a lack of structural reforms leads to permanent divergence within the monetary union, this raises the specter of exit – from which all members ultimately suffer. in the euro area, stability and prosperity anywhere depend on countries thriving everywhere. so there is a strong case for sharing more sovereignty in this area – for building a genuine economic union. this means more than beefing up existing procedures. it means governing together : shifting from coordination to common decision - making, and from rules to institutions. the second implication of the absence of fiscal transfers is that countries need to invest more in other mechanisms to share the cost of shocks. even with more flexible economies, internal adjustment will always be slower than it would be if countries had their own exchange rate. risk - sharing is thus essential to prevent recessions from leaving permanent scars and reinforcing economic divergence. bis central bankers ’ speeches a key part of the solution is to improve private risk - sharing by deepening financial integration. indeed, the less public risk - sharing we want, the more private risk - sharing we need. a banking union for the euro area should be catalytic in encouraging deeper integration of the banking sector. but risk - sharing is also about deepening capital markets, especially for equity, which is why we also need to advance quickly with a capital markets union. still, we have to acknowledge the vital role of fiscal policies in a monetary union. a single monetary policy focused on price stability in the euro area cannot react to shocks that affect only one country or region. so, to avoid prolonged local slumps, it is critical that national fiscal policies can perform their stabilization role. to allow national fiscal stabilizers to work, governments must be able to borrow at an affordable cost in times of economic stress. a strong fiscal framework is indispensable to achieve this, and protects countries from contagion. but the crisis experience suggests that, in times of extreme market tensions, even a sound initial fiscal position may not offer absolute protection from spillovers. this is a further reason why we need economic union : markets would be less likely to react negatively to temporarily higher deficits if they were more confident in future growth prospects. by committing governments to structural reforms, economic union provides the credibility that countries can indeed grow out of debt. ultimately, economic convergence among countries cannot be only an entry criterion for monetary union