Mortgaging Europe's Periphery

Abstract

This paper asks why peripheral European countries have been particularly vulnerable to housing and mortgage booms in recent decades; how these booms have shaped their exposure to the global financial crisis (GFC), and how the GFC has affected peripheral housing finance. To answer these questions, it explores the interaction between European processes of financial integration and domestic housing (finance) policies in four peripheral countries. It argues that the EU framework for free movement of capital and financial service provision as well as the availability of cheap credit has induced a trajectory of housing financialization, which has taken two forms: funding from wholesale markets and direct penetration of foreign financial institutions. These two forms attest to a core-periphery relationship in housing financialization, whose hierarchical character came to the fore in the crisis. Peripheral European countries experienced sudden stops and reversals of capital flows, which badly affected their banking systems. Unable to solve the looming banking crises on their own, they had to turn to creditors to gain access to much needed capital. A combination of international conditionality and domestic policy responses, and the original level of mortgage debt result in different trajectories in housing finance after the crisis.

Assetization: The Chinese Path to Housing Financialization

“…However, the financialization of housing involves more than the securitization of mortgages, particularly when looking at different countries. While scholars have argued that housing finance has come to play a pivotal role in the modern macroeconomy (Schwartz and Seabrooke 2008;Jordà, Schularick, and Taylor 2016;Bohle 2018), institutional differences in housing finance systems between countries remain undertheorised (Blackwell and Kohl 2018). Boléat (1985: 7-8) places housing finance systems into four categories: personal lending, contractual lending, lending by specialist deposit-saving institutions, and lending with funds from issuing bonds.…”

“…Another classification from Blackwell and Kohl (2018) makes the following modal distinctions: direct finance mode, deposit-based finance mode, bond-based mode and state finance mode. The literature also reveals that national housing finance systems differ in terms, firstly, of how the housing finance channel is integrated with the general financial market (Aalbers 2017) and, secondly, the liquidity of housing credit (Schwartz and Seabrooke 2008;Bohle 2018). Blackwell and Kohl (2018) attribute significant heterogeneity in housing finance systems across OECD countries to a combination of domestic capital market structures and historic path-dependence.…”

New Geographies of Residential Capitalism: Financialization of the Turkish Housing Market Since the Early 2000s

“…Numerous studies on CEE countries have also documented the rapid state withdrawal from direct intervention in the housing sector after the early 1990s (Florea et al, ). Bohle () highlights the fact that the transfer of the predominantly public housing stock into private hands was among the first steps undertaken by post‐communist governments, often in close collaboration with international financial organizations such as the World Bank. In the context of Turkey, the current government's radical urban legislation reform changed the role of the state from market regulator to direct provider of housing.…”

“…There is a new but growing body of literature on the financialization experiences of housing markets in EMEs, including Brazil (Klink, ; Klink and Denaldi, ; Sanfelici and Halbert, ; Pereira, ), Mexico (Levy‐Orlik, ), Turkey (Aslan and Dincer, ; Erol, ), China (Wu, ; Theurillat et al ., ), Russia (Badyina, ; Zavisca and Gerber, ), the Eastern European countries (Florea et al, ; Posfai et al ., ) and the peripheral European countries of Iceland, Ireland, Latvia and Estonia (see Saxegaard et al ., ; Bohle, ; , among others). These studies collectively suggest that the narratives of housing financialization in developing countries are different from those in the developed world.…”

More Mortgages, More Homes? The Effect of Housing Financialization on Homeownership in Historical Perspective

“…The transformation of post-Soviet countries to high-homeownership societies occurred before their economies and mortgage markets started to become financialized. 71 During the 2000s then, the Eastern European countries witnessed a very rapid increase of their mortgage debts to GDP. As European Mortgage Federation data show, 72 in 2002 mortgage debt to GDP was between 1 and 10 percent in Eastern European countries and then rose by factors between 1.2 in Bulgaria and more than fifteen in Slovenia until 2010.…”