International Housing Comparisons

Abstract

This article will introduce the practice and theory of international housing comparisons. This article will provide a description of the three predominant perspectives and approaches to comparative housing research, including juxtapositional analysis, convergence analysis, and divergence analysis, and will offer a brief discussion of the advantages and disadvantages of each perspective. Case studies of housing finance systems and the economics of housing policy will be included to illustrate real world examples of international housing comparisons.

Overview

Housing crises and inequalities affect people in developing and industrialized countries alike. In developing countries, many people live in inadequate housing characterized by impermanence, unsafe locations, and lack of access to potable water or sanitary facilities. In industrialized countries, common housing problems include inadequate space, ventilation, or access to transportation. Social scientists (working within governments, aid agencies, and academia) use international housing comparisons, such as international comparisons of physical measures, rents, house prices, mortgages, and ratios of house prices to income, to assess overall health of housing sectors around the world. In addition, international housing comparisons, also called comparative housing analyses, allow researchers to assess the success and efficacy of the housing policies of different countries.

Comparative housing research suggests that the housing problems faced by people in developing and industrialized countries alike can be traced back to failed housing policy decisions. Housing policy refers to the housing rights,standards, and services that characterize the housing systems of individual countries. Housing policy is influenced by country-specific economic and social environments as well as prevailing housing theories (Mayo, 1994).

International housing comparisons and comparative housing research in general, began in the 1970s as a means to assess, address, and remediate inequalities in living standards within and between countries. One of the earliest systematic approaches to international housing comparison was called the structure of housing provision model which referred to the data to be gained from cross-cultural description and comparison of housing supply structures. Stakeholders affected by international housing comparisons, and housing policies in general, include national and local governments, international aid and development organizations such as the World Bank, local lending and banking institutions, local communities, and the individuals who live inside houses or are homeless.

There are currently three main schools, models, and research methodologies of housing research. They include:

• Particularistic Approach: Juxtapositional Analysis
• Universalist Approach: Convergence Analysis
• Middle Range Approach: Divergence Analysis

The three perspectives of comparative housing analysis vary in the extent to which they make generalizations based on the data and apply implicit or explicit theoretical frameworks to explain and justify the similarities and differences observed between national housing systems. The three perspectives form a continuum from highly particular (low levels of generalization between countries) to universal (focus on generalization between countries). These approaches or perspectives will be described and analyzed in the following sections in an effort to provide clear conceptual foundations of international housing comparisons (Kemeny & Lowe, 1998).

Particularistic Approach: Juxtapositional Analysis. Kemeny and Lowe state that, “Particularistic approaches tend simply to juxtapose sometimes detailed descriptions of the housing systems of a number of countries without explaining either the criteria used for choosing countries and data or attempting to develop explanatory frameworks for understanding the differences between them” (1998, p.163).

Juxtapositional analysis of national housing systems is common in social policy research conducted by international development agencies such as the World Bank and the United Nations. Data gathered through juxtapositional research is often used to evaluate and rank countries based on their record of performance in areas such as the proportion of gross domestic product spent on housing. Juxtapositional analysis of national housing systems is also used in larger-scale, policy-driven surveys of social life and living standards. These surveys are conducted by national governments and non-profit aid agencies to gather data on which to base policy decisions or funding.

Critics of the particularistic approaches to comparative housing research say that the approach is too-often fragmented, small-scale, and short-term. In addition, critics argue that the tendency of researchers to use the housing structure of their home country as the yardstick against which the housing systems of other countries are measured creates ethnocentrism. This cultural bias may put the validity and use of the research findings in doubt (Kemeny & Lowe, 1998).

Universalist Approach: Convergence Analysis. In contrast to particularistic approaches and juxtapositional analysis, universalist approaches to international housing comparisons are based on the belief that all housing systems are fundamentally similar in their structure and purpose. In convergence or comparative analysis, all countries are either similar or approaching similarity. Universalist approaches are united in their common search for universal laws underpinning housing systems around the world. Universalist approaches rely on macro-statistical data about housing systems rather than qualitative data.

Universalist approaches, using convergence analysis, interpret international housing structures and housing policies as existing on a continuum from less developed to more developed. This focus on continuum development is referred to as the unilinear or convergence perspective. For example, one unilinear model identifies three types of housing policies: haphazard, residual, and comprehensive. These three housing policies represent a continuum of housing policy development from loosely-organized to tightly organized.

Critics of the universalist approaches to international housing comparisons say that this approach is too quick to dismiss difference and variation as insignificant. Global housing systems, in this model, are described as operating within the same confines, continuum, and for the same reasons. The process of change in the housing structure of a country, and urban social change in general, is explained within the paradigm of progress. In addition, critics argue that the factors and issues that universalist approaches identify as most influencing global housing structures, such as the expansion or contraction of the welfare state, reflect changing economic and political trends rather than sustained forces (Kemeny & Lowe, 1998).

Middle Range Approach: Divergence Analysis. Middle range approaches to international housing comparisons mediate the extremes of particularism and universalism. Housing systems are viewed as neither wholly unique nor wholly similar. Instead, the divergence perspective examines housing data from different countries to determine patterns and typologies of housing systems. The middle range approach incorporates quantitative research methods, qualitative research methods, and familiarity with country or region specific cultural and historical contents. An example of a popular topic in the middle range approach is the social meaning of home ownership.

The middle range approach, more than particularism or universalism, contextualizes the patterns and typologies of housing systems within social science research and thought in general. Projects, characterized by the middle range approach, create typologies from housing data and develop an accompanying theoretical explanation for the situation or phenomenon.

Divergence analysis refers to study of the extent to which countries have developed different forms of housing policy. Divergence perspectives examine topics, such as housing tenure, housing production, housing provision, or housing changes in the transition between the pre-and post-communist periods, to highlight differences and avoid biased ethnocentric conclusions and findings about housing systems in different countries (Kemeny & Lowe, 1998).

The three conceptually distinct approaches to international housing comparison —juxtapositional, convergence, and divergence —prioritize different research tools and views of the world. Housing data about housing systems in different countries can be used to draw very different conclusions. Researchers, governments, and non-profits must choose the approach that best matches their goals, objectives, and projects. Elements of these three approaches to international housing comparisons will be illustrated in the case studies described in the following section.

Applications

International housing comparisons cover a multitude of subjects and areas of interest such as physical measures, mortgages, rents, house prices, and ratios of house prices to income. Economic and social factors influence the topics of study and data categories. Chiuri and Jappelli (2010), for example, look at homeownership among the elderly in 15 OECD countries over time. The following sections provide case studies of mortgage models in different countries and housing finance in different countries to illustrate how and why international housing comparisons are carried out.

Case Study: Mortgage Models in Four Countries. The fixed-rate mortgage product (along with interest rates and associated costs) varies between Europe and America. This disparity influences both the experience and possibility of home ownership in different countries. An examination of the mortgage environment of four countries; Denmark, Canada, the United States, and Holland, reveals the factors that create these disparities. Major reasons for differences in mortgages between these countries include the role of national government in interest rate regulation, interest rate risk management, and mortgage default risk management. In addition, Europe and America have fundamentally different funding sources. European and North American property and mortgage markets vary greatly in the range of types of lenders as well as types of mortgage products. The mortgage environments of Denmark, Canada, the United States, and Holland are described and analyzed below (Proxenos & Taff, 1999):

• Denmark: In Denmark, the interest rate risk for the mortgagor is low due to mortgage-backed bonds (MBBs) and no pre-payment penalties. The typical mortgage product is a 10-30 year fixed-rate mortgage. Common funding methods include MBBs and short-term bonds for adjustable rate mortgages. The consumer interest rate risk is considered moderate due to the high level of financial complexity in the financial system. The default risk for investors is low due to established underwriting standards and no government guarantee. There is a very high level of government legislation controlling mortgages and interest rates.
• Canada: In Canada, the interest rate risk for the mortgagor is high due to short and intermediate terms and pre-payment penalties. The typical mortgage product is a 5-year note rate term or 25-year amortization term. Common funding methods include term and demand deposits and MBBs. The consumer interest rate risk is considered high due to the range of basic products and the interest rate risk upon re-financing. The default risk for investors is low due to government insurance as well as moderate debt-to-income and loan-to-value ratios. There is a very high level of government legislation controlling mortgages, insurance, and interest rate limits.
• United States: In the United States, the interest rate risk for the mortgagor is considered moderate due to unconditional pre-payments and a mixture of funding sources. The typical mortgage product is a 30-year fixed-rate mortgage. Common funding methods include mainly mortgage-backed securities (MBSs) as well as some term and demand deposits. The consumer interest rate risk is considered low due to a simple, long-term fixed-rate no prepayment penalty product in the financial system. The default risk for investors is low due to government and government-like insurance, private insurance, and uniform underwriting. There is a moderate level of government legislation controlling mortgages and interest rates.
• Holland: In Holland, the interest rate risk for the mortgagor is high due to tax laws that favor interest-only mortgage products with long-term amortization. The typical mortgage product is a 30-year interest only mortgage. Common funding methods include savings, insurance premiums, and investment accounts. The consumer interest rate risk is considered medium due to the prevalence of the interest only mortgage as well as financial payoff complexities. The default risk for investors is moderate due to new legislation in 1995 protecting lenders. There is very little government legislation controlling mortgages and interest rates as there is no legislative framework for an MBS.

There are advantages and disadvantages to the four mortgage models from the perspective of homeowners in different countries. Proxenos and Taff gathered data, as described above, on government involvement, tax laws, fees, interest rates, and repayment options to discover similarities, differences, and ultimate benefits for citizens. Proxenos and Taff's four-country comparison of the relationships between mortgage models, interest rate risks, and the consumer is a divergence analysis to international housing comparisons. Their study created country-specific patterns and typologies of mortgage systems in four countries.

Case Study: Economics of Housing in Developing Countries. The countries discussed in the previous section are all industrialized nations. In contrast to the established private bank financing that characterizes much of the housing system of industrialized nations, there are three main types of housing financing in developing countries. These three types include informal financing, private bank financing, and state financing (Renaud, 1999).

• Informal financing: Informal financing refers to small, localized, mutual, and irregular forms of financing dependent on shared social bonds. Examples include family-pooled savings or resources.
• Private bank financing: Private bank financing refers to the funding used to build housing units built by individuals with collateral as well as experienced professional developers. Private bank financing results in housing units completed in short periods of time as well as a strong local real estate industry.
• State financing: State financing refers to a form of funding supporting large-scale housing projects characterized by standardized units. State financing of housing often diminishes the strength and ingenuity of the local real estate market.

Renaud, in a study of the economics of housing in developing countries, argues that cities are built the way that they are financed (1999). The pace and quantity of available funds, characteristic of informal financing, private bank financing, and state financing, influence the esthetic appearance and durability of house construction. Renaud uses two approaches —universalist and divergence —for the analysis of world trends in housing finance. Comparing these two models illustrates how the same data can be used as the basis and foundation of different conclusions and findings.

Renaud's universalist approach to evaluating housing systems worldwide suggests that housing finance systems worldwide are characterized by the following factors:

• The decrease of circuits for housing finance in industrialized and developing countries.
• The separation of subsidies funded from fiscal sources and from taxes on the financial system.
• The integration of housing finance within capital markets through the development of secondary market mortgage facilities.
• The increase in competition and innovation within banking institutions and mortgage finance companies.
• The simultaneous development of financial services such as appraisers, improved property registration systems, credit bureaus, mortgage registries, real estate advisory services, mortgage insurance services, and rating agencies (p.766).

In contrast to the universalist approach to housing financing around the world that ignores differences and variation in housing systems, Renaud's use of the middle range approach to the issue acknowledges the differences between countries and offers explanations for these differences. Renaud explains that in reality, there are profound housing differences between and within the 180 industrialized and developing World-Bank member countries. Tunisia, for example, reduced slum housing from 23% to less than 3% between 1975 and 1994 through primarily public-sector development, but privatization efforts derailed under the Ben Ali regime and housing stagnated, with an accelerated expansion of low-income neighborhoods leading up to and following the Arab Spring (McVitty, 2013). In Renaud's middle-range perspective, there are three main factors —the macroeconomic and financial policies pursued by that country, the quality of its financial infrastructure, and urban laws, policies, and practices —ultimately responsible for the structure, organization, and performance of a housing finance system:

• Macroeconomic and financial priorities: Factors include integration with the world economy, exchange rate policy, interest-rate and credit policy, and domestic price stability.
• Financial infrastructure laws: Factors include accounting systems, regulation and supervision, and payment systems.
• Urban laws, policies, and practices: Factors include clarity of ownership and enforceable property rights, market-sensitive urban planning, predictable land development codes and practices, stable national and local housing, and predictable real estate tax code.

Renaud argues that these three factors, rather than the generalized perspective described earlier, should be taken into account when studying a given housing finance system (p.767). Furthermore, as conditions change over time, effects on housing stock, equity, and access to homeownership can be dramatic as was demonstrated in the late 2000s in the United States after the bursting of a housing bubble caused by lax lending practices and systemic problems in the bundling of mortgage backed securities. In Scotland, reforms privatizing social housing begun under Prime Minister Margaret Thatcher had to be phased out in the 2010s because of pressures on both the state budget and the growing number of people in need of public-sector housing (Dale, 2013).

Conclusion

Future of Housing Policy. Common areas of debate within housing policy, and international housing comparisons in general, include preferred approaches to analysis and preferred degree of market regulation:

• Analytical frame: Should housing policy be developed along with public policy in general and analyzed as a social welfare issue or an economic issue?
• Market regulation: How should the market be regulated to benefit the housing sector? Lightly regulated markets may provide better, more affordable housing, even for the poor, than heavily regulated markets.

No national government or international development organization has yet produced a blueprint for wholly effective housing policy that is transferable to all countries or regions of the world. Failed housing policies, in developing and industrialized countries alike, create problems such as unhealthy living environments that affect residents' health and productivity, housing shortages that reduce workers' mobility, insufficient investment in residential infrastructure, and inflationary pressures caused by high real estate prices.

The World Bank advocates a set of seven principles and enabling strategies to strengthen housing markets around the world.

• Developing property rights: Regularizing land tenure, expanding land registration, privatizing public housing stock, and taxing property.
• Developing mortgage finance: Permitting private sector lending at positive/market rates, enforcing foreclosure laws, ensuring prudential regulation, and introducing improved loan instruments.
• Rationalizing subsidies: Making subsidies transparent, targeting the poor, subsidizing people (not houses), and reviewing subsidies.
• Providing infrastructure: Coordinating land development, recovering costs, basing provision on demand, and improving slum infrastructure.
• Regulating land and housing development: Simplifying complex regulations, assessing regulatory costs, and removing price distortions and artificial shortages.
• Organizing the building industry: Eliminating monopoly practices, encouraging small firms, reducing import controls, and supporting building research.
• Developing an institutional policy framework: Balancing public and private sector roles, creating a forum for managing the housing sector as a whole, developing enabling strategies, and monitoring sector performance (as cited in Mayo, 1994, p.5).

While universalist approaches to housing policy by themselves rarely work, these generalized guidelines for housing policy, coupled with international housing comparisons, may offer insight into the problems facing particular housing systems. Ultimately, successful comparative housing research depends on knowledge, understanding, and integration of the three main schools of international housing comparison including the juxtapositional, convergence, and divergence approaches.

Terms & Concepts

Convergence analysis: An approach to international housing comparisons that views international housing structures and housing policies as existing on a continuum from less to more developed.

Divergence analysis: An approach to international housing comparisons, using housing data from different countries, to determine the extent to which countries have developed unique housing systems.

Ethnocentrism: A cultural bias and preference for one's own culture.

Gross domestic product (GDP): The total market value of all goods and services produced within a country in a given period of time.

Housing policy: The housing rights, standards, and services that characterize the housing systems of individual countries.

Informal financing: Small, localized, mutual, and irregular forms of financing dependent on shared social bonds.

International housing comparisons: International comparisons of physical measures, rents, house prices, mortgages, and ratios of house prices to income, to assess overall health of housing sectors around the world; also referred to as comparative housing research.

Juxtapositional analysis: An approach to comparative housing research which contrasts descriptions of the housing systems of a number of countries.

Private bank financing: Forms of funding originating from privately held banks.

Public policy: The basic policy or set of policies that serve as the foundation for public laws.

State financing: A form of funding supporting the large-scale housing projects characterized by standardized units.

Structure of housing provision model: Data to be gained from cross-cultural description and comparison of housing supply structures.

World Bank: An international economic development assistance organization that was founded in 1944.

Bibliography

Chiuri, M., & Jappelli, T. (2010). Do the elderly reduce housing equity? An international comparison. Journal of Population Economics, 23, 643-663. Retrieved October 31, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=47778869&site=ehost-live

Dale, S. (2013). Scotland to scrap Right to Buy housing scheme. Money Marketing (Online Edition), 17. Retrieved October 31, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=89459465&site=ehost-live

Kemeny, J., & Lowe, S. (1998). Schools of comparative housing research: From convergence to divergence. Housing Studies, 13, 161-176. Retrieved March 29, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=405261&site=ehost-live

Mayo, S. (1994). Housing policy: Changing the structure. Finance & Development, 31, 44. Retrieved March 29, 2007, from from AllBusiness.com. http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/433307-1.html

McVitty, J. (2013). Affordable housing in Tunisia: Challenges and opportunities emerging from the Arab Spring. Housing Finance International, 27, 49-55. Retrieved October 31, 2013, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=89083893&site=ehost-live

Oaxley, M. (2001). Meaning, science, context and confusion in comparative housing research. Journal of Housing and the Built Environment, 16, 89.

Proxenos, S., & Taff, L. (2003). Mortgage models, interest rate risk, and the consumer: A four country comparison. Housing Finance International, 18, 14. Retrieved March 29, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9875710&site=ehost-live

Renaud, B. (1999). The financing of social housing in integrating financial markets: A view from developing countries. Urban Studies, 36, 755-773. Retrieved March 29, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=1801259&site=ehost-live

World Bank. (1993). Housing: Enabling markets to work. World Bank Policy Paper. Washington, DC.

Suggested Reading

Clapham, D. (1996). Housing and the economy: Broadening comparative housing research. Urban Studies, 33(4/5), 631-648. Retrieved March 29, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9606152778&site=ehost-live

Gareev, I. (2016). International journal of housing research: Analysis of publications and scientometric indicators (part 3). Russian Journal of Housing Research / Zhilischnie Strategii, 3(3), 223-242. doi:10.18334/zhs.3.3.36397. Retrieved February 28, 2018, from EBSCO online database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=122729942&site=ehost-live&scope=site

Miller, R., & Sieg, H. (1997). A microeconometric comparison of household behavior between countries. Journal of Business & Economic Statistics, 15, 237-253.

Pugh, C. (2001). The theory and practice of housing sector development for developing countries, 1950-99. Housing Studies, 16, 399-423. Retrieved March 29, 2007, from EBSCO online database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5093727&site=ehost-live

Wolf, D. (2006). A tale of two housing markets. Canadian Business, 79, 19-19. Retrieved March 29, 2007, from EBSCO online database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20797850&site=ehost-live