A Critical Analysis of Housing Finance Reform in a 'Super' Home-ownership State: The Case of Armenia

Abstract

Communist countries in central and eastern Europe commonly lacked market-based mortgage finance systems. The establishment of such systems is generally regarded as being a crucial part of the transition process across the region, even though the emphasis placed on home-ownership varies greatly. A framework for analysing the adequacy of the housing reform process is applied to Armenia as an example of a 'super' home-ownership state. The housing, economic and political context suggests that, even if an efficient mortgage finance system were to be established, the housing needs of large sections of the population would remain unmet. This is because they would still be unable to afford to access finance or because of the nature of their housing need. Such is the prevalence of housing need and poverty that conventional subsidy programmes, no matter how well designed, are unlikely to fill the gap. Instead, there is a need to draw on examples from development literature, such as micro-finance, whereby relatively small loans aimed at improving the quality of often self-built housing without full legal title are made available. The system of micro-finance relies on connecting individuals with the formal financial system usually through an NGO and can be combined with the provision of core housing units for low- to moderate-income households. In the case of Armenia, if confidence in the banking system is not restored, it would still be necessary to create a formal financial sector, quite possibly on the principles of low-risk retail operations. A large challenge would remain to 'collectivise' micro-finance for use in multifamily apartments. While the need for sources of finance outside the formal system remains especially acute in Armenia, these solutions may be relevant to other transition economies, especially those with large home-owner sectors, self-built housing and widespread poverty