The Allocative Efficiency of the Private Housing Finance Sector

Robert H. Edelstein and Irwin Friend

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: This paper presents a selective overview of the private residential finance sector. Our purpose is to examine how the private residential finance intermediaries direct the flow of funds from savers to the savers to the borrowers in the housing market, and to explore the effects of the current system and proposed changes in institutional arrangements upon the functioning of private housing finance. Our analysis is not exhaustive, but is intended to focus upon recent trends and policy issues that are thought to have potentially significant future impact on the adequacy of the housing finance system. The discussion is divided into six sections below. While out principal interest is in the private sector housing finance system, Section 1 will briefly discuss its interrelationship with the capital markets as a whole and with public sector residential finance institutions. Section 2 provides a background discussion of the current trends in housing and private housing finance, and is followed by an analysis of the efficiency of the private residential finance system (Section 3). The fourth section explores the consequences of the current system and the possible effects of several proposed policy modifications. In the fifth section, we present long-run projections for housing and associated financing. The last section summarizes our findings and suggests means for improving the allocation of financial resources to housing via the private sector.

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Persistent link: https://EconPapers.repec.org/RePEc:fth:pennfi:13-75

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