The heavily intertwined housing and financial market crises in the US have led to recently proposed policy changes with the goal of strengthening these markets and preventing such a situation from happening again. In proposing housing policy changes, government officials and researchers have turned to lessons learned both domestically and from foreign governments’ approaches to their housing markets, in order to make informed decisions about new housing policy directions. This paper will describe the different ways in which governments intervene in housing finance markets, providing alternatives to the types of intervention currently found in the US system. The paper begins with a general description of the different types of government interventions and then focuses on specific cases by country in order to highlight the nuanced options that exist between the current US housing market structure and complete privatization of the housing market.
Oftentimes, housing market booms and busts have been associated with financial instability in the broader market. Housing-linked recessions tend to be more severe and more prolonged than recessions that are not coupled with housing busts. However, not all housing busts cause a wider financial crisis. Whether or not this relationship emerges has much to do with the sources of the original housing boom. In the most recent boom-bust cycle, the housing boom was the result of lax lending standards, a high degree of leverage, and weak solvency buffers. In the recent crisis, aspects of the housing finance systems in the U.S. and European countries contributed to wider financial instability, especially where the role the government played contributed to the boom and bust in the housing market. The type of government involvement may determine whether the effect on the financial and housing finance system is stabilizing or destabilizing. This issue will be explored in further.