Financial Innovations and the Stability of the Housing Market

Abstract

The recent crisis has underlined the importance of the interaction of financial innovations and the housing market. We consider five major innovations relevant to housing finance. These are (i) mortgages; (ii) specialised housing finance institutions; (iii) government interventions in housing finance in the US during the Great Depression; (iv) covered bonds; and (v) securitised mortgages. The history of these innovations and their positive and negative aspects are discussed. Future innovations to help the stability of the housing market are also suggested.