Housing Finance and Markets Dynamics in Tanzania: An Analysis of Cross-sector Linkages

Vianey John Mushi

doi:10.15641/jarer.v5i1.800

Abstract

This study examines whether feedback from housing price shocks factored into the availability of mortgage credit in Tanzania between 2008 and 2018. This was done by estimating a Vector Error Correction Model (VECM) with mortgage financing and using three measures of house pricing trends in the luxury, mid-end and economy sub-markets as dependent variables. Results showed that mortgage credit expansion is related to housing price growth in the long-run, but the impact mostly ran from housing price shocks to mortgage growth. In the short-term, changes in price for luxury houses led to a mortgage growth in the first quarter after the shocks, which in turn stimulated changes in housing prices. However, variations on mortgage credit flows had a more significant short-term impact on prices of housing units than it did for houses priced on mortgage credit. The dynamic response between mortgage credit flow and housing prices disappeared when housing price indicators for the economy and mid-end sub-markets were used in the analysis. In addition, both mortgage credit and housing markets were highly persistent, but the effect of previous shocks lasted longer in the mortgage lending process. The paper concludes that the substantial increase in housing prices might be a major concern for policymakers, in particular, because it foreshadows a mortgage crisis.

Highlights

Over the last ten years, both the mortgage credit market and house prices of Tanzania have experienced significant changes
The evidence implies that mortgage credit corrects any deviations from the long-run equilibrium in response to house price growth, meaning that an increase in housing prices drives the size of the mortgage credit flow in the long-term
The findings show that the mortgage credit flow over the study period is correlated with housing price measures in ways explained by existing theories

Summary

Introduction

Over the last ten years, both the mortgage credit market and house prices of Tanzania have experienced significant changes. The dynamic evolution of the mortgage sector in the country began to accelerate in 2008 when a marketoriented housing finance approach was established and adopted (TMRC, 2018). Leading up to the end of 2017, the volume of outstanding mortgages has increased well over 400% in real terms. The mortgage credit flow has fallen almost 90% since its peak value in the last quarter of 2015 (TMRC, 2018). Alongside the fluctuations of mortgage credit flow, substantial changes in housing prices have been reported. The contraction in housing prices implies the end of a long period of expansion in Tanzania’s mortgage credit market

Methods

Results

Discussion

Conclusion