Policy changes affecting housing and mortgage markets: how governments in the UK and the Netherlands responded to the GFC

Abstract

Governments across the world have faced a difficult balancing act in reacting to the GFC: housing markets and in particular new construction have slumped and mortgage lending is down, calling for measures to stimulate output. But the crisis was brought about in part by the proliferation of new mortgage products and lax lending standards from the 1990s onwards—calling for tighter regulation. This paper examines the cases of the UK and the Netherlands. Both countries have high levels of mortgage debt to GDP and well-developed mortgage markets, but the important institutional differences between them, and the fact that their housing-policy developments often serve as models for other countries, make a comparison worthwhile. The paper takes a system-embedded approach to describing the housing and mortgage markets, and the governments’ post-GFC responses. The countries enacted similar short-term stimulus measures for the housing market but have adopted stricter long-term regulations for the mortgage market, which replace the assumption of rational consumer behaviour with the principles of behavioural economics. The institutional frameworks condition the effects of such measures, so outcomes will differ, but tighter regulation of mortgage markets can be expected to reduce demand for owner-occupied housing.