Affordable Housing Finance Models in Developing Economies: Evidence, Innovations, and Policy Implications

Abstract

Access to affordable housing remains a persistent challenge across developing economies due to rapid urbanization, income inequality, weak land administration systems, and underdeveloped financial markets. This study examines the relationship between housing finance mechanisms and housing outcomes across 20 developing countries from 2015 to 2024. Using a balanced panel dataset and fixed-effects estimation supplemented by exploratory instrumental-variable analysis, the study evaluates how mortgage market development, interest rates, income levels, regulatory quality, and the presence of alternative housing finance mechanisms influence housing affordability and housing deficits. The findings indicate that countries adopting alternative housing finance approaches, captured through an indicator reflecting the presence of rent-to-own programmes, housing microfinance, public-private partnerships, and related innovations, tend to exhibit better housing affordability outcomes and smaller housing deficits. Higher interest rates are associated with weaker affordability, while stronger regulatory institutions are linked to improved housing outcomes. The results also suggest that mortgage-market expansion alone may be insufficient in highly informal economies unless supported by broader institutional reforms and inclusive financing mechanisms. The study contributes to the housing finance literature by providing comparative cross-country evidence and highlighting the importance of policy, institutional quality, and financial innovation in expanding housing access. A limitation of the study is its reliance on country-level secondary data and standardized proxies that may mask within-country heterogeneity. The findings offer policy-relevant insights for governments, housing agencies, and development practitioners seeking sustainable pathways toward achieving SDG 11.