BANKING ON HOUSING: THE POLITICAL ECONOMY OF FINANCIAL DEREGULATION AND THE REORGANIZATION OF HOUSING FINANCE

Recent years have seen a dramatic change in the way housing is financed in the United States. This transformation is inextricably bound up with the broad trend toward deregulation and the sweeping reorganization of the financial system that it entails. The New Deal financial system characterized by rigid regulatory boundaries separating different types of institutions has been replaced by a far more homogeneous and consolidated system. Housing finance is now a fully integrated component of national capital markets--a far cry from the regulated and protected system of yesteryear.The major findings of this study indicate that a sector comprised of large commercial banks has provided the driving force behind financial deregulation. Deregulation initiatives have typically been opposed by a less unified sector of small and medium sized firms, including the bulk of the thrift, commercial banking and real estate industries.This study further suggests that the transformation of housing finance is, by and large, a secondary byproduct of deregulation--the consequences of forces and interests which are exogenous to housing. After reviewing the available evidence on the institutional structure and performance of the new housing finance system, it concludes that financial deregulation does little to improve the overall availability of mortgage credit and that it portends a series of negative implications for the provision of affordable housing.The research that is presented focuses on the causes and consequences of the new housing finance system. It develops a conceptual and methodological approach for understanding the determinants of financial deregulation and the attendant restructuring of housing finance. It contends that the varied positions of rival firms in the industrial structure creates a systematic and predictable pattern of regulatory conflict. Hence, firms exhibiting similar structural characteristics are very likely to be bound together as coherent sectors and to constitute distinct political coalitions. Variables such as firm size, industrial affiliation and profitability thus become major determinants of political behavior and regulatory conflict.