The Impact of Subsidization Practices on Banks Mortgage Lending

In emerging economies, subsidization is shaping up as a major mechanism of government intervention for increasing access to housing finance. In Uzbekistan, for example, subsidy practices have been used to develop the mortgage market and increase the share of home-renters. Credit rationing theory relates subsidization to mortgage lending because asymmetric information on the credit market may lead to credit rationing. Although borrowing costs would reduce from subsidies, the long-term effects of these on the economy and society have not been examined in the context of Uzbekistan. No prior studies used advanced econometric techniques to completely capture the dynamic nature of the mortgage lending supply-side reaction to subsidization, especially in the Uzbekistan context. Filling this gap is crucial for understanding both the short- and long-term effects of state support in the housing market. Vector Error Correction Model (VECM) and Forecast Error Variance Decomposition (FEVD), bank mortgage lending subsidization in Uzbekistan in 2015–2024: a study of its impact Both the scale of subsidized mortgages and the subsidy per household positively and significantly affect mortgage lending both in the short and in the long term, the study finds. The study  employs time-series econometrics to bridge the gap in understanding the effectiveness of subsidization in Uzbekistan, contributing empirical evidence on housing finance dynamics in emerging markets. The result has providence implications for policy makers that the subsidization of mortgage lending is effective and directions for future research, such as more granular data analysis and potential endogeneity problems.