The concept of transparency in the European Union's residential housing market

AuthorSylwia Lindqvist
PositionDepartment of Urban Studies, Malmö University, Malmö, Sweden
1. Introduction

Cross-border transactions are an important part of the European Union's ( EU, 2004 ) real estate market, and as Ploeger and Van Loenen (2007) remark, the EU's “four freedoms” seem to provide a sound basis for expanding the property transaction market, including the opening up of the mortgage market. Those four freedoms encapsulate the principle of the free movement of the EU's fundamental production factors, i.e. free movement of “goods, services, persons and capital” ( Bernitz and Kjellgren, 2007 ). With the exception of goods, these freedoms are all directly linked to property purchase issues.

The effective and secure operation of cross-border transactions has been described as requiring “transparency” ( Stubkjær et al., 2007 ; Tiwari and White, 2010 ). Clarification of the structure of the transaction market and real estate services is of decisive importance, since despite the expanding cross-border transaction market, there remain structural differences between markets and different regulatory systems. Furthermore, the differences can be found in agent and client relations, in the transaction process and costs, as well as in approaches to mortgage design ( Lindqvist, 2006, 2008 ; ZERP, 2007 ; EUI and DNotI, 2005 ).

The aim of this paper is to explore the concept of transparency in relation to residential housing issues within the EU's internal market, and to identify the essential factors that need to be addressed when considering it. The paper begins with a theoretical discussion on what should be included within the concept of transparency, and with a general discussion on the nature of the concept itself. The main thesis then follows, arguing that increasing transparency is a complex issue, and that it will take time to achieve.

The methodology consists of a literature review on the theory of transparency, globalisation and market operation. This framework is used as a background against which to identify the dimensions of transparency in relation to real estate transactions. Since there is little research in the area of transparency in relation to residential transactions, this study looks at other related sectors – for example financial markets, and taxation.

Section 2 of the paper defines the general concept of transparency and gives a broad overview of concept of transparency. Section 3 then outlines the concept of transparency in real estate markets, and Section 4 then identifies five dimensions of transparency. Finally, conclusions are drawn in Section 5.

2. The concept of transparency
2. 1 Definition and the origin of the term

Transparency is a qualitative concept that is difficult to measure ( Gnabo and Lecourt, 2005 ; Eijffinger and Geraats, 2006 ). The concept is often unclear and has different meanings, and various aspects of transparency can be found in different areas. As Williams (2003) argues, the precise definition on transparency can be somewhat illusive. Florini (2007) also remarks that the reason for lack of consensus on how to define and measure transparency can be referred to the broad use of the term. It is however generally associated with openness, communication and accountability. In the physical science, transparency is defined as something that can be seen through (NE, 2008). However, this description can be used metaphorically in other areas, where seeing through means to reveal how something really is or works.

According to Florini (1998) , transparency is the opposite of secrecy and is consistent with intentionally revealing actions, which means opening up decision-making processes. She writes:

Transparency refers to the degree to which information is available to outsiders that enables them to have an informed voice in decisions and/or to assess the decisions made by insiders ( Florini, 2007, p. 5 ).

A similar definition is given by the Working Group on Transparency and Accountability ( WGTA, 1998 ). In this way, people from the outside can assess inside information and become a part of relevant actions and decisions. Affected people are thus enabled to evaluate the impact of performance ( Nelson, 2001 ). Transparency is used to hold others accountable for their policies and performance ( Williams, 2003 ; Florini, 2003). Sharing of information can be, according to Williams (2003) , a way of fostering empowerment, and responsible decision-making.

Opacity – according to Schulte et al. (2005) – is the opposite of transparency, and can be related to the information asymmetry of market participants, therefore preventing them from observing information about the trading process ( Madhavana et al., 2005 ). Thus, according to Nijhof et al. (2009, p. 254) , transparency should be understood “as a means to build trust between market parties and improve the efficiency of the market operation”. Market transparency can for example increase buyers' knowledge of supply pricing, though it has different implications for society's well-being. While some believe that price transparency leads to price competition – resulting in higher efficiency, others found that price transparency under some conditions can actually increase prices, for example by making prices more uniform ( Kyle and Ridley, 2007 ).

2. 2 Transparency and global integration

The term transparency is often associated with democratization and globalization ( Florini, 1998 ) and the transparency phenomenon is driven by social, political, technological and economic forces. Interdependence among the world's societies forced by globalization is often seen as creating a need for transparency and such interdependence as being a defining feature of cross-border transactions and social exchanges ( Williams, 2003 ). According to Williams (2003) , global production, trade and finance are three interlinked processes which stimulate a demand for transparency. Gaston and Wei (2005) argue that transparency is the way for countries to attract capital, reduce capital market volatility and lessen the severity of financial crises.

2. 3 The need for transparency, and associated problems

According to the WGTA (1998) , transparency helps to improve economic performance by contributing to the efficient allocation of resources and reducing uncertainty. Nijhof et al. (2009) also remark that the availability of information can be used to limit risks, create trust between the parties to a transaction, and to allow the parties to make optimal choices, thereby yielding benefits for all.

According to the WGTA disclosure does however need to be comprehensive, timely and accurate so as to facilitate identification of appropriate information, and to enable the market participants to compare performance. The information should be made available on a periodic and timely basis using acceptable standards, and the disclosure should cover all relevant information and be consistent over time ( WGTA, 1998 ). According to Fung et al. (2007) , accuracy of disclosure requires an understanding of the priorities and capacities of a diverse audience. However, an alert and engaged public, ready to participate, is also required. Another key dimension mentioned by Nelson (2001) is accessibility. This focuses on the place where the information is made available, the languages in which it is available, and the costs of obtaining it. The cost of acquiring and using the information must also justify users' efforts in relation to the expected benefits ( Fung et al., 2007 ). In this context a greater amount of information requires a greater effort to check it or make it controllable ( Nijhof et al., 2009 ).

More information is not always positive; in some circumstances confidentiality may be warranted ( WGTA, 1998 ; Florini, 1998 ). According to Florini (1998) , even if all the conditions of transparency are right, there is no guarantee that it will work, as the information can easily be misused or misinterpreted. Even small imperfections in information can have behavioural consequences, which can lead to misallocation of resources ( Fung et al., 2007 ).

2. 4 Three generations of transparency

According to Fung et al. (2007) , three generations of transparency policies can be discerned: right-to-know, targeted transparency, and collaborative transparency. The right-to-know transparency is described in Florini (2007) where the goal is to create a more informed public by making information more available...

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