Soaring costs across the EU are pricing out renters, deterring prospective buyers and preventing new homes from being built.
As Europe’s housing crisis grows, so do homelessness rates across the bloc.
What are the solutions to Europe’s housing crisis?
Issued on: 03/10/2023 -
By: Joanna YORK
AFP
The month of September is always a busy time for the rental market in Paris. As students return to the city after the summer break, demand for lower-priced accommodation soars.
But in 2023, renters looking for a cheap room or studio faced a tougher challenge than ever. The French capital is now the second-most-expensive city in the EU – behind Dublin – for renters (at €28.50 per square metre per month), according to an annual Deloitte study published in August.
In cities across Europe, rising rents coupled with soaring costs for energy and food are forcing people to adapt to living conditions, particularly the young.
Across the 27 EU member states, more than a quarter of Europeans between 15 and 29 years old reported living in overcrowded conditions in 2022. In Ireland, 30% of 18- to 24-year-olds were still living with their parents in 2022 – an almost 10% increase in five years.
But it is not just Europe’s young renters who are feeling the squeeze. As rents in Paris, Berlin and Lisbon have reached unprecedented highs, interest rates on mortgages have also risen across the bloc, driving up costs for homeowners with variable rate mortgages and pricing out many potential buyers altogether.
In the Paris region, property sales fell 23% in the second trimester of 2023. Left unable to buy due to high interest rates, large numbers of aspiring homeowners are now putting extra pressure on the strained rental market.
The crisis has been decades in the making, said Ruth Owen, deputy director at FEANTSA, a European federation of national organisations working with the homeless based in Brussels.
“There is a fundamental structural issue which is that housing costs have been rising faster than incomes for decades in the European Union, and that trend has accelerated in many places,” Owen said. “It means that households are very vulnerable when there are any kind of external shocks.”
In the decade up to 2022, average rents increased by 19% in the EU and house prices by 47%, according to Housing Europe, an umbrella organisation that works with groups providing public, cooperative and social housing in EU countries.
And in recent years, external shocks have been plentiful: Covid-19, a European energy crisis prompted by the war in Ukraine and a global cost-of-living crisis have all contributed to worsening conditions throughout the housing market.
Lack of supply
There is little hope for quick improvement. The European Central Bank (ECB) raised its key interest rate to a record-high 4% in mid-September and interest rates will stay high for “as long as necessary” to beat back inflation, ECB chief Christine LaGarde said at the end of that month.
Housing supply is also at risk. As demand for homes has fallen, home construction across the eurozone has slowed to its lowest rate since April 2020, exacerbated by high building costs and supply-chain issues first caused by the Covid-19 pandemic and exacerbated by Russia’s full-scale invasion of Ukraine in 2022.
The issue is particularly acute in Germany, where there is expected to be a 32% drop in new housing construction between 2023 and 2025, according to a 2023 report from the IFO Institute research body in Munich.
Some 1.58 million new homes are expected to be completed in 2025 across 19 European countries included in the study – 14% less than in 2022.
Political commitment
At its worst, a shortage of good-quality, affordable housing is likely to push prices up further, and to worsen access for those who are least able to afford shelter.
However, confidence in the market is low. Real estate was the most distressed sector in Europe in 2023, suffering from the highest levels of financial uncertainty, volatility and an increase in perceived risk, according to a study from Weil, Gotshal & Manges, a global legal advisory firm.
Avoiding crises-induced peaks and troughs that rock the market may require a change in approach in some countries and cities, Yordanova said. “In many countries, housing has been considered as an asset and it's very often being used for speculation or for investment.
"If we look at some of the most successful housing systems across Europe, there is continuous investment in public housing, so that once we're into a crisis the most vulnerable people do not fall through the cracks.”
The numbers indicate that this is not happening throughout the continent. “Nearly 900,000 people sleep rough or stay in homeless accommodation every night in the EU,” said Owen. According to figures from FEANTSA, the number of homeless people in the EU has risen by 30% since 2019.
However, there are some European success stories. In the Austrian capital Vienna, the city invests around €500 million in housing construction and rehabilitation as well as financial support for low-income households. Close to 60% of the population live in municipal housing or housing subsidised by the state.
Issued on: 03/10/2023 -
A protester shouts holding a sign reading “I want to leave my parents’ house but the rent didn’t let me” at a demonstration for better housing conditions in Lisbon, Portugal, on September 30, 2023.
© Patricia de Melo Moreira, AFP
By: Joanna YORK
AFP
The month of September is always a busy time for the rental market in Paris. As students return to the city after the summer break, demand for lower-priced accommodation soars.
But in 2023, renters looking for a cheap room or studio faced a tougher challenge than ever. The French capital is now the second-most-expensive city in the EU – behind Dublin – for renters (at €28.50 per square metre per month), according to an annual Deloitte study published in August.
In cities across Europe, rising rents coupled with soaring costs for energy and food are forcing people to adapt to living conditions, particularly the young.
Across the 27 EU member states, more than a quarter of Europeans between 15 and 29 years old reported living in overcrowded conditions in 2022. In Ireland, 30% of 18- to 24-year-olds were still living with their parents in 2022 – an almost 10% increase in five years.
But it is not just Europe’s young renters who are feeling the squeeze. As rents in Paris, Berlin and Lisbon have reached unprecedented highs, interest rates on mortgages have also risen across the bloc, driving up costs for homeowners with variable rate mortgages and pricing out many potential buyers altogether.
In the Paris region, property sales fell 23% in the second trimester of 2023. Left unable to buy due to high interest rates, large numbers of aspiring homeowners are now putting extra pressure on the strained rental market.
The crisis has been decades in the making, said Ruth Owen, deputy director at FEANTSA, a European federation of national organisations working with the homeless based in Brussels.
“There is a fundamental structural issue which is that housing costs have been rising faster than incomes for decades in the European Union, and that trend has accelerated in many places,” Owen said. “It means that households are very vulnerable when there are any kind of external shocks.”
In the decade up to 2022, average rents increased by 19% in the EU and house prices by 47%, according to Housing Europe, an umbrella organisation that works with groups providing public, cooperative and social housing in EU countries.
And in recent years, external shocks have been plentiful: Covid-19, a European energy crisis prompted by the war in Ukraine and a global cost-of-living crisis have all contributed to worsening conditions throughout the housing market.
Lack of supply
There is little hope for quick improvement. The European Central Bank (ECB) raised its key interest rate to a record-high 4% in mid-September and interest rates will stay high for “as long as necessary” to beat back inflation, ECB chief Christine LaGarde said at the end of that month.
Housing supply is also at risk. As demand for homes has fallen, home construction across the eurozone has slowed to its lowest rate since April 2020, exacerbated by high building costs and supply-chain issues first caused by the Covid-19 pandemic and exacerbated by Russia’s full-scale invasion of Ukraine in 2022.
The issue is particularly acute in Germany, where there is expected to be a 32% drop in new housing construction between 2023 and 2025, according to a 2023 report from the IFO Institute research body in Munich.
Some 1.58 million new homes are expected to be completed in 2025 across 19 European countries included in the study – 14% less than in 2022.
An unfinished residential housing project photographed in Berlin's Wedding district on September 18, 2023. ©
John MacDougall, AFP
There are also persistent issues with existing housing.
“In Europe, we have an ageing and inefficient building stock,” said Angela Baldellou, director of Spain-based housing NGO Observatorio CSCAE. “We need to adapt the stock in terms of energy efficiency, but also we need to adapt stock for people because Europe’s population is getting older every year.”
At the same time, building homes uniquely adapted to an ageing population facing increased climate and energy challenges will do little to address current issues if they are not affordable.
A workable solution requires “striking a good balance between sustainability goals and need for more housing, affordability and liveable places”, said Diana Yordanova, communications director of Housing Europe.
There are also persistent issues with existing housing.
“In Europe, we have an ageing and inefficient building stock,” said Angela Baldellou, director of Spain-based housing NGO Observatorio CSCAE. “We need to adapt the stock in terms of energy efficiency, but also we need to adapt stock for people because Europe’s population is getting older every year.”
At the same time, building homes uniquely adapted to an ageing population facing increased climate and energy challenges will do little to address current issues if they are not affordable.
A workable solution requires “striking a good balance between sustainability goals and need for more housing, affordability and liveable places”, said Diana Yordanova, communications director of Housing Europe.
Political commitment
At its worst, a shortage of good-quality, affordable housing is likely to push prices up further, and to worsen access for those who are least able to afford shelter.
However, confidence in the market is low. Real estate was the most distressed sector in Europe in 2023, suffering from the highest levels of financial uncertainty, volatility and an increase in perceived risk, according to a study from Weil, Gotshal & Manges, a global legal advisory firm.
Avoiding crises-induced peaks and troughs that rock the market may require a change in approach in some countries and cities, Yordanova said. “In many countries, housing has been considered as an asset and it's very often being used for speculation or for investment.
"If we look at some of the most successful housing systems across Europe, there is continuous investment in public housing, so that once we're into a crisis the most vulnerable people do not fall through the cracks.”
The numbers indicate that this is not happening throughout the continent. “Nearly 900,000 people sleep rough or stay in homeless accommodation every night in the EU,” said Owen. According to figures from FEANTSA, the number of homeless people in the EU has risen by 30% since 2019.
However, there are some European success stories. In the Austrian capital Vienna, the city invests around €500 million in housing construction and rehabilitation as well as financial support for low-income households. Close to 60% of the population live in municipal housing or housing subsidised by the state.
The Karl-Marx-Hof community-owned apartment building photographed in Vienna, Austria on November 28, 2018.
© Joe Klamar, AFP
Finland offers another example of how long-term government policy can successfully reduce homelessness. The Finnish approach works on a “housing first” principle that recognises housing as a basic human right that, once provided, serves as the foundation for resolving other problems.
Owen believes similar initiatives are possible across the EU. “The first step in tackling the situation in the European Union is a political commitment,” she said.
Finland offers another example of how long-term government policy can successfully reduce homelessness. The Finnish approach works on a “housing first” principle that recognises housing as a basic human right that, once provided, serves as the foundation for resolving other problems.
Owen believes similar initiatives are possible across the EU. “The first step in tackling the situation in the European Union is a political commitment,” she said.
The housing market will drag the economy into a hard landing unless the Fed takes these 'simple steps,' trade groups warn
Matthew Fox
Tue, October 10, 2023
US Federal Reserve Chair Jerome Powell attends a press conference in Washington, DC, on March 22, 2023.
Matthew Fox
Tue, October 10, 2023
US Federal Reserve Chair Jerome Powell attends a press conference in Washington, DC, on March 22, 2023.
Liu Jie/Xinhua via Getty Images
Housing trade groups urged the Federal Reserve to stop hiking interest rates immediately.
The NAHB, MBA, and NAR warned that a hard landing is likely, unless the Fed takes two "simple steps."
More rate hikes would pose broader risks to growth, "heightening the likelihood and magnitude of a recession."
The Federal Reserve needs to take two "simple steps" to assure that it sticks a soft landing in the economy, according to three housing industry trade groups.
The National Association of Home Builders, the Mortgage Bankers Association, and the National Association of Realtors warned Fed Chair Jerome Powell in a letter on Monday that further interest rate hikes would virtually guarantee a hard landing in the form of a recession.
The trade groups highlighted that the spread between 30-year mortgage rates and the 10-year Treasury yield is at historic levels, "signaling deep-seated uncertainty about where the Fed is headed."
"Further rate increases and a persistently wide spread pose broader risks to economic growth, heightening the likelihood and magnitude of a recession," the letter warned.
The trade groups pointed out that housing activity accounts for an estimated 16% of GDP in the US. And an abrupt slowdown in new and existing home sales is likely to have trickle-down effects for the broader economy if a sales rebound doesn't happen soon.
To remedy the current situation, the trade groups urged the Fed to make two statements:
1. "The Fed does not contemplate further rate hikes;"
2. "The Fed will not sell off any of its mortgage-backed securities holdings until and unless the housing finance market has stabilized and mortgage-to-Treasury spreads have normalized."
The Fed has been reducing its balance sheet by rolling off and not reinvesting as much as $60 billion in Treasury bonds and as much as $35 billion in mortgage-backed securities every month.
While the central bank hasn't been selling assets outright, this so-called quantitative tightening process has trimmed its balance sheet by about $1 trillion from the $9 trillion peak in March 2022.
"These steps will provide the market greater certainty about the Fed's rate path and its plans for the MBS portfolio and reduce volatility for traders and investors," the letter argued.
Those two steps would also likely help improve home builder sentiment, which would go a long way in helping get new supply of homes to the market.
And increasing home supply would help bring down the inflationary shelter costs that have driven inflation higher over the past year.
"We urge the Fed to take these simple steps to ensure that this sector does not precipitate the hard landing the Fed has tried so hard to avoid," the letter concluded.
Housing trade groups urged the Federal Reserve to stop hiking interest rates immediately.
The NAHB, MBA, and NAR warned that a hard landing is likely, unless the Fed takes two "simple steps."
More rate hikes would pose broader risks to growth, "heightening the likelihood and magnitude of a recession."
The Federal Reserve needs to take two "simple steps" to assure that it sticks a soft landing in the economy, according to three housing industry trade groups.
The National Association of Home Builders, the Mortgage Bankers Association, and the National Association of Realtors warned Fed Chair Jerome Powell in a letter on Monday that further interest rate hikes would virtually guarantee a hard landing in the form of a recession.
The trade groups highlighted that the spread between 30-year mortgage rates and the 10-year Treasury yield is at historic levels, "signaling deep-seated uncertainty about where the Fed is headed."
"Further rate increases and a persistently wide spread pose broader risks to economic growth, heightening the likelihood and magnitude of a recession," the letter warned.
The trade groups pointed out that housing activity accounts for an estimated 16% of GDP in the US. And an abrupt slowdown in new and existing home sales is likely to have trickle-down effects for the broader economy if a sales rebound doesn't happen soon.
To remedy the current situation, the trade groups urged the Fed to make two statements:
1. "The Fed does not contemplate further rate hikes;"
2. "The Fed will not sell off any of its mortgage-backed securities holdings until and unless the housing finance market has stabilized and mortgage-to-Treasury spreads have normalized."
The Fed has been reducing its balance sheet by rolling off and not reinvesting as much as $60 billion in Treasury bonds and as much as $35 billion in mortgage-backed securities every month.
While the central bank hasn't been selling assets outright, this so-called quantitative tightening process has trimmed its balance sheet by about $1 trillion from the $9 trillion peak in March 2022.
"These steps will provide the market greater certainty about the Fed's rate path and its plans for the MBS portfolio and reduce volatility for traders and investors," the letter argued.
Those two steps would also likely help improve home builder sentiment, which would go a long way in helping get new supply of homes to the market.
And increasing home supply would help bring down the inflationary shelter costs that have driven inflation higher over the past year.
"We urge the Fed to take these simple steps to ensure that this sector does not precipitate the hard landing the Fed has tried so hard to avoid," the letter concluded.
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