Giovanna Coi
Politico
2024
Gimme shelter: Cost-of-living crisis squeezes Europe’s housing 📰 Context and Overview This article, authored by Giovanna Coi and published by POLITICO, explores the impact of the ongoing cost-of-living crisis on housing in Europe, particularly highlighting challenges faced by urban residents and lower-income households. The narrative discusses the steady rise in housing prices and rents since 2014, a trend that continued even during the COVID-19 pandemic. The article is part of POLITICO’s Global Policy Lab: Living Cities initiative, which focuses on urban living and the future of cities. 🏠 Rising Housing Costs The article notes that home ownership has become increasingly unattainable for many Europeans due to escalating real estate prices, worsened by the cost-of-living crisis. Lamia Kamal-Chaoui from the OECD highlights that housing price increases are particularly severe in large cities and are affecting not only the poor but also the middle class. This crisis has forced younger residents to live with their parents longer and discouraged them from moving to cities with better job opportunities due to unaffordable housing. 📈 Economic Factors Despite fears of a real estate bubble due to rising prices, early indicators suggest stability in the market. Central banks have raised interest rates in response to the cost-of-living crisis, reversing a decade of price hikes. However, this presents challenges for potential homeowners as higher interest rates lead to steeper mortgages. Furthermore, a persistent shortage of suitable housing continues to make affordability a pressing issue, with demand outpacing supply. 🏗️ Housing Supply Challenges The article indicates that building new homes has become more expensive over the past decade, particularly since the pandemic. Although there was a rebound in construction approvals in 2021, numbers declined again the following year. Some cities are attempting to convert vacant commercial spaces into social housing, but this strategy is not universally applicable. Municipalities are also struggling to create housing policies that adapt to evolving resident needs, as many people prefer living in less hectic areas outside major cities. 🌍 Conclusion Kamal-Chaoui emphasizes that cities are beginning to prioritize housing shortages, recognizing the need for effective policy responses to growing challenges. The article illustrates the need for sustainable housing solutions that can accommodate the changing dynamics of urban living in Europe amidst ongoing economic pressures.
Gimme shelter: Cost-of-living crisis squeezes Europe’s housing
Urban residents and poorer households hit hardest by expensive mortgages, rents and energy costs.
House prices and rents have increased steadily since 2014, even during the COVID-19 pandemic | Ludovic Marin/AFP via Getty Images
By Giovanna Coi
DECEMBER 7, 2023 11:09 AM CET
This article is part of POLITICO’s Global Policy Lab: Living Cities, a collaborative journalism project exploring the future of cities. Sign up here.
Are you a 30-something professional looking to settle down and buy your first home in a friendly, welcoming European city?
Think again.
Rising real estate prices have turned home ownership into an increasingly unachievable dream for many Europeans — an issue compounded by the cost-of-living crisis, which has hit city residents and poorer households especially hard.
“The increase in housing prices is tremendous, and it’s even more severe in cities, especially large cities,” said Lamia Kamal-Chaoui, director of the OECD’s Centre for Entrepreneurship, SMEs, Regions and Cities. “And it’s no longer just impacting the poor, but also the middle class.”
House prices and rents have increased steadily since 2014, even during the COVID-19 pandemic, when — unlike previous economic downturns — the demand for housing surged, as extended lockdowns and the rise in teleworking kept people confined to their homes.
Right as the economy began to recover in 2022, Russia’s invasion of Ukraine brought a fresh array of budget headaches for governments — and a major cost-of-living crisis for households. Not only is housing more expensive, but it’s also increasingly harder to afford quality housing; many Europeans last winter faced mortgage and rent arrears or struggled to keep their houses warm.
According to Eurofound, younger residents are being hit hardest by the real estate crisis. Young Europeans live with their parents longer, are likelier to rent rather than own, and are often discouraged from seeking better jobs in areas with more opportunities because they can’t afford to live there.
This is a “major concern” for cities that “need young people to remain competitive,” said the OECD’s Kamal-Chaoui, who noted that “if [they] are not able to afford an apartment, they will never move to a city, no matter how attractive it is,” she said.
Real estate bubbles are so early 2000s
Despite concerns that rising housing prices might signal a real estate bubble, early signs indicate we are safe (for now).
In response to the cost-of-living crisis, central banks worldwide have hiked interest rates — a move that reversed a decade-long trend of housing price hikes in 2022, according to Swiss bank UBS. Its 2023 edition of the Global Real Estate Bubble Index identified only two of the 25 cities monitored — Zurich and Tokyo — as at risk of a bubble.
This might be a glimmer of hope for the housing market at large, but it’s bad news for prospective homeowners, as interest rate hikes mean steeper mortgages.
What’s more, one of the core issues that makes housing unaffordable — the shortage of suitable dwellings — is still unresolved and might have been exacerbated by the cost-of-living crisis.
“The demand for housing is increasing, but supply does not keep up,” said the OECD’s Kamal-Chaoui.
Responding to the housing shortage by erecting new buildings is difficult, mostly due to regulatory and space constraints that are particularly acute in larger cities, according to the OECD.
Building new homes has also become substantially more expensive in the past decade, particularly since the start of the pandemic. The industry bounced back in 2021, but last year saw another decline in the number of residential buildings approved for construction, even if the numbers are still significantly higher than pre-pandemic levels.
Some cities have tried to address the shortage by turning commercial and office buildings that emptied out during the pandemic into social housing, but that approach isn’t widely available as “not all cities have public social housing — many do not even own any housing stock,” said Kamal-Chaoui.
Municipalities are also struggling to come up with a housing policy that responds to residents’ changing needs, according to Kamal-Chaoui.
She noted that “the quality of life in large cities has declined, and people realize they want to have a nice life” in less hectic neighborhoods located in the suburbs or in medium-sized cities, which have begun experiencing a housing squeeze.
“Things are evolving so fast — what used to work maybe doesn’t anymore” and cities need to reconcile their ambitions with the budgetary constraints brought in by the cost-of-living crisis, according to Kamal-Chaoui, who added that mayors, regardless of their political leanings, are now treating the housing shortage as a priority.
“Some cities have been completely disengaged until recently, but now they are starting to act — they don’t really have a choice,” she said.