Daniela Gabor & Sebastian Kohl, The Greens / EFA
2022
Daniela Gabor & Sebastian Kohl
This 2022 report by Daniela Gabor and Sebastian Kohl, commissioned by The Greens/EFA in the European Parliament, delves into the increasing influence of institutional investors within European housing markets. It underscores the pressing issues of housing affordability and accessibility, revealing how financialization is reshaping the landscape of residential real estate across major cities. One of the alarming findings is the scale of institutional investment, with around €40 billion of Berlin's housing stock converted into rental assets. This figure is double the total value of institutionally owned properties in London and Amsterdam combined. In 2021, over 4,000 institutional investors allocated approximately $3.6 trillion of their assets to European real estate, significantly impacting the housing market dynamics. The report identifies several drivers behind this financialization trend, including low interest rates that incentivize the pursuit of higher yields, government policies inadvertently inflating house prices, and a diminishing state role in social housing. These factors collectively contribute to a reduction in housing affordability, displacing lower-income tenants and exacerbating urban inequalities. To address these challenges, the authors propose a series of key policy recommendations. These include establishing a Sustainable Institutional Housing Framework, creating a European Housing Fund, implementing a Housing Red Flag Rule, and enhancing the macroprudential mandate of central banks. The report emphasizes the urgent need for policy intervention to ensure that housing remains a fundamental right for citizens rather than merely an investment opportunity for institutional investors.
Context
This 2022 report by Daniela Gabor and Sebastian Kohl, commissioned by The Greens/EFA in the European Parliament, examines the growing role of institutional investors in European housing markets and its implications for housing affordability and accessibility.
Key Findings
Scale of Institutional Investment
- Institutional landlords have converted approximately €40 billion of Berlin's housing stock into rental assets, double the combined value of London's and Amsterdam's institutionally owned properties
- Over 4,000 institutional investors directed around $3.6 trillion of their $136 trillion assets under management to European real estate in 2021
- Of these, 1,325 investors with $44 trillion in assets held residential properties in their portfolios
Drivers of Housing Financialization
- Low interest rates pushing investors to seek higher yields in alternative assets like housing
- Government policies ostensibly aimed at homeowners that end up inflating house prices
- Withdrawal of state from social housing provision
- Regulatory frameworks that facilitate institutional investment in housing
Impact on Housing Markets
- Reduced housing affordability in major European cities
- Displacement of lower-income tenants
- Changes in neighborhood character and deepening urban inequalities
- Strategic land banking by institutional investors contributing to housing shortages
Key Policy Recommendations
1. Sustainable Institutional Housing Framework
Development of a social-washing-proof Social Taxonomy with mandatory disclosure and regulation of institutional landlords, including:
- Special provisions for housing in the Social Taxonomy
- Mandatory disclosure regime for institutional investors
- Escalation-based regulatory regime for housing asset classes
2. European Housing Fund
Creation of a fund that would:
- Act as a countercyclical force during housing market crises
- Prevent transfer of housing units from private/public ownership to institutional portfolios
- Raise financing for public investment in social housing
3. Housing Red Flag Rule
Implementation of oversight mechanisms to ensure new European-level regulatory initiatives do not inadvertently de-risk housing asset classes for institutional landlords
4. Enhanced Macroprudential Mandate
Expanding central banks' authority to react to house price inflation through tighter, socially just regulation of mortgage lending
Significance
This report represents one of the first comprehensive analyses of how European legislation and financial regulation have enabled the transformation of housing into an asset class. It highlights the urgent need for policy intervention to ensure housing remains accessible and affordable for European citizens, rather than primarily serving as an investment vehicle for institutional investors.