The booming real estate market in the EEC leaves a lot out
House prices are rising across central and eastern Europe. Where does that leave young people looking to buy their first home and those in need of social housing?
According to the European Union’s statistics service, Eurostat, house prices and rents have increased to varying degrees across Europe despite the Covid-19 pandemic, and Central and Eastern Europe is no exception.
Croatia, Slovakia, Poland and Estonia have recorded the highest increases in so-called deflated house prices in recent months (the house price index deflated by the inflation rate) , with the smallest increases in Hungary and Romania.
At the end of the day, homes and apartments – for rent and for buy – are more expensive across the region, a trend that has continued for the past five years.
“The 2010s saw a real estate boom across the region. Despite a moderate drop in prices (especially rents) due to the 2020 lockdowns, real estate remained one of the main investment channels throughout the year, both for middle and middle class residents. higher than for real estate investors from other regions, such as Russia or China, ”explains Agnes Gagyi, researcher at the Department of Society at Gothenburg University.
Price growth exceeds wages
The problem for buyers in the region who are looking for a home rather than a speculative asset is that house prices have exceeded purchasing power, leading to a situation where prices are rising much faster than prices. wages.
A recent study by the consultancy firm Deloitte illustrates this point well.
The company looked at how many average annual salaries it takes to buy a 70 square meter property. Serbia tops the list with 15.2, while Czechia is the second least affordable market with 12.2 average annual wages. For comparison, only six average salaries are needed to buy a property in Germany, and only 5.1 in Norway.
“The situation of young first-time buyers varies according to income and social status, but is mainly based on inheritance,” Gagyi explains. Emerging Europe.
“While the first middle and upper class buyers have taken advantage of the mortgage boom to acquire larger and better located homes, lower middle class households and poor households are tied to the rental market or seek help from the State to contract mortgages. “
As for how the region got here, Gagyi points to the unique legacy of the post-socialist era. The privatization of public housing, a housing system characterized by small ownership, a lack of social housing and a weakly regulated rental market, have all led to the low level of affordability in the region.
“This situation is mainly rooted in the region’s role in the international distribution of labor: a cheaper source of labor for European companies, and an open market for European services – such as banks. Post-socialist governments in the region have also followed the line of liberalization and privatization in the housing sector. With the privatization of industry and banking, this has resulted in the current situation, ”she explains.
In addition, a boom in investment in new housing has not been followed by an increase in the stock of social housing.
Martin Lux, head of the research department at the Czech Academy of Sciences, points out that in Czechia, the current government has failed to pass a law on social housing, even though it was a promise of the ruling coalition. Instead, the Czech government has focused on making it easier to obtain building permits.
“I think that the orientation towards measures of market housing supply will not be sufficient,” he said. Emerging europe. “The effect of faster approval processes on home price appreciation will be, according to our models and our opinion, very small. The main problems, in our view, are the lack of an affordable housing policy and the lack of measures to cool demand, especially investment demand.
Social housing under attack
In other parts of the region, it appears that the few social housing units that remain are under attack. Recently, the Hungarian government tried to force the privatization of social housing, which in the country is managed at the municipal level. The proposal was ruled unconstitutional, however, and the law was not passed.
The Metropolitan Research Institute (MRI), a Budapest-based think tank on housing policy, warned that, among other issues, the proposal would have had a negative impact on those who would need social housing in the future. .
And the number of people in Hungary struggling with housing affordability issues is not negligible, according to József Hegedüs, director general of MRI.
“Analysis of Hungarian data shows that the proportion of families facing affordability difficulties is between 25 and 35 percent,” he says. “In contrast, the affordable housing sector in CEEC markets represents around 3-10%. “
In neighboring Serbia, the supply of social housing has collapsed, explains orđe Mojović of the Urban Development Program, an NGO responsible for housing policy.
“In the meantime, almost all of the city’s housing agencies have been shut down and a process of selling state-owned apartments to their occupants has started. It is an absurdity that [the city of] Belgrade, which has in its possession apartments which it rents on non-profit terms, does not have an appropriate institution to manage this large housing stock ”, explains Mojović.
József Hegedüs also says that the need for social housing agencies if affordability issues are to be addressed.
“The starting point of any housing policy program is to understand the nature of the affordability problem. An important cause of the housing crisis is the increase in social inequalities – of income and wealth – especially for young people active in the housing market, ”he said. Emerging Europe.
Good policy is politically unattractive
But, as Martin Lux points out, measures that would allow governments to curb investment demand – such as higher property taxes and interest rates on investment properties – are not popular and unacceptable to politicians. .
“So the result will be, in our opinion, an even bigger gap between prices and incomes in the months to come until this story ends when the bubble bursts,” warns Lux.
With booming investor demand, depleted social housing stocks, and many apartments and houses pushed out of the rental market by speculation, those looking to find their first home find themselves in an unenviable position, as well as those who have need social housing.
Solutions to these problems exist, but would require, according to Gagyi, a reorientation of public policies towards the definition of housing as a social need rather than as a market good, which is unlikely.
“Some institutional innovations that work in other regions in a similar position, such as Latin America, and also exist as local initiatives in the region, would be social housing agencies that operate in public-community partnership, or housing co-ops and community land trusts that transform real estate into non-market forms of property. Strengthening the social component of housing policies and reducing state subsidies to an overheated housing and construction market would also be necessary, ”she concludes.
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