Euro area rent developments: insights from the CES

This document, prepared by authors Colm Bates, Christian Höynck, Omiros Kouvavas, Desislava Rusinova, and Larissa Zimmermann, is published as part of the ECB Economic Bulletin, Issue 2/2025. It analyzes recent developments in the euro area rental market using data from the ECB Consumer Expectations Survey (CES). Understanding rental market dynamics is crucial, as rents significantly impact household spending and overall economic stability.

The CES provides valuable insights into the rental market, addressing the challenge of limited harmonized data on household rent expenditures across the euro area. The average share of renter households in the euro area is approximately 28%, with rental expenditures constituting about one-third of monthly household income. However, this figure varies significantly among countries, ranging from 15% in Italy to nearly 50% in Germany and Austria. Notably, the share of renters is highest among lower-income groups, indicating a potential disparity in housing affordability.

The document reveals considerable cross-country disparities in nominal rents and their dispersion. For instance, rent levels are notably high in Ireland, Austria, and Belgium, while dispersion is particularly pronounced in Ireland due to significant urban-rural differences. In contrast, countries like Greece and the Netherlands exhibit lower rent dispersion. When examining rent expenditures relative to household income, Ireland leads with the highest rent-to-income ratio, followed by Greece and Finland, while Germany reports the lowest ratio.

The CES-based rent expenditure growth indicator indicates a decline in rent growth after peaking in the third quarter of 2023, though it remained above 3% throughout much of 2024. The year-on-year rent growth rate across the euro area saw a peak of over 5% in 2023 but has gradually decreased since then. Notably, some countries, such as Ireland and Portugal, reported year-on-year rent growth rates exceeding 7%, while other nations like the Netherlands, Germany, and Italy experienced growth rates below 3%.

Recent data indicate that rent growth per square meter is disproportionately influenced by new rental contracts. Households that moved within the previous year reported higher rent growth compared to those who remained in the same dwelling. This trend suggests that landlords tend to raise rents more significantly for new tenants, driven by tenant protections on existing contracts. Furthermore, households often relocate to enhance their living conditions, contributing to the overall rent growth rate.

The CES data highlight that rent growth is more pronounced in cities than in suburban or rural areas, with this gap widening recently. Additionally, smaller dwellings are experiencing higher rent growth compared to larger ones, a shift from previous trends where growth rates were similar across dwelling sizes.

The CES-based rent tracker offers a timely approach to monitoring rental market developments, allowing for an in-depth analysis of heterogeneity across households. Future efforts will aim to validate this indicator further and explore quality adjustments in rent growth, assessing factors such as dwelling age, location, and renovations. This comprehensive monitoring will enhance understanding of the rental market and inform sustainable housing strategies across Europe.