Europe’s Great Housing Crisis Is Only Getting Started

The article, published by Bloomberg, addresses the escalating housing crisis in Europe, authored by Laura Malsch and Niclas Rolander. It highlights how a significant decline in home construction is contributing to housing shortages across the continent, particularly in affluent countries.

The narrative begins with the story of Milena and Manuel David, a family in Düsseldorf who planned to build their dream home but faced overwhelming challenges. After a prolonged 16-month wait for a construction permit, they encountered tripled mortgage rates and increased building costs by €85,000. Their experience underscores the broader issues affecting many aspiring homeowners in Europe amid the worst construction crisis in decades.

The article presents alarming statistics indicating a sharp decline in residential building permits across Europe. In Germany, new building permits fell by over 27% in the first half of the year, while France experienced a 28% drop. The UK is projected to see a more than 25% decrease in home building, and Sweden is facing its most severe slump since the 1990s, with building rates far below the demand.

This downturn is affecting both single-family homes and larger housing projects. For instance, Vonovia SE, Germany's largest landlord, has indefinitely shelved all new construction. The housing crisis is threatening crucial projects, such as battery cell production in Sweden, struggling to attract workers due to a lack of housing.

Governments across Europe are failing to meet housing promises. Sweden, for example, has a constitutional obligation to provide affordable housing, yet the supply of rental apartments has not kept pace with demand for decades. In Germany, the government’s goal of adding 400,000 new homes annually will likely not be met until 2026.

The housing crisis risks exacerbating social inequalities, as individuals are forced to allocate more income to housing. Moreover, attitudes toward migrants are increasingly strained, as they are perceived as competitors for limited living space.

The article argues that poor government policies are at the core of the housing crisis. Housing is caught between being a market-driven asset and a public good, stifling investment and creating volatility. Historically, many homes in Sweden and Germany were built through state initiatives, but this approach has shifted towards private sector reliance.

The construction sector is witnessing a wave of bankruptcies and restructuring, with 45,000 residential property builders in the UK shutting down over the past five years and a 35% increase in bankruptcies in Sweden's construction industry within a year.

In response to the crisis, political figures are proposing reforms to improve planning systems and increase housing availability. However, these efforts are viewed as inadequate, leaving uncertainty among builders and hindering immediate project commencement.

The Davids remain cautiously optimistic about potentially starting their construction by altering their plans and seeking state funding, although they recognize the significant hurdles still ahead.