Europe’s Great Housing Crisis Is Only Getting Started

The article titled "Europe’s Great Housing Crisis Is Only Getting Started," published by Bloomberg on November 2, 2023, explores the severe challenges facing the housing market across Europe. Authors Laura Malsch and Niclas Rolander shed light on how a collapse in home building is leading to intensified shortages, impacting not only individual families but also broader economic growth and social stability.

Residential construction is experiencing a dramatic downturn, with new building permits in Germany falling over 27% in the first half of 2023, while France and the UK have reported declines of 28% and an expected drop of more than 25%, respectively. Sweden is witnessing its worst construction slump since the 1990s, with building rates at less than one-third of what is necessary to meet demand. The situation is exacerbated by rising costs, bureaucratic delays, and stringent energy-efficiency regulations.

The article highlights the plight of families like Milena and Manuel David, who planned to build a new home but were thwarted by skyrocketing mortgage rates and construction costs, which increased by €85,000 ($90,000) during their 16-month wait for a building permit. Their story exemplifies the broader crisis, as even families with stable jobs and financial support struggle to secure housing.

Governments across Europe are failing to meet housing commitments. In Sweden, a constitutional pledge to provide affordable housing has not been fulfilled, and in Germany, the government is unlikely to meet its goal of adding 400,000 new homes annually until 2026. The shortfall in affordable housing is pushing more residents to spend a larger portion of their income on accommodation, heightening social divides and fueling political tensions.

The downturn in construction threatens economic growth, with fears that escalating housing shortages could destabilize democracies. The rise of far-right political parties in Germany is partly attributed to the housing crisis, as voters increasingly view migrants as competition for scarce resources. In the UK, a significant number of residential builders have shut down, further straining the housing market.

While some countries, like Portugal and Spain, have seen housing starts increase compared to 2015, they still face severe shortages. The underlying issues stem from inadequate government policy and a reliance on private sector solutions, which have made building homes increasingly unprofitable, especially for affordable options.

Historically, many European governments played a proactive role in housing development, but this has shifted towards privatization, leading to a drastic reduction in publicly funded housing options. As construction companies face bankruptcy and a lack of investment, calls for government incentives and reforms have emerged, yet political will remains limited.

Despite the pervasive challenges, some politicians are proposing reforms to accelerate planning processes and increase housing supply. However, uncertainty prevails in the construction sector, with many builders hesitant to start new projects amid fluctuating policies and market conditions. The Davids remain cautiously optimistic, hoping for state funding to finally realize their dream of home ownership.