Gimme shelter: Cost-of-living crisis squeezes Europe’s housing

Gimme shelter: Cost-of-living crisis squeezes Europe’s housing

This article, published by Politico and authored by Giovanna Coi on December 7, 2023, explores the pressing issue of housing affordability in Europe amidst a cost-of-living crisis. The article is part of Politico’s Global Policy Lab, a collaborative journalism project focused on urban living and sustainable practices. It highlights how rising housing costs are impacting urban residents, particularly poorer households and the middle class, making home ownership increasingly unattainable.

Since 2014, house prices and rents in Europe have been on a steady increase, a trend that continued even during the COVID-19 pandemic. The pandemic saw a surge in housing demand as people were confined to their homes due to lockdowns. However, the situation worsened with the economic recovery in 2022, further exacerbated by Russia’s invasion of Ukraine, leading to higher costs for mortgages, rents, and energy. Many Europeans have faced difficulties in meeting housing costs, with some struggling to keep their homes warm during winter.

Young residents in Europe are particularly affected by the real estate crisis. Many are renting longer and living with their parents, which restricts their ability to pursue better job opportunities. This trend poses a significant concern for cities that rely on a dynamic young population for economic competitiveness. Lamia Kamal-Chaoui from the OECD notes that if young people cannot afford housing, they will be less likely to relocate to urban areas, regardless of their attractiveness.

Despite fears of a real estate bubble fueled by rising prices, recent data suggests a more stable outlook. Central banks globally have responded to the cost-of-living crisis by raising interest rates, which has reportedly curbed the decade-long trend of rising housing prices. The UBS Global Real Estate Bubble Index for 2023 indicates that only Zurich and Tokyo are at risk of a housing bubble. However, higher interest rates translate to steeper mortgages, further complicating the situation for prospective homeowners.

The shortage of adequate housing remains a core issue contributing to unaffordability. Demand for housing continues to grow, but supply has not kept pace, largely due to regulatory and spatial constraints, especially in larger cities. Building new homes has become more costly, with a decline in approvals for residential construction in the past year, despite numbers still being higher than pre-pandemic levels.

Some cities are addressing the housing shortage by converting vacant commercial and office buildings into social housing; however, this solution is not universally applicable as many municipalities lack public social housing. Furthermore, local governments are struggling to adapt housing policies to meet the evolving needs of residents. Kamal-Chaoui emphasizes that the quality of life in major cities has declined, prompting more people to seek homes in less congested suburban areas or medium-sized cities.

Cities that once neglected housing issues are now prioritizing them due to the pressing need for affordable living conditions. Municipal leaders across the political spectrum are recognizing the urgency of addressing the housing crisis, driven by the realities of the cost-of-living crisis and the necessity to sustain urban populations.