Place-based determinants of housing prices in Europe

The document titled "Place-based determinants of housing prices in Europe" was published by the Joint Research Centre (JRC) of the European Commission. The JRC aims to provide scientific support for EU policies through evidence-based research. The authors of this report have conducted a thorough investigation into the factors influencing housing prices across various municipalities in the EU, focusing on the implications for housing affordability and sustainability.

As of the end of 2024, house prices in the EU have risen approximately 55% since 2015, surpassing the growth of net household income per capita, which increased by 49% in the same timeframe. In 2024, household expenditure on housing, water, and energy accounted for 23.6% of all household expenses. The analysis highlights that macroeconomic drivers such as monetary policy, interest rates, economic growth, and demographic trends have significantly impacted housing demand, leading to rising prices.

The report identifies several key determinants that contribute to higher housing prices. These include limited housing construction relative to population growth, increased household income, good accessibility, proximity to coastlines, high tourism intensity, and a significant share of short-term rentals (STRs). Notably, while correlations exist, they should not be interpreted as direct causation due to the varying availability of data.

The relationship between STRs and housing prices is more pronounced in urban areas compared to rural locales. STRs account for about 1.2% of all conventional dwellings, with notable concentration in tourist destinations and specific city neighborhoods. The increasing number of unoccupied dwellings, which reached nearly 20% in 2021, alongside stagnating housing supply, indicates structural issues affecting the supply side of the housing market.

The JRC study analyzed data from 95,000 municipalities across EU-27 countries, narrowing it down to 78,000 for econometric analysis. The methodology involved examining the role of local housing supply and demand dynamics in determining housing prices while controlling for factors like accessibility and socio-economic characteristics. Data for the analysis was sourced from various databases, including Eurostat and AirDNA, and involved web scraping of real estate listings.

Short-term rentals, while beneficial in promoting tourism and providing income opportunities, also exert upward pressure on housing prices, particularly in urban centers. The report indicates that STRs are more significantly associated with higher housing prices in cities than in rural areas. The findings suggest the need for localized strategies to manage the impacts of STRs, as their effects can vary greatly across different municipalities.

The research underscores the necessity to address supply constraints in the housing market, particularly regarding the increasing number of unoccupied homes and the conversion of primary residences into short-term rentals. It also emphasizes the importance of improving housing statistics to differentiate between types of unoccupied dwellings, which is crucial for effective policy development. A place-based approach is recommended for managing the varying impacts of short-term rentals and understanding the local dynamics that shape housing prices.