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European Commission Annual Growth Survey confirms 'State of Housing' report

Housing markets are booming again, leaving many behind

Brussels, 30 November 2017 | Published in Economy

On 22 November, the European Commission published the so-called Autumn package including the Annual Growth Survey and Alert Mechanism Report for 2018, effectively launching the European Semester for 2018. The milestones of the process are the publication of the Country Reports on 28 February 2018 and the Country-Specific Recommendations in May next year.

On the one hand, the AGS 2018  stresses the broad economic context and sets out some broad priorities for the EU Member States. It for instance states:

“Services such as childcare, out-of-school care, education, training, housing, health services and long-term care are essential for ensuring equal opportunities for all. Adequate social housing and other housing assistance are also essential.”

On the other hand, the AMR 2018 identifies macroeconomic imbalances and potential threats. Regarding housing (and using data from 2016), it says:

“House prices are accelerating in most Member States. Valuations are generally still below peak levels after the downward post-crisis adjustment, but in some cases available indicators point to overvaluation. Pockets of possible overheating are present and price dynamics are accelerating in a growing number of countries. Accelerations in household credit are also becoming broad based”.

In other words, 10 countries (compared to 6 in 2015 and 5 in 2014) are beyond the alert threshold for house prices (which is set at 6% year to year increase): Bulgaria, Czech Republic, Ireland, Latvia, Hungary, Austria, Portugal, Romania, Slovakia, and Sweden. On top of that, 3 countries are between 5% and 6% increase in real house prices: the United Kingdom, Germany and Luxembourg.

All this points to booming housing markets, which is not only an issue affecting economic stability but also a cause of worsening affordability. Indeed, as indicated in the employment and social report also published on 22 November:

“Housing-related expenditure accounted for a significant share of household disposable income in a number of Member States. The housing cost overburden rate was the highest in Greece with 40.5% of the population living in a household where the total housing costs (net of housing allowances) represent more than 40% of the total disposable household income. This was considerably higher than in any other EU Member State with Bulgaria at around 20% and Romania, Germany and Denmark at around 15% having the next-highest ratios”.

Confirmation of the critical state of housing

All this echoes the findings of 'The State of Housing in the EU 2017' report of the Housing Europe Observatory:

1. The growth recovery means also recovery in house prices, which are growing faster than income in most EU Member States

2. Housing inequalities and income inequalities do reinforce each other

3. Housing has become the highest expenditure for Europeans and overburden rate remains stable at high level, hitting disproportionally harder the poor

4. This is reflected in increasing levels of homelessness

5. As the level of housing construction is still low, especially major cities face a structural housing shortage reinforced by recent waves of migration

6. As cities are at the forefront of the housing crisis, they are showing a more prominent role in finding solutions

7. In most cases, policy responses at Member States level have been to decrease public expenditure for housing and relying on measures to increase the supply in the private sector or access to homeownership.

Will the Social Pillar make any difference?

The Annual Growth Survey reminds that “the principles and objectives of the European Pillar of Social Rights will serve as a point of reference for the further implementation of the European Semester of policy coordination.  The Commission will take this work forward in the analysis that will be included in the forthcoming country reports and the preparation of the country-specific recommendations in the 2018 European Semester cycle.” 

If the European Commission is to stick to its word, they will consider the impact of housing policies or the lack thereof on affordability. It is striking to see that among the countries that are beyond the alert threshold of 6%, many of them (from Central and Eastern Europe) are countries with an above EU average share of homeowners and no policy to increase the share of rental social or cooperative housing. The European Commission should probably recommend those countries to set up long-term policies aimed at diversifying housing tenure.  

The other countries in this group have been faced with an increased demand for affordable housing and will require more public investment to provide the necessary supply. The European Commission should issue recommendation in that sense.

Housing Europe will analyse how the Social Pillar will actually influence the European Semester 2018 and the housing related recommendations to EU member states.