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The socio-economic impact of COVID in the 2021 European Semester ‘Autumn package’

Housing Europe looks at housing market trends, economic imbalances and measures.

Brussels, 26 November 2020 | Published in Economy

The 2021 European Semester ‘Autumn package’ was published on November, 18th. Undoubtedly, defining common EU priorities and guiding EU Member States in times of high uncertainty, when inclusiveness and financial support are highly needed, is a complex task. Housing Europe brings you the highlights for the sector.

Since early 2020, we have all been going through exceptional times and this year’s Semester also represents an exceptional cycle.

The Annual Growth Survey (AGS) was published under the new title 'Annual Sustainable Growth Strategy' in September, way earlier than usual, and clearly put the focus of the 2021 Semester on tackling the current crisis linked with the pandemic and coordinating with the Recovery and Resilience Facility. Accordingly, the Country Reports that are usually published by the European Commission in February will be replaced this year by the Commission’s assessments of the substance of the national recovery and resilience plans, and there will be no country-specific recommendations in 2021 for those Member States that will have submitted such a Plan. The Commission will only propose recommendations on the budgetary situation of the Member States in 2021.

The above-mentioned Strategy clearly highlights energy-efficiency and renovation as key component of the Green Deal, but compared to previous years, it does not include any mention of the need for supply of social and affordable homes. Unfortunately, this can be considered as a step back as the document is the most important ‘guiding’ piece in the Semester. In particular, one key concern for Housing Europe this year is whether the national recovery and resilience plans will be used to support renovation and supply of social and affordable housing. However, with the publication of the Alert Mechanism Report and the Proposal for a Joint Employment Report, it looks like the Semester insight on housing markets and house prices dynamics on the one hand and on housing conditions on the other, is still significant.

During the launch of the Package, Nicolas Schmit, Commissioner for Jobs and Social Rights, said: “The COVID-19 crisis has broken a 6-year long positive trend on the labour market, which has affected all Europeans, particularly the young, and those on temporary or atypical contracts. The EU will continue to mobilise all resources at its disposal and support Member States in their efforts to mitigate the socioeconomic consequences of the crisis, to protect workers, preserve jobs and ease job transitions towards the green and digital economy. We must focus our efforts on skills and training to adapt to the post-COVID-19 labour market. It is crucial that in a crisis, we reach out to the most vulnerable in society, and place extra emphasis on fighting poverty, exclusion and inequalities.”

COVID-19 has reemphasised the essential role of affordable and adequate homes that can protect people’s health and mental well-being in a moment when the sweeping economic and social consequences of the global health pandemic continue to weigh heavy on our communities.

Indeed, the European Commission’s autumn economic forecast(1) notes that economic activity has declined at “rates never seen before” and that employment has “declined more than ever”. Overall, EU economy activity, as measure by GDP, is forecast to decline by 7.4% this year, with only a partial recovery in 2021. Unemployment, which will disproportionally impact younger workers and those on lower incomes, is expected to increase this year from 6.7% to 7.7%. It will continue to rise in 2021, averaging 8.6%.

But how is all of this reflected in the housing market?

The 2021 Alert Mechanism Report (AMR) has the goal of spotting economic imbalances early on and detecting problems, such as credit and property bubbles or decreasing competitiveness. The so-called Macroeconomic Imbalance Procedure (MIP) is kicked off by the Alert Mechanism and based on a scoreboard of indicators. The European Commission can then identify where and in which EU countries an in-depth review is necessary.

The report announces that the preparation of In-Depth Reviews (IDRs) is foreseen for the 12 Member States identified as having ‘imbalances’ or ‘excessive imbalances’ in light of the findings of the February 2020 IDRs. Nine Member States are currently identified as having imbalances - Croatia, France, Germany, Ireland, the Netherlands, Portugal, Romania, Spain, and Sweden, while Cyprus, Greece, and Italy are identified with excessive imbalances. Beyond this, this AMR highlights potentially risky developments also in a number of Member States for which IDRs will not be prepared.

In particular, Member States where private debt is forecast to be on the rise and above the permitted ‘threshold’ are Denmark, Finland, and Luxembourg which means for these countries that we may expect the MIP will look into housing markets in more depth in the future, Meantime, government debt is expected to rise further, to above 60% of GDP, in Austria and Slovenia.

The COVID-19 crisis has deepened already existing macroeconomic balances and the AMR report sends a signal that ‘new risks may loom’.

“House price growth remained robust into 2020, with accelerations in some countries, but a moderation and possible downward corrections look likely. [...] Latest quarterly data already point to a softening of housing markets in more than half of the EU countries. House price growth forecasts suggest downward corrections in a large majority of Member States over the period 2020-2021”.

The report highlights concerns that households may find themselves over-indebted if their income falls, and where, or if, house prices decrease, households repaying a mortgage may end up in negative equity. At the same time, this would affect banks' balance sheets by leading to lower collateral values(2).

The report includes a more detailed analysis on house prices by country, and a useful summary which we report below.

House prices kept increasing until early 2020, in some cases accelerating.

• In 2019, eight Member States showed real house price growth above the scoreboard threshold - Croatia, Czechia, Greece, Hungary, Luxembourg, Poland, Portugal, and Slovakia. This is one more EU Member State than in 2018. Overall, that confirmed the continuation of the dynamic house price growth that has been observed since around the middle of the decade.

• House prices grew in 2019 in nearly all EU countries, and accelerations between 2018 and 2019 took place in a majority of Member States. Decelerations were observed instead in Bulgaria, Denmark, Germany, Ireland, Latvia, Malta, the Netherlands, Romania, Spain and Slovenia.

• The recent positive trend in house price growth was mainly driven by economic fundamentals. Low interest rates and accelerating labour incomes were the main factors behind the recent demand for housing services, in a context of lagged adaptation of housing supply. An acceleration of mortgage debt growth became visible only after house price accelerations consolidated and became more widespread across the EU.

• Strong house price growth is observed also in Member States exhibiting signs of overvaluation [...]. Some deceleration in prices between 2018 and 2019 was noticed in some of the countries with evidence of overvaluation. Yet that was not the case in other notable cases, including Luxembourg and Sweden.

A majority of Member States in 2019 exhibit evidence of overvaluation. Comparison of price indexes with benchmarks suggest widespread evidence of overvaluation. Housing affordability constraints are confirmed by estimates of price levels. In about half of the EU countries, more than 10 years of income are needed to purchase a 100 square meter dwelling.

Looking forward, the COVID-19 crisis is expected to impact recent house price dynamics, mainly in light of decreasing incomes.

• Quarterly 2020 data reveal that real house price growth has started to ‘cool’ somewhat in several Member States. While most EU countries continued recording price growth in the second quarter of this year compared with the same quarter of 2019, decelerations or even falls in deflated house prices have already been noticed for some. Downward corrections on a yearly basis are observed in Cyprus and Hungary. Decelerations and stagnations are observed in over half of EU countries. A pattern of more widespread downward corrections emerge when looking at the quarter-on-quarter dynamics in the first half of 2020, especially in Estonia, Hungary and Romania but also to some extent in Latvia, Portugal, Slovenia and Sweden.

• Estimates of price levels from quotations by sellers confirm an incipient weakening of the housing market. House price data until mid-2020 may not fully reflect the impact of the COVID crisis because the transactions were in many cases agreed before the COVID outbreak. Nonetheless, recent estimates of asked prices also suggest downward corrections in some countries.

• Model-based house price forecasts also point to softening housing markets through 2021 and downward corrections in a large majority of EU Member States. The fall in labour incomes explain the large part of the expected decelerations. Strong decelerations are expected to take place especially in countries currently showing evidence of overvaluation.

Another key document of the ‘Autumn Package’ is the Draft Joint Employment Report 2021 – providing a yearly overview of some of the key social and employment developments. What is important, is that the report also keeps an eye on the countries’ performance according to the Social Scoreboard, accompanying the European Pillar of Social Rights.

The report takes stock of recent trends in housing affordability and quality and highlights risks of housing exclusion and increasing homelessness. It covers ‘emergency’, short-term measures put in place by the Member States during the first stages of the pandemic, but warns about longer-term lack of investment in housing. It explicitly calls on the Member States to focus investment on renovation of social housing and increasing access to the latter. We report some passages below.

While housing costs remain very high for a large share of households, the crisis requires action to protect the most vulnerable. One European in ten is affected by housing cost overburden. Lowest income households and people living in cities are most affected. Homelessness, the most extreme form of housing exclusion, increased over the last decade in most Member States. The health crisis has put further in evidence these housing difficulties. Many Member States undertook emergency measures to protect the most vulnerable, including by providing emergency accommodation for the homeless. Member States’ reforms should put a particular focus on investing in the renovation of residential and social housing and on increasing access to the latter.

Overall, housing affordability for European households continued to improve in 2019, although with important disparities across Member States.

In 2019, 9.3% of the EU-27 population lived in households that spent 40% or more of their equivalised disposable income on housing (a measure of housing cost overburden). This rate was highest in Greece (36.2%), followed by Bulgaria and Denmark (more than 15%) and lowest in Finland, Malta and Cyprus (less than 4% of the population).

Within the population at risk of poverty, the rate of housing cost overburden was significantly higher (35% in 2019), with important disparities among Member States. In Greece, 88% of the population at risk of poverty was overburdened by housing costs, 74% in Denmark and 48% in Bulgaria and in Germany. At the same time in Lithuania, Latvia, Finland, Estonia, Cyprus and Malta less than 20% of the population at risk of poverty spent 40% or more of the disposable income on housing costs.

In general, tenants, either in the private rental market or in the reduced price market, are more affected by housing affordability than owners with a mortgage. The housing cost overburden rate was highest in cities (11.9%) compared to rural areas (6.8%).

Housing quality has improved over the last decade

Nevertheless, still 4% of the EU-27 population lived in dwellings that were overcrowded or suffered from important quality issues. Such issues included the lack of a bath or a toilet, a leaking roof in the dwelling, or a dwelling considered to be too dark. Overcrowding or poor quality dwellings affect disproportionately people at-risk-of-poverty and tenants, in particular those in the subsidized rental market.

Non-EU born people also faced more difficulties in accessing decent housing with higher rate of overcrowding (27.6% versus 14.2% for natives) and housing cost overburden (19.1% versus 8.8% for natives) in 2019. Homelessness has been on the rise in the European Union with numbers increasing consistently in most Member States over the past decade. Studies estimate that at least 700 000 people are sleeping rough or in emergency or temporary accommodation any given night in the EU, 70% more than a decade ago198. In addition, the risk of homelessness is expanding to different groups in society. For example, in Ireland, 1 in 3 homeless people in temporary accommodation last year was a child. In Sweden, between 1993 and 2017, the share of women amongst the homeless population increased from 17% to 38%. In the Netherlands, the number of homeless young people has more than tripled between 2009 and 2018, from 4 000 to 12 600. Also, refugees and asylum seekers are overrepresented among the homeless population. In Germany, families with children account for 27.2% of homeless refugees, compared to 13% of the rest of the homeless population. In the city of Barcelona, 52.3% of homeless people are third country nationals. And in Greece, 51% of the 3 774 unaccompanied minors are homeless. People experiencing homelessness also face health inequalities: high rates of chronic mental and physical health conditions, substance abuse problems and reduced life expectancy.

Concrete measures protecting the most vulnerable during COVID-19. What is planned in the long-term?

During the COVID-19 crisis, many Member States undertook emergency measures to protect the housing situation of the most vulnerable. For instance, emergency accommodation was provided for the homeless during the lockdown, including through hostels and emergency shelters. This was the case for example in France, Spain and main cities in Ireland, Austria. Moratoria on rent payments for tenants severely affected were implemented in Spain, Austria, Germany or Portugal, while Ireland and Luxembourg deployed financial support to tenants unable to honour rent payments as a result of the crisis. In Greece, the government authorised a temporary reduction (of up to 60%) of rent payments for tenants that lost their job during the crisis. Similar measures were taken by local governments and in some cities, such as in Lisbon and Sintra (Portugal), where social housing rents have been suspended for several months.

Italy and the Netherlands implemented measures to protect mortgage holders against the risk of losing their homes, such as the suspension of foreclosure procedures during the period of confinement. These measures have been for the most part temporary, however, and are unlikely to match the duration of the effects of the global pandemic on households’ capacity to afford housing costs, especially for those who suffered from loss of employment or income during the crisis. On the supply side, a major housing policy challenge is the decrease in public investment in housing supply over the last decade.

Some Member States have taken steps to raise the supply of social housing and support the post-crisis recovery of the construction sector. For instance, Austria, Ireland and the Netherlands have put in place additional funding and/or easing of lending conditions, in order to provide liquidity to developers. In Portugal, tax exemptions were granted over real estate capital gains to incentivise the lettings on the affordable rental market for homeowners operating in the short-term holiday rental market.

As could have been expected, the pandemic is having a devastating impact on employment.

The coronavirus pandemic broke a six-year long positive trend in EU labour markets. Total employment, which had increased by 15 million people since mid-2013, decreased by 6.1 million people between the fourth quarter of 2019 and the second quarter of 2020. This is the sharpest decline ever observed over two successive quarters. The employment rate for women has decreased less than the employment rate for men. Women continue to be over-represented in lower paid sectors and occupations, such as services and care.

The Joint Employment Report also mentions housing issues specifically in relation to Roma people, migrants, and childhood poverty.



(2) However, it should be note that the ECB has unleashed unprecedented liquidity supports for banks in the Eurozone since the outbreak of the pandemic, including providing around €3 trillion of cash at negative interest rates, meaning banks will actually be paid by the ECB to take money. See our recent article on this issue :