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Autumn package shows optimism about recovery while level of insecurity remains high

European Commissioner for Economy, Paolo Gentiloni stresses that house price growth has increased in the EU

Brussels, 24 November 2021 | Published in Economy, Future of the EU & Housing

The European Commission has published today (24 November 2021) the Autumn Package launching the 2022 European Semester cycle. The overall tone is quite positive as ‘Europe’s achievements in rolling out the COVID-19 vaccination campaign and mitigating the socio-economic impact of the pandemic, have laid the ground for a sustained recovery.’ However, during the press conference presenting the Autumn Package, Commissioners Dombrovski, Gentiloni and Schmit also highlighted a number of concerns which call for cautious optimism.

The main document in the package is the Annual Sustainable Growth Survey which takes stock of the past 12 months and outlines the economic and employment policy priorities for the EU for the coming year. The package also includes the Proposal for a Joint Employment Report, analysing the employment and social situation in Europe and the policy responses of national governments, and the Alert Mechanism Report looking at potential economic imbalances in the Member States and launching the macroeconomic imbalance procedure. We will look at all these documents[1] more in detail below from the perspective of public, cooperative and social housing providers, but first we try to draw some general conclusions.

Overall we can conclude that this year’s Semester is going back to its usual system of multilevel economic policy coordination, a change that Housing Europe very much welcomes so as to guarantee consistency with the approach of previous years and in particular with the objective of mainstreaming the Pillar of Social Rights.

At the same time, it seems this Semester will still be very much focusing on the Recovery and Resilience Facility (RRF) as the key tool to implement the policy agenda in the months and years ahead. Housing Europe has just released the timely report ‘Impact of the Recovery Plans on the Social and Affordable Housing Sector’ taking stock of the extent to which RRF funding is supporting the housing sector achieving environmental and social goals. Our report warns that while this instrument is mobilising an unprecedented level of investment in renovation and in some countries supply of social housing, the money that has so far been committed will not be enough to achieve the EU’s targets.

Also interesting is that the concern in the Autumn package documents with fast increasing housing prices from the point of view of macroeconomic stability seems to be clearer than ever especially when combined with a rising mortgage debt. The report highlights as usual the potential risk to the financial sector linked with overvaluation but also, for the first time, recognises that deteriorating housing affordability bears ‘potentially adverse macroeconomic consequences linked to lower private consumption and labour mobility, and a diversion of credit away from productivity-enhancing investment’.

At the same time, the housing cost overburden rate is now part of the revised social scoreboard as one of the headline indicators, showing a willingness to monitor housing conditions and affordability in line with principle 19 of the European Pillar of Social Rights.

However, indicators currently used in the different monitoring mechanisms within the Semester still fail to fully capture the complex dynamics linked with housing affordability especially at local level, as highlightes by our Reaserch Coordinator, Dara Turnbull in this blogpost. Looking at average rent prices in private homes in several EU capitals, the short piece shows that ‘very few major cities in Europe can claim to be ‘affordable’, and makes a plea for better data, and improvements in the monitoring of housing as part of the European Semester.’

Last but not least, it’s encouraging to see a clear – although very general  – recommendation to the Member States to address homelessness,  promote investment in the renovation of residential and social housing, and access to quality and affordable housing. We hope to see this approach reflected in next year’s country reports and country specific recommendations and we would like to highlight that the #Housing2030 initiative can lead the way by providing a useful toolkit to drive reform and policy change at national level.

Housing Europe continues the discussion on how we can Build Back Better together with the Long-term Investments and Competitive European Industry Intergroup on 17th December. We will discuss how can post-pandemic EU rules support the needed investment in public, cooperative, and social housing. Watch out our social media channels and web page event section for the registration details!

Annual Sustainable Growth Survey

Since last year’s Annual Sustainable Growth Strategy (ASGS), the Union’s green, digital and social ambitions have increased to deal with the mounting challenges we are facing. The report highlights the main initiatives in each of these areas (green: Fit for 55 package, zero pollution action plan and roll out of European Green Deal; digital: European Commission proposal for 2030 Policy Programme Path to the Digital Decade; social: Porto Social Summit and EU headline targets on jobs, skills and poverty reduction), and highlights the key role of the Recovery and Resilience Facility. With the approval of the recovery and resilience plans and the first funds disbursed to Member States, the focus now crucially turns to the implementation phase.

The ASGS highlights ‘Economic activity needs to be increasingly aligned with the four dimensions of competitive sustainability, i.e. environmental sustainability, productivity, fairness, and macroeconomic stability’ and goes on to set policy priorities structured around the four dimensions of competitive sustainability and in line with the Sustainable Development Goals.

Most important, the ASGS presents the main steps of the 2022 Semester cycle which – after the ‘exceptional’ 2021 cycle – will go back to its usual coordination process, while evolving in line with the implementation of the Recovery and Resilience Facility.

The Commission will publish streamlined country reports in spring 2022. The reports will take stock of Member States’ implementation of the recovery and resilience plans, while at the same time providing an overview of the economic and social developments and challenges that Member States are facing, as well as a forward looking analysis of their resilience. Finally, the overview will include an assessment of progress on the implementation of the European Pillar of Social Rights notably via the revised Social Scoreboard.

The Commission also intends to propose to the Council to adopt country-specific recommendations (CSRs) in spring 2022. They will cover key issues identified in the  country reports, and where relevant the in-depth reviews, for which policy action over several years may be required.

The Sustainable Development Goals (SDGs) will be further integrated into the European Semester: first, the yearly SDG monitoring report will now be part of the European Semester documents and will be published as part of the Spring package. Second, each European Semester country report will include a dedicated section discussing the country’s status, compared to the EU average, and progress in each SDG area. Third, a combination of these two elements and additional indicators that monitor  Member States’ performance in view of key EU policy targets (e.g. European Green Deal,  Digital Decade) will inform the country reports and underpin country-specific recommendations.

Proposal for a Joint Employment Report

The proposal for the 2022 Joint Employment Report, as part of this Autumn package, has a reinforced focus on the Pillar’s principles and integrates the 2030 EU headline targets and the  headline indicators of the revised Social Scoreboard in its analysis.

Housing cost overburden is now part of the social scoreboard as a headline indicator. The housing cost overburden rate overall continued to (very) slightly decline before the crisis. In 2019, around one tenth of the EU population lived in households that spent 40% or more of their disposable income on housing – but with much higher incidence among low income households, tenants, and certain population groups like single parents. Overall, the report concludes, the COVID-19 crisis has amplified long-standing housing challenges and pre-existing inequalities in tenure and housing conditions, including for those that were already excluded from housing before.

It therefore recommends to ‘address homelessness as the most extreme form of poverty; promote the investment in the renovation of residential and social housing; ease access to quality and affordable housing, social housing or housing assistance, where appropriate. It also recommends to ‘Provide all children at risk of poverty or social exclusion with free and effective access to [...] adequate housing, in line with the Recommendation establishing a Child Guarantee.

The report also highlights a number of key issues such as increasing energy poverty (estimated to affect up to 34 million people in the EU today), the disproportionate impact of the crisis on different population groups (such as youth and women) and changes in employment patterns.

Alert Mechanism Report

The Alert Mechanism Report dedicates an entire section to ‘private debt and housing markets’ identifying potential risks for the overall macroeconomic stability stemming from dynamics in these areas.

It finds that overall  ‘House prices, which had already been buoyant, accelerated further and are a risk in several countries, in particular where they are accompanied by a significant increase in mortgage debt’. [...]

The growth of house prices has been driven by a variety of factors fuelling demand and constraining supply. Supply constraints were already present before the pandemic and lockdowns exacerbated them temporarily. The pandemic may have led to some structural changes in housing demand as the shift to more remote working may change geographical preferences. Financial conditions have been accommodative and overall are likely to continue supporting elevated housing demand, while household incomes growing with the recovery are likely to sustain further house price growth.’

The report warns that ‘Developments in housing markets warrant close monitoring. High house prices represent a risk, particularly when combined with high household indebtedness, compounded by uncertain labour market adjustments. This poses a risk for households’ ability to meet their mortgage obligations. Increased interest rates could put additional pressure on mortgage repayment ability, with knock-on effects on the banking sector. Continued price increases as the recovery continues could feed into wage pressures and drive higher mortgage borrowing. Housing affordability has deteriorated in recent years, with potentially adverse macroeconomic consequences, linked to lower private consumption and labour mobility, and a diversion of credit away from productivity-enhancing investment.’

The report highlights that developments in the housing market point to a build-up of risks in particular in Denmark, Luxembourg, Czechia and Malta.


[1] Except for Euro area recommendation and assessment of 2022 Draft Budgetary Plans, which are also published as part of the Autumn Package