How will the COVID-19 crisis affect housing in Europe?

The ongoing public health crisis has impacted all of us in some form or another, from those who have lost their jobs or seen a reduction in income, to the approximately 130,000 people in the European Union who have tragically died and their loved ones who must now carry that loss. 

Most people have had to spend significantly more time at home, with around four out of ten workers taking up teleworking for the first time. For those with children, our homes have also become de facto schools and playgrounds. This has brought into sharp focus the question of the ‘adequacy’ of our current stock of housing, with a lack of outdoor space, natural light, high-speed internet or personal space being just some of the issues that we are now coming to terms with.

COVID-19 may not be the last such public crisis to curtail our everyday lives, and the relative ‘success’ of the home-working experience may increase the prevalence of teleworking. For that reason, public authorities should now take a serious look at planning guidelines to make sure that our homes are not just places to eat and sleep, but also places to truly live in.

The broader consequences for the housing sector remain to be seen. For example, advocates for affordable housing, Housing Europe included, have long bemoaned the impact that short-term letting has had on the availability and affordability of housing. 

"The ‘financialisation’ of residential housing could continue to advance apace in the post-COVID period"

Indeed, in a recent report, the OECD noted that the presence of certain online platforms has  “contributed to a disruption of the local real-estate market.” This has led to “inflated real-estate prices, unfair competition for licenced accommodation providers, and gentrification of tourism hotspots and inner-city areas, sometimes to the point of pushing locals out of the area”.

In our analysis of Airbnb listings, we found that there has been a decline in the volume of available short-term rentals in major European cities in the post-COVID period. The figures suggest that the decline has been significant in cities which dedicate a large part of their economy to tourism, whilst cities with more ‘diversified’ economies have shown comparatively less of a drop.
 

However, whether this will lead to a lasting increase in available housing rentals for residents of major European cities remains to be seen. Indeed, speaking on the Housing Europe podcast recently, KU Leuven Professor Manuel Aalbers stated that COVID-19 may lead “somewhat paradoxically, to additional investment in housing. What we see in times of crisis is what they call in…financial markets a ‘flight to quality’”. He judged that investments in real-estate are likely to perform “quite well or just as well as before” over the medium to long-term.

Given the current economic and financial uncertainty, as well as very low bond yields, this makes residential real estate an attractive investment, not so much for prospective home owners, but for those seeking to extract rental income by becoming private landlords. Thus, the ‘financialisation’ of residential housing which has been so prevalent since the financial crisis of 2007/08, could continue to advance apace in the post-COVID period. 

"Half of all young people on lower incomes spend 40% or more of their disposable income on housing"

However, while the turmoil created by the pandemic poses a number of potential problems for households and the housing sector more generally, it also offers an opportunity to re-evaluate the policy mistakes which have been made in recent years, and to begin to do things better.

But to do so requires recognising a number of basic facts. Like the fact one-in-three households in the EU is at risk of poverty once they have met their basic housing needs. Or the fact that close to half of all young people on lower incomes spend 40% or more of their disposable income on housing, or that a staggering 11.5 million households in the EU expect that they will have to leave their home in the next six months because costs have become unaffordable.

In our 2019 annual report, we found that countries which invest meaningfully and wisely in the provision of housing for their citizens have markedly better affordability outcomes. With economies now struggling, the need for social and affordable housing will only increase as unemployment rises and incomes decline.

The temporary suspension of ‘Stability and Growth Pact’ deficit rules and the greater scope for state aid is a chance for Europe to address this need for more social and affordable housing. In addition, given that private developers of housing are likely to take a step back over the medium-term (at least), until they can better take stock of the market, ‘shovel-ready’ public housing developments are a fantastic opportunity for states to get construction workers back on sites, provided it is safe to do so, while generating a much-needed boost to the economy.

"With tough negotiations in the European Council still on-going, the devil will be in the details"

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