New study on the links between affordable housing and labour markets

In a study published in January 2024, Michael Klien from the Austrian Institute of Economic Research (WIFO) looked at the links between housing affordability and labour markets and the effects of these links on economic productivity. The report examines the region and the city with the highest housing costs in Austria, which is Salzburg. The average rent in Salzburg (region) lies 20% above the national average in Austria. The city of Salzburg records the highest rent levels in Austria. The average private sector rent in Salzburg (city) is 50% more expensive than the national average (across all tenures). High housing costs are mainly a result of high rents in the private, unregulated sector.

Crucially, despite higher housing costs, the average income in Salzburg is only marginally above the national average. As such high housing costs in Salzburg reduce disposable incomes a lot more than it is the case in other regions. It also means that the share of housing costs in household income is well above the national average. This situation is not unique across Europe, where problems with high housing costs are a particularly pressing issue in many cities and urban areas, especially for households renting privately, as the State of Housing in Europe report shows. However, the novel aspect of the study is that it provides empirical evidence of the negative economic consequences of housing unaffordability.

High housing costs impinge on labour mobility

Lower residual incomes after housing costs in Salzburg mean that the region is less attractive as a place to live than other regions in Austria. The report draws on internal migration data (within Austria) – a method widely used in labour market analysis - to illustrate this. While most other urban areas in Austria have seen positive net internal migration, Salzburg is the only city with a significant minus of about -6% between 2001 and 2021. This is only balanced out by a higher rate of international inward migration.

The study goes on to show that these movements are not caused by a reduction in the availability of jobs but are most likely caused by the high cost of housing. As a result, a higher share of Salzburg’s workforce commutes longer distances as many households decide to live in suburban or even rural areas around the city. Long- or mid-distance commuters to Salzburg (city) can save up to 50% in housing costs. While this appears to be a perfectly rational reaction to the problem of high housing costs, it is not a desirable outcome from an ecological perspective, especially when commuting involves car traffic. High housing costs in Salzburg are a particular problem for those seeking new rental contracts, which are significantly more expensive than existing contracts. Newcomers to the city and younger households are hence disproportionately affected by the shortage of affordable housing. These findings also chime with trends seen at a European level.

Housing affordability and economic productivity

The effect of high housing costs in Salzburg however not only impact on labour mobility but also economic productivity. A cross-regional Austrian comparison evidences a significantly below-average business start-up rate (the rate at which new businesses are set up) and an above-average job vacancy rate in Salzburg compared to other regions. The job vacancy rate appears to be a particular problem in sectors with lower incomes. These jobs are often found in the service-sector economy and in health care. Due to the high share of tourism and associated service-sector jobs in the Salzburg region, the local economy is disproportionately hit by the lack of affordable housing.

Conclusion

An adequate supply of affordable housing is hence an important element in an efficient labour market and in ensuring that there is a match between the right skills and the right jobs. A recent OECD report underlines this issue: “To a large extent, the affordability challenge has its roots in the housing sector’s failure to supply enough dwellings where demand is strong, such as in job-rich urban areas.” (OECD 2021). The findings of this new study add another important argument in the economic case for affordable housing, which has already been made in two other studies (The economic benefits of affordable housing and The price-dampening effect of limited-profit housing in Austria). There are also many lessons to be learnt at a European level and the empirical evidence supports several of the asks in the Housing Europe Manifesto. The right European support for affordable and social housing – both in terms of governance and financing – helps to alleviate not only the pressing housing affordability problems but also makes sense economically.

 

Leave comments