Analysis of the 2019 European Semester ‘Autumn package’

The Annual Growth Survey (AGS) is the key document taking stock of the developments over the past year and setting the priorities for the European Union and its member states for 2019.

At first glance, we regret to see that this year’s document includes no specific references to the need for social and affordable housing in ensuring equal opportunities for all as was the case in the 2018 AGS. Having said this, it’s however important to note how the broader priorities set by the AGS can be relevant.

In terms of priorities, the approach taken by the Commission is summarised as follows: ‘The key to a prosperous future remain (1) delivering high-quality investment; (2) focusing on reforms that increase productivity growth, inclusiveness and institutional quality; and (3) continuing to ensure macro-financial stability and sound public finances.’

There’s a strong focus on the need to increase and develop new skills, foster digitalisation and technological development, and investing into a low-carbon, circular economy, including through innovation. These are all aspects where the housing sector is leading in terms of innovation can deliver results contributing to European objectives. Indeed, the document clearly refers to ‘Targeted investments in residential construction, coupled with simplified national regulations, are needed to make housing more affordable and curb energy consumption.’

Throughout the report, the Commission points to the fact that the times are ripe to boost investment in strategic areas. More than this, what Europe is presented with today is a quite unique combination of economic growth, increased fiscal capacity in a number of member states, and low interest rates – a situation that the report highlights may not last for long, in the light of global changes. In this context, the EC puts the focus on supporting investment.

We can only hope that to be consistent with the annouces approach the Commission in its country reports will highlight and identify gaps in investment into adequate, affordable and sustainable housing – in line with the findings of last year’s report ‘Boosting investment in social infrastructures’ – and mobilise EU and national reforms in this sense.

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The AGS calling for more and better investment

‘The Commission’s proposals for the next EU Multiannual Financial Framework fully support the delivery of more and better investment by national authorities and the private sector. As mentioned earlier, the Commission intends to ensure more effective links between the European Semester and EU funding for 2021-2027. Moreover, the new InvestEU Programme will bring together under one roof the multitude of EU financial instruments available to support investment. This will make EU funding for strategic investment projects in Europe simpler, more efficient and more flexible.

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The 2019 European Semester will have a stronger focus on assessing investment needs to guide programming decisions for 2021-2027. The analysis in the 2019 country reports will look at investment needs in each country, including – where relevant – sectoral and regional dimensions. Based on this analysis, a new annex to the country report will identify those investment needs that are relevant for the European Regional Development Fund, the European Social Fund Plus and the Cohesion Fund during the 2021-2027 period. This will provide a solid analytical input to the programming dialogue with Member States.

Building on the country reports, the Commission also intends to identify, as part of its proposals for the 2019 country-specific recommendations, priority areas for public and private investment to further facilitate the implementation of growth-enhancing reforms’.

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The Alert Mechanism Report (AMR) is published together with the AGS. It is the starting point of the annual cycle of the macroeconomic imbalance procedure by identifying areas of risk which can lead to…, based on a set of indicators. The latter notably include house price increases (unfortunately only at macro/national level, which does not allow to identify overheated housing markets at regional/local level).

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The Alert Mechanism Report highlights risk of house price overvaluation in some countries

The report finds that ‘House price growth has accelerated and turned positive in a growing number of Member States, and more countries are exhibiting possible signs of overvaluations. At the same time, house price growth has recently moderated in the countries where the evidence of overvaluation is the highest. Conversely, strong accelerations are observed especially in countries that, at present, show no or moderate evidence of overvaluation.’

All fine then? Not really, as ‘The protraction of sustained rates of real house price growth have brought house prices back to or above the pre-crisis maxima in a number of countries, namely Austria, Belgium, Czechia, Germany, Luxembourg, Malta, and Sweden. Real house price growth rates above those of income and other relevant variables normally determining house prices are driving house price levels in a territory of possible overvaluation in a growing number of countries.’ Furthermore, ‘in a number of countries, including Denmark, Luxembourg, Sweden, and the United Kingdom, overvalued house prices coexist with large household debt levels.’

The report announces the following countries will be covered by an in-depth review in 2019: Spain (which is currently in the corrective arm of the MIP), Bulgaria, Croatia, Cyprus, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Romania, and Sweden.

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Last but not least, the Draft Joint Employment Report provides an annual overview of key employment and social developments in Europe as well as Member States' reform actions, and monitors Member States' performance in relation to the Social Scoreboard set up in the context of the European Pillar of Social Rights.

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