The EU Spring Semester – getting to grips with new extraordinary crises after COVID and pointing out the vital role of affordable housing

As announced last autumn, this year’s spring Package reintroduces country reports and country-specific recommendations (CSRs).

The country reports take stock of the implementation of past country-specific recommendations and of the measures included in the Recovery and Resilience Plans (RRPs) that will largely drive Member States’ reform and investment agendas until 2026. The reports then identify key outstanding or newly emerging challenges, not sufficiently covered by commitments undertaken in the RRPs, which are the basis for this year’s CSRs.

In other words, CSRs’ this year focus is what is not already ‘covered’ by RRPs, taking into account both recommendations from previous years AND new challenges – including notably the need to reduce our energy dependencies following Russia's invasion of Ukraine, in line with the REPowerEU priorities. This means each country gets a limited number of recommendations – namely for all Member States with an approved RRP[1]:

• a recommendation on fiscal policy, including fiscal-structural reforms where relevant;
• a recommendation on the implementation of the RRP and the cohesion policy programmes;
• a recommendation on energy policy in line with the objectives of REPowerEU;
• where relevant, an additional recommendation on outstanding and/or newly emerging structural challenges, based on the gap analysis.

As part of the Spring Package, the EC also publishes a general communication. The report highlights that ‘Member States face both common and country-specific challenges that require policy action, as reflected in the country-specific recommendations in the areas of energy and environmental sustainability, productivity, fairness (i.e. implementing the European Pillar of Social Rights), and macroeconomic stability. With regards to the latter, the communication announces the general escape clause of the Stability and Growth Pact will be maintained throughout 2023 to be deactivated in 2024. The overall message is that fiscal policy should be prudent in 2023, while standing ready to react to the evolving economic situation. The EC position about fiscal policy differentiates between high-debt Member States and low/medium debt Member States – however it also points out that ‘all Member States should expand public investment for the green and digital transitions and for energy security, including by making use of the RRF, other EU funds and REPowerEU.’

The communication also briefly mentions that ‘House prices are growing at their fastest pace in over a decade’. Indeed this sort of feels like the elephant in the room. Fourteen countries have seen increases in the house price index that go beyond the 6% 'alert' threshold used in the Macroeconomic Imbalance Procedure (MIP) last year[2]. Recent data released from Eurostat point at fast price increases by 9.4 % in the euro area and by 10.0 % in the European Union in the fourth quarter of 2021, compared with the same quarter of 2020.[3] And yet this issue is far from getting the attention it deserves in the Semester recommendations – as long as in most countries it is not yet considered to constitute a threat to the banking system.

Housing systems are complex and the limited number of indicators used in the Semester by their nature means that the process tends to highlight correctly some concerns while at times overlooking trends that require more urgent action. "For this reason, Housing Europe, UNECE and UN-Habitat worked on the #Housing2030 report to encourage a more holistic view of housing systems which addresses land policies, financial frameworks and governance systems. The push on energy efficiency is a case in point as without adequate social safeguards and a systemic approach, energy efficiency measures can worsen housing affordability. With its SHAPE-EU project, Housing Europe and partners also show the energy transition can factor in climate without pricing people out," the Secretary-General of Housing Europe, Sorcha Edwards pointed out.

When it comes to ‘fairness’, the communication highlights the unequal impact of the COVID-19 pandemic, the need to assist people fleeing Ukraine, the recent energy and food price rises hitting the poorest households the hardest, and labour shortages in a number of sectors including construction. The communication highlights that ‘Increasing the availability of affordable and social housing is warranted in a number of Member States.’ Is this enough? And what is the logic driving the Commission’s choice to point at housing in some countries and not others? We are taking a look at these ‘housing-specific recommendations’ in detail below.

Housing in the CSRs

Overall, we find this year’s country-specific recommendations show a very adhoc and mixed approach to housing. This is not surprising given the different trends and conditions at national (and even local) level, but also possibly the highly political nature of the Semester process.

A total of 7 countries have received recommendations mentioning specifically housing. For those of you who have been following the Semester process through the years, 2022 includes some usual suspects as well as some new entries.

Starting with countries that have received similar recommendations in the past, we have the Netherlands ‘reduce the debt bias for households and the distortions in the housing market, including by supporting the development of the private rental sector, and taking measures to increase housing supply’.

Sweden has also been recommended to ‘reduce risks related to high household debt and housing market imbalances by reducing the tax deductibility of mortgage interest payments or by increasing recurrent property taxes. Stimulate investment in residential construction to ease the most urgent shortages, in particular by removing structural obstacles to construction and by ensuring the supply of buildable land. Improve the efficiency of the housing market, including by introducing reforms to the rental market’.

Furthermore, two countries that did receive recommendations related to housing a few years back make a comeback this year – but with a clearer (and welcomed) focus on decent and affordable housing: Spain has managed to ‘Increase the availability of energy-efficient social and affordable housing, including through renovation’,

Denmark has advanced and implemented ‘the new property tax system in order to restore the link between market prices and taxes and ensure fairer taxation. Stimulate investment in construction of affordable housing to alleviate the most pressing needs. Increase the financial resilience of highly indebted borrowers’.

Three countries receive recommendations on housing for the first time.

Czechia is advised to ‘strengthen the provision of social and affordable housing, including by adopting a specific legislative framework for social housing and improved coordination between different public bodies.’

Hungary is asked to ‘improve the adequacy of social assistance and ensure access to essential services and adequate housing for all’.

Lithuania should also ‘improve access to and quality of social housing’. This is a positive development, one that could mean the Commission is willing to support change in CEE countries that had largely retreated from housing policy over the past decades.

It is also interesting is to see who is no longer receiving ‘housing specific recommendations’ this year: it is the case of Ireland for which lack of social/affordable housing is no longer mentioned as an issue in the CSRs. However, reading the country report, we find that ‘rent increases and insufficient social and affordable housing are still a concern, and have created the conditions for a high number of homeless people by historical standards.’ The reason for the lack of a dedicated recommendation seems to be that Ireland’s RRP includes measures to address the challenge by increasing the supply of social and affordable housing, in particular through implementing the national ‘Housing for All’ plan effectively. At the same time, the EC recognises the modest size of the plan combined with current dynamics in the construction market means further efforts may be needed in the future.

Similarly for Luxembourg, Portugal, and Slovakia the EC seems to suggest that the investments promoted under the recovery and resilience plan until 2026 can sufficiently (?) contribute to increasing available social and affordable housing, therefore no recommendation is needed at least for the time being.

Equally debatable is the choice of including only a recommendation related to property taxation for Italy to ‘align the cadastral values to current market values’ which is clearly a key element in switching from taxes on labour to other sources of revenue less detrimental to growth, but does seem to be missing (at least part of) the point in a country where social housing is less than 4% of the total stock.

At the same time, it is important to notice that almost all countries’[4] recommendations include a point on diversification of energy supply (including through renewables), as well as enhancing energy efficiency in residential buildings. This shows once again that the Commission has clearly identified the housing sector as a key pillar for the energy transition.

You can find more details with the precise wording from the CSR reports in the annex. We also encourage our members to look at the full country reports as they include a wealth of relevant information including housing market trends and additional challenges impacting housing conditions.