European Semester country reports pave the way for new set of recommendations on Member States’ housing policies

The European Commission’s view on housing markets

Brussels, 31 March 2017 | Published in Economy

As part of the European Semester, the European Commission has recently published the country reports, which pave the way for the country specific recommendations proposed in May. The country reports are an analysis of the macroeconomic situations of the Member States. The situation is assessed against the indicators proposed under the macro economic imbalances scoreboard.

The Council is now expected to discuss the Commission's Country Reports. The Commission will then hold bilateral meetings with the Member States on their respective reports. The Vice-Presidents and Commissioners will visit the Member States to meet the governments, national parliaments, social partners and other stakeholders.

As regards of the content of the reports, here below you will find some snapshots (all countries have a chapter on housing markets though):

In general: A number of Member States need to monitor closely possible overheating risks in some sectors. Member States that made the most rapid progress in addressing imbalances are witnessing dynamic growth and relatively higher inflation rates, and some are experiencing a rise in unit labour costs. Real house prices are on the rise in a majority of Member States. In some cases, the increase in real house prices is adding further pressure to already overvalued housing markets.

Ireland (post adjustment programme evaluation): House prices are growing at a rapid pace, mainly driven by supply constraints, but from likely undervalued levels. Developments in real estate markets need to be closely monitored. While there is little evidence of house price overvaluation so far, recent price and rent increases have drawn attention to persistent housing supply bottlenecks. The government has repeatedly intervened in the housing market to support the recovery in the residential construction industry, but it will take time to restore an adequate supply of new homes. In the meantime, demand-side policies or rent controls could be counterproductive.

Netherlands: The private rental market remains underdeveloped. New dwellings are mostly constructed for subsidised segments of the housing market. The owner-occupied market profits from a relatively generous mortgage interest deductibility (MID), while rents in the social sector are indirectly subsidised. Only the private rental sector does not receive implicit or direct subside, which explains the underdeveloped private rental market.

Although a large supply of social housing has advantages in affordability, the crowding out effects on other segments of the rental market have repercussions on the functioning of the housing market as a whole. The absence of a strong middle segment on the rental market pushes middle incomes into the owner-occupied market prematurely and increases financial vulnerability (see European Commission. This concerns particularly young middle income families, leading to a relatively young average age of house ownership and relatively high debt-to-income ratios.

Portugal (post adjustment programme evaluation): Progress in housing market reforms has stalled with signs of steps back. Concerns remain about the Parliament proposal to further change the original framework of the housing market. The original framework aimed to make the housing market more dynamic by better balancing rights and obligations of landlords and tenants. It phased out, over a period of five years, the old system of open-ended leases in which rents were frozen and contracts could not be terminated by landlords, and provided for an updating of rents to achieve gradual alignment with market level.

France: Low-income earners’ access to affordable housing remains a challenge. There is a critical shortage of affordable housing, including social housing, in particular in growing urban areas. Problems related to the lack of sufficient (social) housing affects more socially disadvantaged people and in particular non-EU born. Around 1.7 million people are on social housing waiting lists, including nearly 500 000 people in Ile-de-France. Homelessness levels are high and continue to rise; 141 000 homeless people were recorded in 2012, which is a 50 % increase since 2001.