The young and lower-paid are being priced out of housing lets as well as purchases
Some people are being forced to live in vans. Some bed down on friends’ sofas. Many have moved back in with their parents. From Baltic tech hubs to Greek holiday islands to big capitals such as Berlin or London, a Financial Times series is highlighting the soaring cost of renting housing in many parts of Europe — and its impact. Supply shortages are being compounded by inflation and rising interest rates to drive up rents. Those who in countries such as Britain and Ireland had already been nicknamed Generation Rent — under-40s priced out of buying a home by overstretched house values and rising mortgage costs — now find themselves squeezed out of the rental market too.
The effects are wide-ranging. Millions of people are staying longer in the family home, delaying the transition to full independence. An inability to move to take up early job opportunities can harm young people’s long-term prospects. Though other factors are also at play — Covid lockdowns also led to 20-somethings returning home — on average across the EU 42 per cent of 25 to 29-year-olds live with their parents, says Eurostat. In countries including Greece, Italy, Portugal, Ireland and Spain, the proportion tops two-thirds.
In Britain, expansion of student numbers by universities is exacerbating the accommodation squeeze in some cities, further pushing up students’ housing costs. In Italy, students protested in several cities this spring over shortages of affordable housing, after the pandemic accelerated conversion of many residential apartments into holiday lets on home-sharing sites such as Airbnb.
Those on low incomes more broadly, often key public sector workers, can be left struggling to afford or obtain housing at all. In some regions and countries, the lack of low-cost housing is becoming a political issue.
Governments are adopting short-term fixes; Germany’s governing SPD is mooting a three-year national rent freeze. Such measures can ease pressure on tenants, but may be counterproductive by discouraging development or triggering pre-emptive rent rises before they take effect. Housing subsidies for the low-paid are a targeted alternative, but can prove expensive for public authorities in “hot” markets with scarce supply.
Local and central governments can help to ensure “good” behaviour by landlords through incentives and regulations. Intervention to limit short-term letting out of properties through the likes of Airbnb can be justified to boost residential supply, and prevent cities and resorts being hollowed out — via permit systems, or tax changes to incentivise longer-term letting — though many cities have struggled to enact and enforce such schemes.
Ultimately, soaring rents everywhere have the same underlying cause: a failure by the housing sector to provide enough supply where demand is strong. Remedies will vary from country to country, even city to city. But the broad principles are the same. One is to ease regulations on land use and zoning that have constrained supply — and to decentralise decision-making and incentives to metropolitan areas, which have the best idea of their needs.
Another is to rebuild investment in social and affordable housing. Investment in housing development in OECD countries shrank from 0.17 per cent of gross domestic product on average in 2001 to 0.06 per cent in 2018. But building social housing is a far more productive long-term use of public funds than subsidising rents, as it expands supply overall.
Increasing housing supply can create losers, too: often older property owners whose house values or rental incomes may be curbed. This has its own political cost. Yet at stake is ensuring the young and less well-off can put roofs over their heads — and that cities can house the people they need to function.
Source: Financial Times
