Last Updated on Thursday, 7 November, 2024 at 9:30 am by Andre Camilleri
Dr Ovidiu Tierean is a Senior Advisor at PKF Malta
Access to housing has become an issue in developed countries. Many cities where apartments used to sell or rent at affordable prices have become too expensive for the middle class.
Although several countries have implemented measures to increase supply and regulate rents, their impact has been limited, and the real estate crisis is becoming increasingly difficult to control. Between 2015 and 2024, house prices rose by 54% in the US, 32% in China, and almost 15% in the European Union according to the OECD. The increase was even greater in capitals and major cities; in some cases, rents have doubled over the same period. Almost 9% of the population of industrialized countries is forced to spend more than 40% of their earnings on rent.
One may ask how did this crisis begin? There is no simple answer to this question. The crisis began from policies adopted at the end of the 21st century, when many Western governments reduced the number of housing blocks they built. Older buildings were left to deteriorate, rather than being regularly repaired, and were often demolished without being replaced. Before long, many cities were left with too few resources and a growing demand for which they had no solution.
Despite the housing bubble at the turn of the century, the problem of insufficient housing supply has persisted. The 2008 financial crisis stopped all construction and led to an explosion of prices, especially in urban areas. The super-city model promoted around the world since the 2000s has created the impression that cities should attract talent and capital without considering the consequences created for the people who already live in them. Economists argue that much of the global crisis can be blamed on a lack of regional cohesion. Furthermore, housing is no longer seen as a basic right, but as a financial investment that is resilient to crisis and inflation. Developers favour the construction of apartments that attract the highest profits, while low-cost houses, which are most needed, have been ignored.
Wages have not increased at the same rate as property prices. In the EU, average rent increased by 20% between 2010 and 2022, with rents and house sales prices rising by up to 48%, according to Eurostat. Unsettled markets are wreaking havoc in Spain, where 20 percent of renters spend more than 40 percent of their earnings on housing, while in France, Italy, Portugal and Greece, the percentage varies between 10 and 15 percent, according to the OECD. Many countries have created programs aimed at increasing the future supply of public housing, but their effectiveness has yet to be determined and analysts say the results will be limited unless smarter regional planning decisions are made.
In Spain, the housing crisis has reached a critical point in recent years due to the large gap between supply and demand. The Bank of Spain estimates that the housing market needs another 600,000 homes to break even. Each year, around 90,000 new homes are built, while 275,000 new families are born, and demand from non-residents adds 60,000 homes to the total figure. In Italian cities, where apartments rented by tourists have multiplied, it is increasingly difficult for residents and students to find housing. In Milan, a room rents for an average of €700 per month, while in Bologna and Rome prices are around €550 per month.
In France, the problem is most reflected in the big cities. The square meter sells on average for €12,000 in Paris. The exorbitant prices could spread to the rest of the country because of the very low rate of new housing construction. Germany is the land of renters. While in Europe, around 70% of the population lives in their own home, in Germany, the percentage is only 46%, and in Berlin it is below 20%. The country needs about 800,000 new apartments, a figure that has risen each year as the speed at which new homes are built slowed due to high interest rates and the high cost of building materials and shortage of qualified labour. In Britain, victorious Labor Party promised a housing revolution during the election campaign. They promised to build 300,000 new homes every year.
Things are not dramatically different on our beloved islands. According to a study by KPMG, the median price of an apartment rose from approximately €142,000 in 2013 to €280,000 in 2024, illustrating a clear doubling of prices over the decade. The Residential Property Price Index has shown consistent growth, a 6.8% increase from the previous year. The same study indicates that approximately 90% of individuals find it difficult to enter the property market, necessitating substantial deposits that many potential buyers cannot afford without family assistance, although only 3% of buyers spend more than 40% of their income on mortgages. Sustained economic growth and a constant increase of population has driven demand constantly above supply.
