Gains by far-right parties in this month's European Union elections should serve as a reminder of the dangers of failing to address the region's chronic problems of inadequate housing supply and worsening affordability. Few other issues have greater potential to damage the social fabric and undermine democracy.
Housing wasn't at the forefront of this month's campaigning, but we can be sure it was part of the background music. The cost and availability of shelter cause part of the economic anxiety that has been exploited by populist politicians, who have scapegoated immigrants for a squeeze that owes more to decades of underbuilding and restrictive planning policies. This, in turn, has been exacerbated by a near-perfect storm of higher interest rates and surging construction costs in the wake of the Covid pandemic and Russia's invasion of Ukraine.
The warning signs have been hard to miss. Across a region with a diversity of housing models and structural challenges, the same themes recur. Lisbon, Amsterdam, Milan and Prague are among cities that have seen housing-related protests since the start of last year. Dublin's housing crisis was a driver of anti-immigrant riots in the Irish capital in November. In the Netherlands, the far-right party led by Geert Wilders won the 2023 election with a campaign that blamed migrants for shortages of accommodation and soaring rents.
Recognition of the scale of the challenge is shared across investors, policymakers, civil society organisations and supranational bodies. The housebuilding shortfall in Germany, France and Britain will get worse before it gets better, Jones Lang LaSalle Inc said in a commentary last year that pointed to an estimated shortfall of 2.7 million construction workers needed by 2030. Failure to solve the housing crisis would be a "real threat" to Germany's democracy, the co-head of Chancellor Olaf Scholz's Social Democratic Party has warned. The United Nations' special rapporteur on the right to adequate housing said last month that social gaps created by underinvestment and inadequate government planning are enabling far-right parties to prosper.
In Germany, where the far-right Alternative for Germany or AfD beat the Social Democrats for second place in the EU vote, apartment completions were 294,400 last year -- well below a government target of 400,000. The Munich-based Ifo Institute forecasts they will plunge to 175,000 in 2025. Construction costs jumped more than a third in the past three years, and mortgage rates tripled. That has priced out many would-be homeowners, fueling demand and driving up prices in the rental market.
What is particularly alarming is how affordability challenges are expanding to ensnare middle-income earners. CBRE Investment Management estimates that 57% of European households (excluding low-income groups that are in social or subsidised housing) would be unable to afford current monthly market rents without paying more than 30% of their disposable income. Many such renters are at risk of being priced out of the cities where they work by a "skewed housing market structure", the US real estate investor says. The rent for a one-bedroom apartment in Lisbon more than doubled to €1,350 (53,000 baht) last year, from €600 in 2014, according to Eurostat data. In Dublin, it rose to €2,050 from €1,150.
It isn't difficult to see how such a predicament can sow resentment and erode trust in mainstream political parties. Closed off from the chance of becoming homeowners, young employees on average salaries instead find themselves forced to hand over a large chunk of their income just to keep running in place. It is the erosion of hope that is so corrosive. Such people may justifiably question whether the system is working for them and look for politicians who promise radical solutions.
Populist policies, of course, would do the exact opposite of what they promise and make things worse rather than better. Berlin enacted rent controls in 2020 that, while popular with existing tenants, predictably choked off supply before being overturned in court. Undeterred, activists have since pursued efforts to force the city to take over thousands of dwellings owned by big property investment firms. The Dutch parliament this week began debating expanded rent controls that are likely to have a similar impact. More logically, countries including Portugal, Spain and Ireland have announced an end to so-called golden visa programmes that offer residency in exchange for real estate purchases. Portugal has also clamped down on short-term rentals -- a problem in many cities where renting out on Airbnb Inc may be more lucrative than leasing to long-term tenants.
A lasting fix can only come from increased supply. It's hard to see that happening at a sufficient scale without a more interventionist role from the government after decades when the state generally retreated from housing provision. But private capital also has a big role to play if allowed. Affordable housing for middle-income earners is a "compelling opportunity" as well as a social imperative, says CBRE Investment Management, which last year bought about 2,500 apartments in Berlin, Munich and Frankfurt from debt-laden German landlord Vonovia SE for just over €900 million.
Building more looks like a solid bet for real estate investors. Provided they can find the workers. And they can get the planning permissions. And they don't get expropriated. ©2024 Bloomberg
Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure. Formerly, he was an editor for Bloomberg News and the South China Morning Post.