Bloomberg: Housing shortages turn rental apartments into scarce commodity across Europe

Bloomberg has published an article arguing that inequality is rising as those who can’t afford to buy property fork out a larger portion of their income on housing. Caliber.Az reprints the article.

In Zurich, apartment-hunters take wine and chocolates to viewings to help them stand out from the crowd. In Amsterdam, university students are spending months trying to secure accommodation before terms starts. In Dublin and Lisbon, young professionals are giving up and moving back in with their parents.

Across Europe’s biggest cities, renters are coming up against a severe supply shortage that’s pushing prices to record highs. Surging mortgage rates have forced people to give up on property purchases, just as inflation increases the cost of construction materials, hampering supply. Government policies and post-pandemic work trends have pushed skilled foreign workers who can often pay more than locals to Paris, Dublin, Berlin and Lisbon, while the return of students post-Covid has pushed up demand in places like London and Amsterdam.

The trend of rapidly rising rent since the pandemic isn’t unique to Europe, but it’s been exacerbated on the continent by the relatively small size of cities and the higher concentration of historic and low-rise buildings. If governments fail to take action, particularly around supply, they risk drastically increasing inequality as those who can’t afford to buy property fork out larger portions of their income on housing.

“Rents are going up and that’s making life particularly difficult for people who don’t have generational wealth,” said Christine Whitehead, a professor of housing economics at the London School of Economics. “There’s a hell of a lot of difference between a 25-year-old looking for a place, with parents who are existing home owners and have properties let out, versus young folks starting completely on their own.”

In Amsterdam, things are tough even for university students with local support. Hendrine van Walbeek, a 54-year-old small business owner in Terneuzen in the southwest of the Netherlands, began trawling through rental websites for rooms to rent for her son Mike near Amsterdam in April, logging on at least 10 times a day to check for updates. By August, with just weeks to go before his course started in the capital in September, the physics student hadn’t been invited to a single viewing.

She tried a different approach, creating an ad about Mike with details of his interests and requirements, and posting it on social media. That led to a few viewing invites and then, with less than a fortnight to go before the start of term, the family finally found a room for €500 a month including bills in Uithoorn, a suburb that’s a 45-minute commute from Mike’s university.

“You have to be relentless to make it work,” Van Walbeek said. “It’s as simple as there are too many people wanting to live there and there aren’t enough rooms.”

The housing shortage is particularly acute in the Dutch capital because the city has become a magnet for foreigners, with 18,000 newcomers moving to the city of about 882,000 in 2022. Dutch companies like ING Groep NV, Royal Philips NV and Just Eat Takeaway.com NV have expanded their workforces in recent years. The city’s favourable tax climate has made it attractive to large international companies such as Tesla Inc. and Netflix Inc., which have set up European headquarters there. The “extreme” population growth has left the city short of about 200,000 homes, the city government said in a recent report.

Other capitals are in a similar bind. Dublin’s population has grown almost 12% in the past decade as government tax breaks created incentives for global pharmaceutical and tech companies such as Meta Platforms Inc., Alphabet Inc.’s Google and Pfizer Inc. to set up their European headquarters there.

The policies are starting to cause a backlash, with companies frequently citing housing as one of the main challenges for recruitment and retention. Discount airliner Ryanair Holdings Plc. rented student accommodation over the summer to house staff and is considering purchasing apartments for its workers, according to local media reports.

In Zurich, home to Google’s largest research center outside the US, the vacancy rate for apartment rentals is just 0.07% and lines for apartment viewings regularly stretch to more than 100 people. It’s become the norm for apartment hunters to bring recommendation letters, HR contacts, bank statements and gifts such as wine and chocolates when they are invited to view a property.

Walter Angst, co-director of the Zurich tenants' association, expects rents to rise by around 30% by 2025 as higher interest rates push up demand. Many households are already spending over a quarter of their disposable income on rent, so such an increase will force lots of people out of the city, accelerating a transformation of neighbourhoods that’s already happening at “breakneck speed,” he said.

In many cities in Eastern Europe, the housing shortage and surge in rental prices is being exacerbated by the sudden influx of Ukrainians fleeing the war. Rental prices in Estonia, one of the top destinations for Ukrainian refugees, jumped 22% in 2022, according to Eurostat. Renters in Tallinn are often forced to make compromises, moving to smaller and cheaper properties and renting in smaller towns outside of the capital if commuting is possible, according to Risto Vahi, an analyst with real estate brokerage firm Uus Maa.

Governments are scrambling to find solutions, but they are often opting for short-term fixes that tend to backfire. More than 5,000 private landlords in Dublin gave notices of termination to sell their properties in the second quarter after the government introduced a rent cap. Newcomers to Berlin can spend months looking for permanent housing because a 10% cap on rent increases discourages turnover. A Swedish system of rent-controlled apartments has created a years-long waiting list in Stockholm and a sublet market where reports of bribes and sexual harassment are not uncommon.

“Rent price control is the worst policy that you could roll out because it constrains supply even more,” said Djordy Seelmann, CEO of HousingAnywhere, a rental platform that operates in capital cities across Europe. “Policymakers are typically quite focused on what they can do for the market today, but solving these types of supply issues takes at least a decade.”

He points to Spain as an example of a country where government policy is much more focused on liberalizing construction regulations to increase supply in the long term. Another place offering a potential blueprint is Vienna, where the city government is giving €200 to anyone below a certain income level to help pay their rent. About 500,000 people, or every fourth person, in the city lives in one of about 220,000 municipality-owned apartments and more than 3,700 new homes will be built in the next few years. The city also offers its vast land bank to developers who allocate some of their new apartments to low-income tenants.

But with inflation and green policies raising construction costs, few governments are managing to build new housing fast enough to keep up with demand. The number of available rental properties in Ireland peaked in 2009, with over 23,400 homes listed nationwide. Since then, stock has dwindled, with around 1,200 properties available for a population of over 5 million as of Aug. 1. Housing construction in the Netherlands fell far short of a target set last year to build about 100,000 new homes a year by 2030, with affordable housing meant to account for two-thirds of the total.

The shortage is already starting to change the makeup of many cities. Dutch people account for just over 40% of Amsterdam’s population as more locals choose to live in satellite towns where rents are cheaper. In Ireland, young nurses are currently spending 77% of their salaries on rent, according to the Irish Nurses and Midwives Organization, and the percentage of young people living at home surged to 64% in 2022, up from 44% a decade ago, according to Eurostat.

Those with enough money to scrape together for a deposit are finding that even after the surge in interest rates, it’s cheaper and easier to buy a place to live. George Pike, 31, a video producer who moved to Berlin from London last August, bought a one-bedroom flat in the city’s Neukolln neighbourhood for 260,000 euros in May. He now pays 1,080 euros a month on his mortgage, about 170 euros less than his previous rent.

“So much of my salary was going towards rent and the whole process was such a nightmare,” Pike said “I bought because I couldn't afford to rent.”

In Lisbon, where rents jumped 25% year on year in the second quarter, according to HousingAnywhere data, the government plans to end golden visas for real estate purchases following protests from locals who found themselves priced out of the city centre amid an influx of wealthy foreigners. Hundreds of people are expected to take part in another march scheduled for Sept. 30, according to the Association for Lisbon Tenants.

Delfina Fernandes, 69, who lives in the Avenida da Igreja neighbourhood in uptown Lisbon, recently bade farewell to her 40-year-old son, who finally found his own apartment after living at her place with his wife for five years. The new apartment isn’t in the same neighbourhood where the Fernandes family have lived for two generations, or even in Lisbon. The only place her son could afford on his public-sector salary is in Setubal, a city 50 kilometres (31 miles) south of the capital.

“It hurts to see young people like my son leaving the city,” Fernandes said. “Unfortunately, with rising interest rates and living costs, I don't see how things will change.”