Since 2009, residential real estate prices in Austria and the euro area have grown much faster than average net incomes. As a result, housing affordability has declined significantly, with Luxembourg and Austria particularly affected, according to a Bank Austria broadcast on Monday. Nevertheless, living space in this country is still relatively cheap compared to other European countries. The tightening monetary policy owes little to the high prices.
“House prices in the euro area have risen much faster than incomes in recent years. As a result, affordability has decreased significantly,” said UniCredit Bank Austria’s chief economist, Stefan Bruckbauer, according to the broadcast.
Residential real estate: prices have more than doubled since 2009
Average net wages relative to real estate prices have fallen by 40 percent in Austria since 2009, by 13 percent in the euro area and by as much as 45 percent in Luxembourg. Prices of residential real estate in the domestic market more than doubled in 2009, rising at an annual rate of 6.6 percent.
“Since the financial crisis, the rise in real estate prices in the euro area has significantly outpaced the rise in consumer prices,” said Walter Pudschedl, economist at Bank Austria. At the end of 2022, prices in the euro area were 45 percent higher than in 2009, which corresponds to an annual increase of almost three percent. Meanwhile, annual inflation was 1.9 percent. In three quarters of the 20 countries in the euro area, the increase in property prices until 2022 will, in some cases, significantly exceed that of consumer prices.
Income developments, meanwhile, largely followed inflation, with net incomes in the euro area rising by 27 percent from 2009 to the end of 2022. This means that real net income in the euro area in 2022, based on real estate prices, was only about 87 percent of 2009,” said Pudschedl.
Immediately after the 2009 financial crisis, there was a short-term fall in real estate prices and an increase in affordability, but the period of low interest rates that followed drove up prices much more than incomes rose. The dynamics of real estate prices and that of income development have grown further apart during the corona crisis.
The monetary policy of the ECB also influences the affordability of housing
The tightening monetary policy of the European Central Bank (ECB), which has repeatedly raised policy rates since mid-2022, is also affecting housing affordability. “However, our calculations show that it is not the interest rate development, but the drastic rise in real estate prices that determines the decline in affordability,” says Bruckbauer. Loan financing for a property of the same size costs twice as much per month today as it did in 2009. Higher property prices account for about 95 percent of the additional costs, with higher borrowing costs accounting for 5 percent.
Square meter prices: Austria more expensive than France or Germany
In 2022, Austria also achieved a top position in Europe in terms of square meter prices for new-build homes. At 5,200 euros per square meter, residential real estate in Germany is more expensive than in France or Germany, while prices in Spain, Italy and the surrounding Eastern European countries are significantly lower.
Nevertheless, living space in Austria is still relatively cheap in European comparison: for an apartment of 100 square meters, Austrians had to spend an average of 6.5 net annual salaries of an Austrian household in 2022. As a result, housing in relation to income is somewhat easier to afford than in France, Spain and Germany. In Slovakia, almost 14 annual incomes have to be paid for a house of the same size.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
