For eight out of ten Austrians, housing costs are a burden. In addition, interest rates on loans to home builders have risen sharply – in combination with high property prices and a decline in new housing projects.
Whether you are young or old, everyone can feel in their bank account that life has become more expensive in recent years. Austrians find the sharp increase in housing costs particularly stressful.
According to the Austrian Statistical Office, these are a certain burden for one in two people and even a heavy burden for another third. “There were increases in rents in all segments, but especially in the free contracts,” explains Wifo housing expert Michael Klien. Families with low incomes often spend more than 40 percent of their household income on housing costs.
The end of rent increases is not yet in sight. Due to the indexation of contracts, inflation will also have an impact this year. For both the target and category rents and for social housing, the increase in 2024 will be limited to five percent by the ‘rent brake’. Last year, Austrians paid an average of €625 in rent, including operating costs, per apartment for all rental contracts (old building, new construction, subsidized, temporary, permanent). Ten years ago, this was €200 less (see graph below).
High interest rates slow new home construction
Housing construction is in a vicious circle. Property prices have risen steadily in recent years and have only fallen slightly in 2023. Because loans cost nothing (“zero interest rate policy”), you could “afford” real estate – even if it was often a chore. The rapid and sharp interest rate hike by the ECB then destroyed affordability. This was necessary because low interest rates and tax breaks played into the hands of real estate developers and drove up prices further.
A chilling example of this was provided by the financial juggler René Benko and his companion Alfred Gusenbauer, former SPÖ chancellor. The Financial Market Authority (FMA) had to tighten the guidelines for lending and the dream of owning a home fell apart.
As a result, reduced demand combined with a sharp rise in construction costs due to inflation has brought new construction to a standstill. While more than 50,000 housing units were approved before the 2019 crisis, last year that number was just over 23,000.
There is a risk of a vicious circle when it comes to property prices
The government’s housing package will stimulate housing construction again. However, it will take years before there is more supply. “Unfortunately, politics came too late here,” the housing expert summarizes. Due to the lower availability in the coming years, there is a risk that real estate prices will rise again: a vicious circle.
The states can do something to ease the tensions. Vorarlberg, Tyrol and Salzburg, for example, should reconsider their sometimes high construction standards. Due to the current stagnation in orders, many contractors are likely to offer more aggressive prices than before, which also helps a potential builder.
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.
