2023-09-14 22:00:00
An OECD report analyzes the situation in various countries. Affordable prices and rents are a problem in many places, not just in Austria.
The problem of increasing financial burdens on housing is not just an Austrian one. The OECD Center in Berlin approached the topic with a “brick-by-brick analysis”. Accordingly, housing accounts for a growing share of household income compared to other expenditure items such as health, education or transport. “Over the period 2005 to 2015, this share increased by an average of five percentage points. In the majority of OECD countries, it now amounts to an average of 31 percent of the income of middle-income households,” the report says. “This hits socially disadvantaged groups particularly hard. Good housing, especially close to work, is often hardly affordable for them. They often live in cramped living conditions – a problem that became particularly clear during the Corona period.”
Concerns about the affordability of housing: OECD expert warns of influence of financial markets
OECD expert Volker Ziemann is also concerned about current developments on the financial markets: “Higher interest rates lead to lower demand for credit, and there are also various tightened credit standards in some countries.” The main reason for the affordability problem is that there is not enough housing supply in areas with high demand, for example in urban areas with numerous jobs. This is due to geographical conditions as well as legal restrictions that apply in many cities, such as zoning and development regulations. Tenancy regulations can also affect the efficiency of real estate markets.
Three key challenges for the residential building sector
The “Stone by Stone Report” sees three central challenges in particular: sustainability, participation and efficiency. Topic of ecological sustainability: According to the OECD, the residential building sector accounts for 17 percent of energy and process-related greenhouse gas emissions and 37 percent of particulate matter emissions worldwide. “In order to achieve the agreed emissions targets, ambitious initiatives are required to reduce the CO₂ footprint of construction activity and to increase the energy efficiency of the existing building stock,” says the report. “Without measures, these CO₂ emissions would double by 2050,” warns Ziemann. “That means we have to use less, electrify cooking, heating, cooling and replace them with carbon-free energy sources.”
But what could the brake pedal look like when it comes to housing costs?
“On average across the OECD, public investment in housing construction fell from 0.17 percent to 0.06 percent of GDP between 2001 and 2018. Higher investments in social housing or affordable housing pay off twice: they help low-income households and at the same time directly increase the housing supply, thereby reducing the upward pressure on residential property prices. However, for such investments to really pay off, the new buildings must meet high environmental standards and promote the development of inclusive, socially mixed neighborhoods instead of creating social and economic divides ” is a suggestion from the OECD report. According to the “Austrian Housing Handbook”, Austria spent 0.5 percent of GDP on housing subsidies in 2020.
The current challenge is that higher interest rates are putting housing financing to the test in general, according to the German Federal Institute for Building, Urban and Spatial Research. In terms of sustainability, they would generally consider CO₂ pricing to be good, but this could lead to market failure as a result of liquidity problems with different incentives for tenants and landlords.
But what happens next with affordable housing?
“The banks today have twice as much equity as before 2009,” emphasizes Thomas Hofer from the German VDP (Association of German Pfandbrief Banks). Due to the weak demand, he is currently expecting a sideways movement in prices or even a decline of five to six percent for owner-occupied property: “Many who were able to purchase in 2021 can no longer do so.”
For example, the OECD report sees price reduction potential in removing barriers to affordable housing, for example by increasing public investment in housing. In Germany, for example, a construction cost reduction commission was set up to combat the high construction costs and made more than 70 recommendations for all levels of government and the housing industry. There are also opportunities in many countries to make private rentals more affordable. In Austria, this has been the case for decades, partly due to the guideline rents (formerly category rents) in buildings that fall under the full application of the Tenancy Act.
“The aim here is to eliminate supply bottlenecks, promote tax neutrality between home ownership and rent, work towards a balanced consideration of the interests of the owners and tenants in the rental law regulations and, if necessary, take sufficiently flexible measures to stabilize rents,” advise the authors of the “Brick-by-brick report”.
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