The dynamism of the residential housing market in European economies has been particularly intense after the pandemic and although the monetary tightening between 2021 and 2022 to curb inflation brought with it an adjustment in activity, The sector generally maintains strong dynamism.
Although the evolution is heterogeneous, sales show notable increases in the eurozone, which have been corrected as interest rates have hardened. Prices also continue to rise due to the lack of supply, according to a report from the Bank of Spain that analyzes the Spanish sector and its international comparison.
The inflationary ‘shock’ and the revaluation of housing
The price rise intensified after the pandemic until mid-2022, when monetary tightening brought about a slowdown. Despite this, average prices (in nominal terms) from 2007 to early 2024 have grown by 90% in the OECD as a whole. However, if they are adjusted for inflation the increase is reduced to 25%.
In the Economic and Monetary Union (EMU), the accumulated growth of housing for this period, 40% of nominal prices, is largely explained by due to the increase in Germany (77.5%) and the Netherlands (60%). In the case of Italy, they are still 10% below 2007 levels.
This evolution contrasts with that of Spain, where prices began an uninterrupted upward path since 2014 until reaching at the beginning of 2024, in nominal terms, levels close to the 2007 highs that were reached in the bubble.
However, If real prices are analyzed, the inflationary ‘shock’ from 2021 to 2022 has eroded the revaluation of housing in the EMU, which if in real terms was 15% from 2007 to the end of 2021, falls to 2.5% at the beginning of 2024.
Real prices in Spain have better resisted this impact, with increases of 1% from the end of 2021 and 5% from 2019. However, since 2007 real prices in Spain are still 25% below their maximums. This situation contrasts with the evolution in Germany or the Netherlands, with accumulated increases since 2007 of 30 and 10%, respectively.
Rigidity in supply and price pressure
The report points out the existence of rigidities in the supply of new housing that could maintain sustained price growth. Given this shortage, around 90% of purchases and sales in the euro zone are second-hand.
Since 2014, Substantial increases are seen in the number of sales despite the correction since mid-2022 as a result of monetary tightening. Thus, home sales in Spain and the Netherlands in 2022 almost triple those of 2014, an amount that doubles in France.
Coinciding with the rate increases – which were interrupted in June of this year, leading to subsequent falls -, lPermissions to build new homes fell in large economies. Until the beginning of 2024 more than 40% in Germany, 35% in France or 10% in Italy.
In relative terms, in the period 2022-2023, residential housing construction permits in Spain represented around 11% of the total in the euro area.
The eurozone shows a higher dynamism of investment in housing than other large economic areas. In Germany, France or Italy is above that of Spain from 2021 (5.7% of GDP). In the last decade, investment in housing in Germany and France amounted to 6.5% and in Italy there is a strong rebound due to rehabilitation programs.
Credit flows for Home purchases in the euro zone reached an average of 8% of GDP between 2015 and 2022while in Spain or Italy around 4%.
The effort, unequal
The ratio of the average house price in relation to the gross income of households shows a heterogeneous evolution among the large economies over the last 30 years.
In Germany, The adjustment in the market reduced this indicator by the end of 2023 by 10% below the 1996 level. However, cumulative growth was around 60% in the Netherlands, 50% in France and 35% in Spain, compared to a modest increase of 5% in Italy.
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