ECB Survey Predicts Decline in Housebuilding: Impact on Eurozone Household Finances

Rising housing costs and reduced investment in house building will continue to put pressure on private households in the Eurozone for the foreseeable future. This is what the European Central Bank (ECB) accepts current economic report from the central bank have published two studies in this regard. In addition to the housing shortage, rising mortgage interest rates and additional costs have contributed to the rising housing costs for homeowners and renters. Housing investment, in turn, fell due to higher debt service and higher construction costs. However, they were still above the mathematically expected values, which indicate another recession, warns the ECB.

At the end of 2023, housing investment remained above the level due to consumption costs for home ownership. However, capital gains fell, which prevents investors from building new buildings. In addition, there is a fall in housing prices, which reduces the resale value (capital loss). The latter was particularly true in Germany, according to the ECB. In contrast, the Italian housing market was strong, which, according to the ECB, was the result of the government’s Superbonus program, ie financial support for builders.

This problematic development affects tenants – and owners who live in their own property. According to the ECB, total housing costs per household amount to 765 euros per month (rent, additional costs, maintenance, mortgage payments). They rose by a compounded 10.2% between July 2022, the start of the interest rate hike cycle, and January 2024. This is significantly higher than the compounded increase in headline inflation of 5.5%. For owners without a mortgage, the costs would have increased only about 6%, for tenant families and mortgage borrowers 9% and 12%, respectively.

According to the ECB, housing costs have significantly increased the financial burden on households. They make up about 20% of the disposable income of owners excluding mortgages, but for renters it is 40% – and low income families have a share of 50%.

At least there is a small glimpse of hope in the German construction sector now: As the Federal Statistical Office reports, orders in German residential construction increased by 0.8% in February compared to the same month of the previous year. This is the first increase since March 2022. In January, orders fell 17.5%.

“For the first time in 22 months, we are not seeing a decline in housing orders,” said Felix Pakleppa, general manager of the Central Building Association. “In terms of building permits, this is not a revolution yet.” The permits fell as a prerequisite for orders in February. The general manager of the Main Association of the German Construction Industry, Tim-Oliver Müller, also mentioned the decline in building permits. So he sees no reason to give the all clear.