Rent caps and bureaucracy threaten housing investments in Europe

As rents rise in major European cities due to a shortage in housing supply, investors are preparing to pour their money into new homes, but they are stumbling into a confusing set of obstacles. While office and retail properties suffer from the impact of remote working and online shopping trends, property investors have allocated an additional €82 billion ($90 billion) to housing projects in Europe through 2025, according to a Savills survey. But the quagmire of rules, regulations, and bureaucracy stands in their way, according to “Al Sharq Bloomberg.” “Although there is an abundance of capital looking to enter Europe, there are obstacles in terms of scarcity of supply and shortages,” said Mark Allnutt, CEO of Greystar Real Estate Partners, a private equity firm that specializes in leasing properties. Current stock. Housing has become a thorny political issue in Europe, where difficulties in finding affordable living space raise social tensions and voter discontent. But there is no quick fix. The obstacles vary across Europe, from rent controls to planning hurdles, and will require sustained government efforts to enable the investments needed to finally ease the pressure on cash-strapped households. UK A reference to Britain’s planning system is usually enough to elicit a disapproving glance from property investors. Development decisions are in the hands of overworked local councils, and public contributions can stifle ambitious projects. Allnut said, “Some councils understand the obstacles, others do not understand them… and the number of those who do not understand these obstacles exceeds those who understand them.” Local authorities usually have up to eight weeks to make a decision, or 13 weeks for major projects. But only two in ten applications for large housing developments were considered in the period between July and September last year, according to government statistics. The potential for new rules is also a problem. The Labor Party, which leads in opinion polls, has pledged a series of reforms to address the problem of housing shortages in Britain, while London Mayor Sadiq Khan has repeatedly called for restrictions on rent increases. London Crisis Although rent caps may be welcome for renters, they may perpetuate a housing shortage in the long term by suppressing incentives for new construction. This is what happens in Scotland, where landlords can only raise rents by up to 3% per year, according to the Scottish Property Federation. “The sector has faced challenges due to what investors perceive as high levels of political risk,” said John Boyle, lead author of the research. Germany Less than half of Germans own their own homes, one of the lowest proportions in Europe, but while this means there are investment opportunities in the rental sector, buying existing homes carries renovation risks. Germany has a large number of rental homes, but a large portion of them are “very old and unlivable,” according to Faith, of Gray Star. The ruling coalition led by Chancellor Olaf Scholz failed to meet the target of building 400,000 new homes a year, and so suspended tougher efficiency rules for new buildings in September in an attempt to boost construction. But the move does not address rising interest rates and rising construction costs, and investors remain concerned about when the rules will return. Nordic The ongoing real estate crisis in Sweden, which has echoes of the 1990s crash when there was a complete financial collapse, has led to falling real estate prices and rising financing costs, affecting the Scandinavian country’s economy. But in Stockholm, there are not enough homes on offer, and national rent controls hinder investment in property development. For those who do not have the money to buy or the ability to wait years for a formal lease, they have almost no alternative but to sublet. Such issues are of concern to many seeking to invest in new supply across Europe, amid the risk that all property owners will face the same charge.