European Housing crisis Deepens as Construction Declines, Rents Soar

A growing housing crisis is sweeping across Europe, fueled by a sharp decline in new construction and a corresponding surge in rental costs. Austria, along wiht other European nations, is grappling with the consequences of this downturn, leading to concerns about housing availability and affordability. the real estate sector is navigating a complex landscape, balancing cautious optimism with the stark realities of the current economic climate. as 2022, new construction activity has experienced a notable decline, exacerbating the already robust demand in the rental segment.

While falling interest rates and the anticipated expiry of the KIM regulation in Austria at the end of June are expected to inject some dynamism into the residential real estate market, the underlying challenges persist. Karina Schunker, managing director of EHL Wohnen, highlighted a shift in sentiment regarding condominiums during the presentation of the “First viennese housing market report 2025” by Buwog and EHL Immobilien. According to schunker, In the area of ​​condominiums, we are currently registering a remarkable change in mood.

Despite the prevailing economic conditions, there’s a renewed interest in property ownership. This is partly attributed to the European Central Bank’s (ECB) interest rate cuts and the prospect of further reductions,coupled with the significant increase in rental prices.However, EHL notes that the already robust demand in the rental segment remains high, exacerbating the supply-demand imbalance.

New Construction plummets Since 2022

The surge in demand is met with a dwindling supply, particularly in the new construction sector. Since 2022, new construction activity has experienced a significant decline. In 2022, approximately 45,000 residential units were completed. Though, the “1.Austrian new construction report” indicates that only 42,000 units were completed in 2023.

The forecast for subsequent years paints an even bleaker picture. Projections estimate the completion of only 36,000 apartments in 2024, followed by 30,000 in 2025, and a mere 17,000 in 2026, including projects undertaken by non-profit construction associations. This drastic reduction is attributed to numerous property developers postponing or abandoning projects due to unfavorable framework conditions and a significant drop in building permits issued in recent years.

The repercussions of this decline are already being felt in the housing market. Schunker warns, Up to now there is only a significant overhang in rental apartments, but from autumn the range of condominiums will also be noticeably scarce. This scarcity is expected to drive up offer prices, particularly in the lower and middle price segments. Andreas Holler, Managing Director of Buwog, adds a stark warning: We are directly to a lack of housing, in some areas even towards housing shortages. This is not in the interests of the real estate industry and even less in the interests of tenants and apartment buyers.

A Continent-Wide Trend

Austria is not alone in facing this challenge. Across Europe, approximately 1.5 million units are being completed,marking the lowest number as 2015. Germany, as a notable example, has consistently fallen short of its goverment’s housing goals in recent years. Bulwiengesa projects an annual completion rate of only 203,000 apartments, with a potential low of 175,000 apartments in 2026. France is also experiencing an escalating housing crisis, with only 260,000 new apartments built in the previous year, a significant drop from the 435,000 constructed in 2017.

The outlook remains grim, with the German IFO Institute forecasting a further decline in apartment construction in France and Italy in 2025 and 2026. Building activity in France is at a low point, with only 260,000 new apartments built in 2024, compared to 435,000 in 2017. The situation in social housing is particularly dire, with only 86,000 new units added in the past year, the lowest figure in two decades.

Up to now there is only a significant excess of demand for rental apartments, but from autumn the range of condominiums will also be noticeably scarce.

Karina Schunker

Schunker is the Managing Director of EHL live.

Hopeful signs from Scandinavia and Poland

Amidst the widespread gloom, there are positive signals emerging from Northern Europe. According to forecasts by the Euroconstruct research group, affiliated with the IFO, residential construction in Sweden is already showing signs of recovery, with an anticipated increase of 12%.

Moreover, completions are expected to rise in Denmark (plus 28%), Finland (plus 23%), and Norway (plus 13%) in the coming year. Ludwig Dorffmeister, an IFO construction expert, notes that In the Nordic countries, the markets are recovering vigorously after the previous slump. Poland is also projected to experience a significant increase of 10%.

In many European cities, particularly in major metropolitan areas, affordable living space is becoming increasingly scarce due to the low construction activity of recent years and the rise of short-term tourist rentals.

According to a study by the construction institute ARGE, Germany is currently facing a shortage of 800,000 apartments, while the community of apartment owners (GDW) estimates the deficit to be as high as 900,000. Spain is also grappling with a similar issue, with the National Bank estimating a shortage of approximately 600,000 apartments.

EU Taskforce Addresses the Crisis

The European Union has responded to the escalating housing crisis by appointing Dan Jørgensen, a Danish politician, as the EU Commissioner for Energy and Housing. Jørgensen’s mandate includes developing a European plan for affordable living space and establishing a pan-European investment platform, in collaboration with the European Investment Bank, to attract more private and public investments in affordable and lasting housing. The EU also aims to revise its allowance regulations to facilitate additional funding measures, particularly for affordable, energy-efficient, and social housing. Furthermore, the EU plans to address issues such as short-term rentals and the inefficient use of existing housing stock. A dedicated “Taskforce Wohnen” has been established within the Commission to tackle these challenges.

Data and Numbers

• According to the current study by the construction institute ARGE, 800,000 apartments are missing in germany alone, and the community of apartment owners assumes 900,000.
• In Spain, the National Bank estimates around 600,000 missing apartments.
• Around 17,000 new buildings will be completed in Austria in 2026. In 2022 there were still 45,000.

The European housing crisis presents a complex challenge requiring multifaceted solutions. While some regions show signs of recovery, the overall outlook remains uncertain. The EU’s intervention and the efforts of individual nations will be crucial in addressing the shortage of affordable housing and ensuring a stable and equitable housing market for all.

Europe’s Housing Crisis: A Looming Shortage of Affordable Homes?

Is Europe facing a full-blown housing crisis, or is it simply a cyclical market fluctuation? The reality is far more concerning then most realize.

Interviewer: Dr. Anya Sharma, a leading economist specializing in urban development and housing markets, welcome. Recent reports paint a grim picture of the European housing market, with declining construction and soaring rental costs. Can you shed light on this escalating situation?

Dr. Sharma: Thank you for having me. The situation is indeed serious and requires immediate attention. We’re not just witnessing a market fluctuation; we’re observing a structural deficit in affordable housing across much of Europe. Declining new construction, coupled with increasing population density in major urban centers and a surge in demand for rental properties, has created a perfect storm. This isn’t just an issue impacting affordability; it’s undermining social stability and economic growth.

The Root Causes of Europe’s Housing Crisis

Interviewer: What are the primary drivers behind this widespread housing shortage? Many point to reduced construction activity. Is that the sole culprit?

Dr. Sharma: Reduced construction activity is an important contributing factor, but it’s only part of a larger, complex problem. Several interconnected issues are at play:

• Insufficient Building permits: Bureaucratic hurdles and lengthy approval processes significantly hinder new construction projects. Streamlining planning permissions and cutting red tape are crucial steps towards resolving this.
• Rising Construction Costs: The increased cost of materials, labor, and land makes building new homes prohibitively expensive, leading to delays and project cancellations. It’s essential to explore innovative,enduring,and cost-effective building techniques.
• Shifting Demographics: Urban migration and population growth, especially in desirable metropolitan areas, far outpace the construction of new housing units, exacerbating supply-demand imbalances.
• The Rise of Short-Term Rentals: The proliferation of short-term rentals, like those offered through platforms such as Airbnb, diverts a significant portion of the existing housing stock from the long-term rental market, further reducing availability for permanent residents. This necessitates a critical look at regulations of the short-term rental market.
• Inadequate Investment in Social Housing: In many countries, insufficient investment in social housing and affordable rental units for lower-income households has created a critical gap in the housing market. We need greater government funding and incentives to build these units.

The Impact Across Europe

Interviewer: The article highlights the situation in Austria, Germany, and France. Is this a europe-wide crisis, or are certain regions more affected than others?

Dr.Sharma: This is indeed a continent-wide issue, even though the severity varies across different nations. While Austria, Germany,

Europe’s Housing Crisis: A Looming Shortage of Affordable Homes?

Is Europe sleepwalking into a widespread housing crisis, or is it merely a cyclical market downturn? The reality is far more alarming than most realize.

Interviewer: Dr. Anya Sharma, a leading economist specializing in urban development and housing markets, welcome. Recent reports paint a grim picture of the European housing market, with declining construction and soaring rental costs. Can you shed light on this escalating situation?

dr. Sharma: Thank you for having me. The situation is indeed grave and demands immediate action. we’re not simply witnessing a market fluctuation; we’re facing a structural deficit in affordable housing across much of Europe. Declining new construction, coupled with increasing population density in major urban areas and a surge in demand for rental properties, has created a perfect storm.This isn’t merely an issue of affordability; it undermines social stability and economic growth.

The Root Causes of Europe’s Housing Crisis

Interviewer: What are the primary drivers behind this widespread housing shortage? Many point to reduced construction activity. Is that the sole culprit?

Dr. Sharma: Reduced construction activity is a meaningful contributing factor, but it’s onyl one piece of a larger, more complex puzzle. Several interconnected issues are at play:

Insufficient Building Permits: Bureaucratic obstacles and lengthy approval processes significantly impede new construction projects. Streamlining planning permissions and reducing red tape are crucial steps towards a solution. This delays projects and increases costs contributing to the overall housing shortage.

Rising Construction Costs: The increased cost of materials, labour, and land makes building new homes prohibitively expensive, leading to project delays and cancellations. Exploring innovative, enduring, and cost-effective building techniques is essential. The high cost of construction is a major factor limiting the supply of new affordable housing.

Shifting Demographics: Urban migration and population growth, notably in desirable metropolitan areas, far outpace the construction of new housing units, exacerbating supply-demand imbalances. This increasing demand coupled with decreasing supply leads to higher housing costs and a lack of availability.

The Rise of Short-Term Rentals: The proliferation of short-term rentals, such as those offered through platforms like Airbnb, diverts a considerable portion of the existing housing stock from the long-term rental market, further reducing availability for permanent residents. This requires a careful examination and potential regulation of the short-term rental market.

Inadequate Investment in Social Housing: In many European countries, insufficient investment in social housing and affordable rental units for lower-income households has created a critical gap in the housing market.Increased government funding and incentives to build these units are vital. This lack of affordable housing options disproportionately affects vulnerable populations.

Streamlining Planning Processes: Simplifying building permit processes and reducing bureaucratic delays is critical to accelerate new construction.

Investing in Affordable Housing: Significant public investment in social housing and affordable rental units is crucial to meet the demand for affordable homes. Incentivizing private sector involvement in this area is also vital.

Addressing Rising Construction costs: Governments need to explore ways to mitigate the escalating costs of construction materials and labor, perhaps through targeted subsidies or innovative building techniques.

Regulating Short-Term Rentals: Implementing regulations on short-term rentals could help ensure a greater supply of long-term rental units for residents.

Promoting Sustainable Urban Planning: Strategic urban planning that prioritizes efficient land use and mixed-income housing developments can help alleviate the housing shortage.

Looking Ahead: A Path towards Sustainable Housing

Interviewer: What is the long-term outlook, and what message would you like to leave our readers with?

Dr. Sharma: The long-term outlook depends on the swift and decisive action taken by governments and stakeholders. Failure to address this crisis risks exacerbating social inequality, hindering economic growth, and creating social unrest. We need a collective commitment to sustainable housing solutions, encompassing affordable housing, efficient land use, and proactive government policies that promote the development of housing for all.This isn’t just an economic issue; it’s a social and ethical imperative.

Concluding Thoughts: The European housing crisis demands immediate and complete attention. We must act collectively to ensure access to safe, affordable, and sustainable housing for all residents. We encourage you to share your thoughts and suggestions in the comments below. Let’s work together to build a future where housing is a right, not a privilege.