Housing costs have risen significantly across the euro area over the past two years, mainly as a result of higher debt servicing costs. Housing occupancy costs have fluctuated significantly in the euro area since 1999, reaching a record low at the start of the global financial crisis in 2007-08.
The figures for Greece are worrying, with our country “winning” the silver medal,
Housing occupancy costs are usually expressed as a percentage of the home’s value and contain both costs and compensatory benefits.
These include:
- mortgage interest expense, which measures the cost of servicing the debt to finance the home
- foregone income, which measures unrealized gains from investments in non-residential property
- expected capital gains, which reflect the reduction in costs due to the expected increase in the value of the home
- loan-to-value (LTV) ratio, which determines the relative weighting of debt service costs against foregone income
- net taxes, including property taxes, as well as tax credits for debt service and taxes on lost income
- and other items, including maintenance and repair costs, depreciation and hazard premiums.
As the European Central Bank reports in its analysis, investments in housing in the euro zone have fallen significantly since their peak after the pandemic.
Housing investment in the euro area fell by around 4% between the first quarter of 2022 and the fourth quarter of 2023, with particularly sharp declines in Germany and France, a slight rise in Spain and a significant rise in Italy. The fall in investment was preceded by a sharp rise in construction costs during the pandemic and a significant rise in long-term risk-free rates from the start of the recent monetary policy tightening cycle in late 2021 and beyond.
The image in Greece
Specifically for Greece, as can be seen from the tables accompanying the analysis, our country is in last place in terms of housing costs, for January 2024
Housing costs by country
Calculations are based on weighted estimates. The average total cost of housing includes home maintenance and utility costs, along with rent for renter households or debt repayments for mortgage lenders.
However, when it comes to housing costs in relation to disposable income, Greece ranks second, which reflects the huge housing problem that Greek households are facing.
The table shows the cost of housing by country
Home loans
The rise in interest rates was also accompanied by a tightening of bank credit standards, which in turn contributed to rising mortgage rates and slowing credit flows.
These developments, together with the subsequent fall in house prices, caused an increase in the implied cost of living for homeowners, as measured by the “user cost of housing”. As mortgage rates rise and house price declines appear to be slowing or even reversing to some extent, the question is how housing investment will play out over the next period.
ECB analysts Omiros Kouvavas and Desislava Rusinova highlight that the cost of using housing has increased significantly due to higher debt service costs, lost income, and expected capital losses and tax payments. This has the effect of reducing the percentage of households willing to invest in a home-ownership. In short, user housing costs provide a broad measure of the cost of owning and living in a home and reflect the consumption of housing services that underpins a household’s decision to invest in a home of its own.
Estimates
Residential investment in the euro area is likely to weaken further in the near term.
The future development of housing occupancy costs is crucial for the outlook for housing investment in the euro area. The fact that housing investment in the euro area was still above the level implied by housing occupancy costs at the end of 2023 suggests the possibility of further weakness in housing investment.
In addition, while debt service costs appear to be stabilizing, expected capital gains could decline further due to their delayed adjustment to past changes, putting additional upward pressure on user housing costs.
They do not pay the loans and rents
More households, and particularly lower-income households, have said in recent months that they expect to make late payments on their rent or mortgage and/or utilities.
Given the current and future impacts of both increased interest rates and the loss of purchasing power due to inflation, the ability of households to meet housing costs and mortgage payments is a concern, especially for lower-income households.
In recent years, approximately 5-10% of low-income households have reported making a late rent or mortgage and/or utility payment in the past three months.
This percentage has remained relatively stable over time, although it declined slightly in the first quarter of 2024. In contrast, the long-term indicator of late payment risk, measured as the percentage of households that expect to make a late payment in the next three months, has increased significantly among lower-income households. In the first quarter of 2024, the percentage of households expecting to make late payments on utilities or rent rose to more than 20%, up from about 15% in 2023, and nearly doubled to 30% for late mortgage payments.
Source: ot.gr
