Housing is becoming more unaffordable almost everywhere | Economy
Changing economic cycles that cause interest rates and yields to fall, as well as strong growth in demand for real estate and the real estate market’s difficulty in creating supply to meet that demand, reduce the ability of citizens to access real estate. housing. Affordability indices, the relationship between house prices and household income, worsened globally in the second quarter of 2024. In almost all OECD countries, including Spain, amounts have risen above rents, making it more affordable to own a home. difficult. Rents also continue to rise, especially in major cities and tourist areas. Given this view, most governments propose policies aimed at ensuring market accessibility and stability, but this is not currently reflected in the data.
These are the main findings of the latest report from the International Housing Observatory (IHO), a project based on house price data available to the Dallas Federal Reserve and involving researchers from various universities in the UK, Australia and the US. Spain is participating. One of its co-directors is Ivan Paya, professor of economics at the University of Alicante (UA), who emphasizes that the data for the second quarter of 2024 reflects a general increase in house prices and rents. They’re doing so amid an uncertain economic outlook, with inflation expected to see “persistent price pressures and geopolitical tensions,” according to the document, leading to “increasing affordability challenges.”
“We were based on a year or a year and a half in which this index improved,” Paya explains. And he adds that “restrictive economic measures to stop inflation by raising interest rates have cooled the market.” The ability of any person to gain access to housing has increased. However, with the rate cut, the market has warmed up again, the economist continues, “and prices are once again rising above income.” According to the report, the countries with the largest increases in the index between April and June are Portugal (3.4%), which reaches its highest level in three decades, and the Netherlands (2.9%). In the US, buyer difficulties worsened by 1.3%, in the UK they remained stable, and in Spain the data worsened by 0.2%. The deterioration is somewhat less serious than the world average (0.4%), but already the second in a row.
The reason is that in Spain, as in the US or UK, “there is a lot of demand and the international market puts a lot of pressure on the real estate sector,” says the specialist. And this proposal is being responded to slowly, “in particular in Spain.” “The process of getting land earmarked for urbanization is slow and construction costs have skyrocketed, so promoters will think twice before taking up big projects,” explains the professor.
The cheapest houses in Germany
The global trend is general, but there are exceptions. In Germany, property prices fell by 2.5%, while affordability increased by 2.7%. In Japan, buying real estate in the second quarter of the year was 2% cheaper than in the first. “These are countries with falling prices,” says the Alicante professor, “they do not have strong demand and, in addition, rising rates have cooled their markets excessively.” However, the most striking situation has developed in China. “After several years of strong price increases,” says Paya, “demand is not responding and the property bubble has burst,” forcing the government to “launch a package of measures to revive the economy.”
While buying is becoming increasingly difficult in most places, renting around the world is no longer a viable option. Prices are also rising above purchasing power in most countries, with the UK (1.6%), Sweden (1.5%) and Portugal (1.2%) topping the list. In Spain, growth was more moderate at 0.2% quarter-on-quarter, according to IHO. “The profitability of tourist rentals is very high,” says Paya, “and creates a drag effect that reduces long-term supply.” Thus, rent becomes more expensive due to both high demand and lack of supply. This especially happens in Madrid, Barcelona and on the Mediterranean coast. The exceptions to this global trend were Korea (-0.6%), the Netherlands (-0.5%), Luxembourg and Japan (both -0.4%).