The Current Problem of Housing Access in Europe

There is currently a serious problem with housing access in the world in general and in Europe in particular. Several countries are grappling with this issue and are actively trying to implement measures to address it and find a solution. This situation has a direct impact on young people, as they are the ones with the fewest resources when it comes to seeking housing, whether to buy or rent. This difficulty in finding housing is making it challenging for them to settle down, and in some cases, this context is pushing them to emigrate to find new opportunities. This article will focus on the specifics of this problem by presenting examples from Spain and Portugal, which are highly representative as both countries are struggling with this issue. Finally, it will analyze the various measures that governments have already taken or are planning to find for this situation.

Europe is currently confronted with a housing crisis that is impacting most of its countries. The issues at hand range from the challenge of renting a single room to the ability to purchase property. There is not a single cause that can fully explain this problem; instead, several factors contribute to the European continent's housing crisis. Among the causes that can be identified are:

• The widespread increase in inflation

• The surge in demand compared to the available supply

• The problem of tourists and short-term housing

• In some countries, the rising number of digital nomads with higher incomes than local workers

Figure 1: Portuguese manifestation against real state business (CNN, 2023).

Several European countries have recently experienced record-high inflation rates. In October 2022, the European Union reported an inflation rate of 11.5%, which has had a detrimental impact on rental prices. In Spain, rental rates are typically adjusted annually based on the Consumer Price Index (CPI). The combination of high inflation and an increase in the demand for rent during 2022 has led to significant increases in rental prices. In response to this situation, the government has taken certain measures to address the housing access issue.

One example is Regulation Number 12/2023, published on May 24th, 2023, which limits the annual rent increase by 3%, aiming to facilitate access to decent and adequate housing for individuals in need, with a particular focus on young people and vulnerable groups.

The regulation also seeks to provide effective tools to ensure the functionality, safety, universal accessibility, and habitability of housing. It defines fundamental aspects of state planning and programming in the housing sector, and regulates the basic legal framework for public housing initiatives, ensuring their development, protection, and efficiency to assist those populations facing the greatest housing access challenges. With all these aspects considered, it is evident that the regulation is aligned with the goal of enhancing the housing conditions for citizens, whether they are looking to rent or purchase their homes.

Figure 2: Manifestation against the Real State speculation in Barcelona (El Periódico, 2018).

Another preventive measure fixes the CPI's cap at 2% for the year 2023 and raises it to 3% for the year 2024. In practical terms, if the monthly rent for a property is 850 euros, with a 2% increase it would amount to 867 euros per month. This is significantly lower than the 7.6% CPI recorded in February 2022 (the reference month), where the rent increase, as in the example, would have been 64.6 euros. Another key provision in this new law is that the commission typically paid to the real estate agency must now be covered by the property owner. Prior to this update, this cost was borne by the tenant. In the context of Law 12/2023, these measures represent an improvement in the tenants renting capacity. Rent increases are frozen for the next few years, and tenants are no longer obligated to pay a real estate commission equivalent to 10% of the annual rent plus VAT. This is generally seen as a more favorable situation.

Landlords might consider raising rents to cover these additional costs but one aspect to consider is that the freeze of 3% for 2024 applies only to the existing contracts. The landlords can establish whichever price they consider best at the beginning of a contractual relationship and then, annually, they can increase that amount by only 3% compared to the previous year. Another possible outcome is that property owners may opt to rent their properties directly, bypassing real estate agencies to avoid paying commissions. In order to balance the cost of not increasing the rent fee by more than 3%, the landlords can avoid paying the real estate commission and put their properties on the renting market directly by themselves, without an intermediary. These scenarios are theoretical, and their real impact will become apparent over time. Nonetheless, it can be said that, on the surface, Law 12/2023 creates a more favorable environment for young people in Spain when it comes to renting properties.

Figure 3: Real State Publications (El Mundo, 2022).

Portugal is one of the countries that is most severely affected by the housing access crisis. One of the contributing factors is its popularity as a tourist destination, which has driven up rental prices beyond the reach of many citizens' incomes. Additionally, a significant number of properties have been dedicated to platforms like Airbnb, primarily catering to tourists. This situation has adversely affected locals who struggle to afford these short-term rental options, which are often more expensive and less suitable for long-term housing.

Another factor exacerbating the problem is the government's visa program designed for digital nomads. These are individuals who only require a stable internet connection to work remotely from their computers. Many countries around the world offer such visas such as Portugal, Hungary, and Brazil for example, allowing digital nomads to legally reside for several years, sometimes even excluding them from the obligation to pay taxes in the host country if they are already paying taxes in their home country. The surge in Airbnb listings is directly related to this trend, as property owners find it more profitable to rent their properties temporarily to foreign workers, who may be willing to pay more and stay for periods ranging from three to six months. This dynamic is having a direct impact on the Portuguese population and is a significant contributor to the ongoing housing access crisis.

To address this issue, the Portuguese government has taken several measures. One notable step was to prohibit new concessions for tourist rentals, including for platforms like Airbnb. This move aims to prevent the proliferation of properties primarily designed for tourists or remote workers with higher incomes. Additionally, a significant measure recently taken on October 7th, 2023 was the modification of the "Golden Visa Program", which was launched in 2012 to attract investors by requiring them to invest a minimum of 500,000 euros in real estate in exchange for a life-long visa. This measure is intended to combat real estate speculation, as these investments contributed to driving up rent prices in Lisbon.

Figure 4: An example of a digital nomad (Etias, 2022).

With these two measures, the Portuguese government has made efforts to address the housing crisis it is facing. Time will tell whether they are sufficient to improve the country's housing access challenges. On the surface, it appears that the approach is sound, as it targets two key factors affecting rents: short-term rentals for tourism and real estate speculation. However, it remains to be seen how the reduction in real estate supply might impact tourism. If temporary rentals become more expensive, tourists may choose more cost-effective destinations, and the same could happen with remote workers seeking favorable conditions elsewhere. Over time, it will be clearer whether these consequences have a positive or negative impact on rents and, consequently, on tenants.

The passage of time, the changing global contexts, and the creation of websites like Airbnb and Booking have had a negative impact on historical rental trends, and, due to the pandemic, the year 2020 brought about significant disruptions to economies and, consequently, rental markets. The subsequent inflation experienced by Spain and Portugal in the past three years further drove up rental prices and the indexes used to measure them. Moreover, the world has been profoundly affected by technological advancements that have reshaped labor, education, and administrative procedures. In 2020, the majority of activities transitioned to remote work due to the impossibility of in-person interactions during quarantine. The large amount of people working from home -and not necessarily digital nomads, but even people still working from their hometown-, especially during the pandemic, created a great impact on the real state business. Many people started to work from home or in hybrid structures, while offices would empty. This is a current problem that many real estate investors are facing. Some companies tried different strategies to get their employees to return to onsite working, on the ground that working from home would supposedly cause a lack of productivity, but they also know that if they are very strict they will lose the talents who might prefer to continue their careers in other more beneficial contexts. (Muñoz Palala, G., 2023).

Figure 5: Example of houses for sale (El Confidencial, 2019)'

This shift in work culture has had a direct impact on rental markets, as discussed earlier. More individuals are opting for temporary rentals, frequently relocating, which results in higher profits for landlords who were once accustomed to longer-term rentals. This trend has been particularly pronounced in major cities, with Barcelona serving as a prime example. Finding suitable rental housing in good condition has become increasingly challenging due to the combination of high demand and limited supply, leading to significant price increases. Lisbon is facing a similar situation, with the added challenge of lower salaries compared to Spain and other European countries.

The current context of the Spanish and Portuguese people shows the difficulty of having the possibility of buying their own house. Currently, for an average Spanish it is not possible to buy a property in at least eleven communities of Spain. (Gallén, P. 2023). For example in the capital of the country, an average salary is 1.788 euros monthly. With that income, a single person might have the possibility to finance a house worth 150.000 euros on average, but in that zone, the average house costs more than 300.000 euros. In the case of Portugal, an average Portuguese needs eleven years of income to be able to afford a house (TPN, 2022). According to OECD's (Organization for Economic Co-operation and Development) data for the year 2022, Portugal was the country with the largest gap between income and house prices, with a 47.1 % difference (TPN, 2022). Both contexts from countries that are neighbors show the negative current situation of housing access in some European countries. The additional increasing problem of temporary renting through Airbnb and other sites is having a great impact on local people in both scenarios: renting and buying houses as they stay in a vulnerable situation in comparison with foreign capitals who have better financial contexts to afford the different costs.

Figure 6: Remote working from a café (Zemsania Global Group, n.d.).

This article highlighted the challenging context of housing access in Europe, a widespread problem that continues to affect many nations without a comprehensive solution in sight. As discussed, single governments are actively seeking measures to address this global issue. Unfortunately, young people are among the most adversely affected (Echegaray, J. 2023) given their limited resources to navigate this unfavorable situation. It has become nearly impossible for an average worker to afford rental housing, as exemplified by the cases of Portugal and Spain.

The primary causes of this problem have been elucidated, ranging from disparities between tenants and landlords in housing access to real estate speculation and the prevalence of short-term rentals. The post-pandemic environment has exacerbated the situation, with more people working remotely, leading many landlords to favor platforms like Airbnb over traditional, long-term rentals.

This confluence of factors has made it increasingly challenging for young people to secure affordable housing. Various governments are actively implementing measures to address this issue with the hope that these efforts will yield positive results in the near future. Failing to do so may result in increasing difficulties for families with lower incomes and older people with low retirement benefits to afford housing, while generations of young individuals would be unable to realize their personal and professional potential to the fullest extent.

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Cover image: Protesta contra la especulación inmobiliaria en Barcelona. (2018) El Periódico. https://www.elperiodico.com/es/barcelona/20181213/protesta-contra-especulacion-inmobiliaria-barcelona-7200053

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Figure 2: España, a años luz de la media europea en alquiler social. (2018) El Periódico.

https://www.elperiodico.com/es/sociedad/20180412/espana-a-anos-luz-de-la-media-europea-en-alquiler-social-6754347

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