Big crises tend to accelerate big trends. Think of how the current one has accelerated the shift online. A bigger-than-ever segment of the population is now working, shopping and communicating almost exclusively online. Digitisation is largely regarded as a good thing even if there are losers: traditional bricks-and-mortar businesses, our attention spans. According to rating agency Moody’s, the pandemic is accelerating another more divisive trend, namely housing affordability or the lack of it.
In a new report it says the pandemic will speed up “fundamental shifts” in the European housing market, with affordability declining despite falling house prices.
In theory falling prices should enhance purchasing power, but Moody’s predicts the ensuing recession will trigger an even greater squeeze on disposable income and access to finance, particularly among the young and low-income groups.
"Even before the pandemic housing affordability was worsening in Europe, with home-purchase deposit requirements becoming increasingly challenging for low-income buyers given prevailing house price-to-income ratios," Moody's says.
In Paris the average home-buyer needed around 23 times the average annual disposable income to purchase a 70sq m property in 2019, the agency’s report noted. Dublin had the third highest ratio behind Paris and Amsterdam, with home-buyers needing 17 times the average annual disposable income to purchase a basic home.
The lack of affordability will create further pressure in the rental market, triggering additional demand for social housing. We’ve seen this here for the past decade.
And Moody’s warns that with fiscal pressure on governments expected to be greater in the wake of spending on wage supports, countries won’t be able to fund social housing to the extent required, leading to further shortages.
Housing affordability is an entrenched problem here and elsewhere, and it doesn’t seem to be going the right way despite increased political pressure on governments to adopt a more radical approach. According to Moody’s this is only going to get worse.
