Rental prices, which have increased rapidly in Europe since 2010, have reached their peak after the Covid-19 pandemic. In an environment where it is very difficult to own a house due to the changes in the real estate market, the upward trend in rental prices continues today and it is thought that if it cannot be prevented in the long term, it will cause a more serious crisis. So, what are the reasons behind the rent inflation, which closely affects the EU?
Overview of the European Real Estate Market
The EU property market has been steadily gaining value since 2010, affecting both rental and sale prices. In the market, where rental prices have increased by 17% in the last 10 years, housing prices have increased by more than 45%, and therefore buying a house is now nothing but a distant dream for many Europeans. However, the prices of rental and sale houses in Europe started to accelerate exaggeratedly, especially after the pandemic. During Covid-19, there was a scenario where people were confined to their homes, working remotely, and the ultra-low interest rates offered by banks during this time led more people to buy large and spacious houses to spend long time. With the end of the most favorable opportunity period to buy a house, the demand for houses for sale increased even more in European countries such as Germany, where renting is generally popular, and rent prices began to rise rapidly in the global crisis environment. Although the impact of Covid-19 effects on European economies has decreased, rents increased by 1.4% and housing prices increased by 10.5% in the first quarter of 2022.
Why Are Rental Prices Increasing in Europe?
It is thought that there are many reasons behind the rent increase crisis that the EU has experienced recently. Although rents have increased at a lower rate compared to the prices of houses for sale, overvaluation in housing prices is cited as one of the main sources of the problem. The failure to prevent the European rent crisis in general is mainly due to the following reasons:
- Expensive Houses
Since 2010, 24 of the 27 countries in the EU have experienced an increase in housing costs and this has a negative impact on pricing. In addition, the exorbitant prices in the crisis environment cause the housing price to increase uncontrollably. This situation results in a rent crisis.
- Missing Inflation Calculation
One of the issues on the agenda of the European Central Bank is that housing prices are excluded from the calculation, although rents are taken into account in inflation rate calculations. Therefore, the calculated inflation is estimated to be lower than known, and therefore rent increases are not well controlled while consumer costs are pushed up. It is estimated that a balanced inflation with the interest rate hikes may reduce the market a little.
- Living Costs
The increase in rents that Europe has been experiencing regularly for more than 10 years is also due to the energy crisis, which has accelerated due to rising inflation. In the general view of increasing demand and consumption, especially family budgets face pressure. The rapid rise in living costs and minimum wages around the world makes it difficult to own property, raising the price and creating a general rent crisis.
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