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Europe 2030 Poverty Reduction: The Threat of Housing Financialisation

Jessie McKay, MSc International and European Politics, University of Edinburgh

In 2021, 95.4 million people faced the risk of poverty or social exclusion in the EU, a number the EU hopes to reduce by 15 million come 2030. Individuals across Europe are feeling the strain of rising housing costs due to market liberalisation, which has triggered the financialisation of housing, putting some households at greater risk of falling into poverty in order to access housing, or social exclusion, due to the inability to obtain adequate housing. Housing financialisation needs to be confronted with state-led policy change, accompanied by EU support, in order to curb these risks.

The financialisation of housing refers to the shift of housing from a ‘social good’ into a commodity. Prior to the 1980’s, governments invested heavily in social housing following the destruction of WWII, as seen in Germany where social housing accounted for about 20% of all housing units in both Frankfurt and Munich in 1978. By 2012, these figures dropped below 9% in both cities. One reason for this reduction in social housing may be attributed to a widespread push for homeownership. States advertised homeownership as a form of investment, which would provide shelter without the need for government assistance, while supplementing income or pensions.

By 2020, 70% of the EU’s population lived in an owner-occupied home, partly due to the policies enacted during the push for homeownership, including subsidies, tax deductions and credits, and the development of mortgage markets. This market expansion caused a surge in prices that has continued as a result of further deregulations. These rising costs are restricting access for many, with one reason stemming from housing’s high-cost barrier and stagnant income growth. For example, housing costs grew about 60% more than median incomes in Denmark, France and Sweden. Higher costs also increase mortgage deposits, exposing buyers to greater financial risk. By 2021, the total amount of outstanding mortgage loans in the EU was just over €6.5 trillion.

As households struggle to break into the housing market, they often turn to private rentals, where costs are no more affordable, such is the case in Ireland. Currently, the average cost of rent in Ireland is €1,618, while that average reaches €2,152 in Dublin. The costs associated with homeownership and renting can easily lead to housing cost overburden (spending more than 40% of one’s disposable income on housing). In the EU, 11.6% of young people lived in households that fell within this overburden rate; 28% of low-income renters and 20% of low-income homeowners also met this threshold.

Throughout Europe there has been a rise in private landlords, as individuals are able to earn more from their investment thanks to rental market deregulations. Affluent individuals enter the market aided by current policies, and become owners of multiple properties gaining additional income, via buy-to-let schemes. Institutional landlords, such as real estate investment trusts (REITs) and investment firms, have also entered housing markets across Europe in order to capitalise on potential earnings. In Berlin, institutional landlords have purchased €40 billion worth of homes to add to the rental market.

To offset the damage of housing financialisation and reorientate the housing and rental markets towards accessibility and affordability, an integrated strategy of Member State and EU involvement is needed. States should revisit current policies, such as loan interest and rental income tax deductions as seen in Luxembourg and the Netherlands, as they often benefit multi-property owners and institutional landlords. Governments could also introduce private rental regulations or offer direct assistance, as seen with Austria’s rent allowances and rent benefits. Reducing homebuyers’ risks and limiting debt could also be achieved by central banks monitoring and adjusting loan-to-value and loan-to-income ratios. To protect young and low-income households from possible exclusion under these policies, states would need to provide support, such as deposit assistance.

Regulation needs to be introduced to confront the growing presence of institutional landlords in the market. The EU and Member States should closely monitor the assets accrued by these institutions and produce policies that demand transparency in their investment returns. Daniela Gabor and Sebastian Kohl call for EU action in the form of a ‘European Housing Fund’ within the European Investment Bank; this fund would act as a counterbalance to limit investment grabs by institutional landlords during crises, as seen during the global financial crisis, as well as provide funds for social housing projects.

As Manuel Aalbers states, financialisation creates ‘not a producer or consumer market, but a market designed only to make money’. Housing financialisation around Europe is putting vulnerable households at risk of poverty and social exclusion, while benefitting the wealthy and investment institutions. Without a review of past deregulations, thoughtful government support and reinvestment into social and affordable housing, the EU’s poverty reduction goals will remain out of reach.