Housing shortages make rental apartments scarce across Europe

LONDON - In Zurich, apartment hunters take wine and chocolates to viewings to help them stand out from the crowd.

In the Netherlands’ Amsterdam, university students are spending months trying to secure accommodation before terms starts.

In Dublin and Lisbon, young professionals are giving up and moving back in with their parents.

Across Europe’s biggest cities, renters are coming up against a severe supply shortage that is pushing prices to record highs.

Surging mortgage rates have forced people to give up on property purchases, just as inflation increases the cost of construction materials, hampering supply. 

Government policies and post-pandemic work trends have pushed skilled foreign workers who can often pay more than locals to Paris, Dublin, Berlin and Lisbon, while the return of students post-Covid-19 has pushed up demand in places like London and Amsterdam.

The trend of rapidly rising rent since the pandemic is not unique to Europe, but it has been exacerbated on the continent by the relatively small size of cities and the higher concentration of historic and low-rise buildings.

If governments fail to take action, particularly around supply, they risk drastically increasing inequality as those who cannot afford to buy property fork out larger portions of their income on housing. 

“Rents are going up and that’s making life particularly difficult for people who don’t have generational wealth,” said London School of Economics professor of housing economics Christine Whitehead. 

“There’s a hell of a lot of difference between a 25-year-old looking for a place, with parents who are existing home owners and have properties rented out, versus young folks starting completely on their own.”

In Amsterdam, things are tough even for university students with local support.

Ms Hendrine van Walbeek, a 54-year-old small business owner in Terneuzen in the south-west of the Netherlands, began trawling through rental websites for rooms to rent for her son Mike near Amsterdam in April, logging on at least 10 times a day to check for updates.

By August, with just weeks to go before his course started in the capital in September, the physics student had not been invited to a single viewing. 

She tried a different approach, creating an ad about Mike with details of his interests and requirements, and posting it on social media.

That led to a few viewing invites and then, with less than a fortnight to go before the start of term, the family finally found a room for €500 a month (S$730) including bills in Uithoorn, a suburb that is a 45-minute commute from Mike’s university.

The housing shortage is particularly acute in the Dutch capital because the city has become a magnet for foreigners, with 18,000 newcomers moving to the city of about 882,000 in 2022. 

Dutch companies like ING Groep, Royal Philips and Just Eat Takeaway.com have expanded their workforces in recent years.

The city’s favourable tax climate has made it attractive to large international companies such as Tesla and Netflix, which have set up European headquarters there.

The “extreme” population growth has left the city short of about 200,000 homes, the city government said in a recent report.

Other capitals are in a similar bind.

Dublin’s population has grown almost 12 per cent in the past decade as government tax breaks created incentives for global pharmaceutical and tech companies such as Meta Platforms, Alphabet’s Google and Pfizer to set up their European headquarters there.

The policies are starting to cause a backlash, with companies frequently citing housing as one of the main challenges for recruitment and retention. 

Discount airliner Ryanair rented student accommodation over the summer to house staff and is considering purchasing apartments for its workers, according to local media reports. 

In Zurich, home to Google’s largest research centre outside the United States, the vacancy rate for apartment rentals is just 0.07 per cent and lines for apartment viewings regularly stretch to more than 100 people.

It has become the norm for apartment hunters to bring recommendation letters, human resources contacts, bank statements and gifts such as wine and chocolates when they are invited to view a property. 

Mr Walter Angst, co-director of the Zurich tenants’ association, expects rents to rise by around 30 per cent by 2025 as higher interest rates push up demand.

Many households are already spending more than a quarter of their disposable income on rent, so such an increase will force many people out of the city, accelerating a transformation of neighbourhoods that is already happening at “breakneck speed”, he said. 

In many cities in Eastern Europe, the housing shortage and surge in rental prices is being exacerbated by the sudden influx of Ukrainians fleeing the war.

Rental prices in Estonia, one of the top destinations for Ukrainian refugees, jumped 22 per cent in 2022, according to Eurostat. 

Governments are scrambling to find solutions, but they are often opting for short-term fixes that tend to backfire.

More than 5,000 private landlords in Dublin gave notices of termination to sell their properties in the second quarter after the government introduced a rent cap.

Newcomers to Berlin can spend months looking for permanent housing because a 10 per cent cap on rent increases discourages turnover.

A Swedish system of rent-controlled apartments has created a years-long waiting list in Stockholm and a sublet market where reports of bribes and sexual harassment are not uncommon.

“Rent price control is the worst policy that you could roll out because it constrains supply even more,” said Mr Djordy Seelmann, chief executive of HousingAnywhere, a rental platform that operates in capital cities across Europe.

“Policymakers are typically quite focused on what they can do for the market today, but solving these types of supply issues takes at least a decade,” he said.

He points to Spain as an example of a country where government policy is much more focused on liberalising construction regulations to increase supply in the long term.

Another place offering a potential blueprint is Vienna, where the city government is giving €200 to anyone below a certain income level to help pay their rent.

About 500,000 people, or every fourth person, in the city lives in one of about 220,000 municipality-owned apartments and more than 3,700 new homes will be built in the next few years. 

The city also offers its vast land bank to developers who allocate some of their new apartments to low-income tenants

But with inflation and green policies raising construction costs, few governments are managing to build new housing fast enough to keep up with demand. 

The number of available rental properties in Ireland peaked in 2009, with more than 23,400 homes listed nationwide.

Since then, stock has dwindled, with around 1,200 properties available for a population of more than five million as at Aug 1.

Housing construction in the Netherlands fell far short of a target set in 2022 to build about 100,000 new homes a year by 2030, with affordable housing meant to account for two-thirds of the total. 

The shortage is already starting to change the make-up of many cities. 

Dutch people account for just over 40 per cent of the Amsterdam’s population, as more locals choose to live in satellite towns where rents are cheaper.

Ms Delfina Fernandes, 69, who lives in the Avenida da Igreja neighborhood in uptown Lisbon, recently bade farewell to her 40-year-old son, who finally found his own apartment after living at her place with his wife for five years.

The new apartment is not in the same neighbourhood where the Fernandes family have lived for two generations, or even in Lisbon.

The only place her son could afford on his public sector salary is in Setubal, a city 50km south of the capital.

“It hurts to see young people like my son leaving the city,” Ms Fernandes said. “Unfortunately, with rising interest rates and living costs, I don’t see how things will change.” BLOOMBERG