The delivery of adequate and affordable housing remains a contentious topic around the world, and not only because of the uplift in interest rates over the past few years. In a recent webinar, a panel of experts from the UK, US, Germany and France discuss the current state of the residential market, challenges and potential solutions.

Steven Matz

Content Specialist, WBEF

Market dynamics, affordability and supply

In the UK, affordability is an overriding challenge. In the wake of the pandemic, the UK housing market experienced significant capital value appreciation, which has since been tempered by rising mortgages, says Lucian Cook MRICS, head of UK residential research, at Savills. The rental market has also been very firm, he says. Recently, the mortgage market has begun to stabilise and there are indications we may be nearing a cut in interest rates. Many UK homeowners have coped with rising interest rates through long-term, fixed-rate mortgages, while lenders have taken a benevolent approach to those facing significant financial pressures, adds Lucian. Slightly weaker market conditions and reduced support for house builders, with the ending of the Help to Buy scheme, have led to a decline in housing supply, he notes. With a general election on the horizon, these issues are pushing housing up political agenda.

Recent trends for housing in the US show starts peaked towards the end of 2022, with the completion and delivery of projects expected to peak in the second half of 2024, moderating market pressures temporarily. However, the latter half of 2025 is likely to shift back in favour of sellers with new housing stock expected to decrease, indicating a possible tightening of the market and upward pressure on prices, says Steven J. Schleider FRICS, senior managing director, value and risk advisory, New York Tri-State Region at JLL. Exacerbating the shortage of available homes in the US, homeowners who locked into low interest rates are reluctant to sell, further limiting entry for first-time buyers, he says.

In Germany, investment volumes have seen a notable decline, dropping almost 40% year-over-year, with repricing emerging as a central theme over the past year, says Andreas Trumpp FRICS, managing director, head of market intelligence and foresight – Germany at Colliers International Deutschland. Rental markets are facing a severe imbalance between high demand in major cities and very low supply, says Andreas. Rent controls have failed in Germany. When rent caps were introduced in Berlin, the supply fell to nearly zero, explains Andreas. Furthermore, the courts ruled that the Berlin city government lacked the legal power to enact such caps, he adds.

With the increase in interest rates, affordability has also become a significant concern in France, leading to a decrease in purchasing power of about 25%. This has resulted in a dual crisis, affecting both individual and institutional investor demand, says Carole Abbey, director of urban development and student & senior housing, member of the ExCom, CDC Habitat. It has also led to financing issues for developers, housing projects being abandoned and redundancies. There is some light at the end of the tunnel with interest rates peaking, but this is unlikely to have a material impact before the end of the year, she says.

Around ten years ago, CDC Habitat, which specialises in social and affordable housing, introduced a new ‘intermediate’ housing category that bridges the gap between social housing and the free market. This initiative has enabled the creation of additional housing options, featuring tax incentives and rental prices at least 10% below market rates. The initiative has allowed the French government to expand the number of cities eligible for intermediate housing development. It has also broadened the range of housing types qualifying for these benefits, including serviced apartments and managed residences.

“Rent controls have failed in Germany. When rent caps were introduced in Berlin, the supply fell to nearly zero.”

Delivering more affordable homes

In England, it is estimated that around 300,000 homes need to be delivered annually to meet current levels of demand and address some of the affordability issues, says Lucian. The situation is more made challenging by a restrictive planning system and a heavy dependence on the private sector, who are also obligated through planning regulations to provide a significant portion of the affordable housing stock. This obligation can skew the economic attractiveness of housing construction, making alternative uses of the land, such as commercial or other non-residential uses, more financially appealing, suggests Lucian. Additionally, in the UK, the position of housing minister is a junior ministerial role often characterised by high turnover, preventing long-term engagement and understanding of the housing sector's complexities.

Housing supply is expected to decrease over the next three years in the US, dropping from around 700,000 units in 2024, to as low as 200,000 units in 2026 and 2027. Furthermore, around a one-third of projects are facing delays due to challenges in the construction sector, including skill-related issues and financing conditions, says Steven. A transition from free market to subsidised housing involves complexities, including the necessity for subsidies to ensure new construction is financially viable due to high costs and insufficient rent levels to cover completion costs. Addressing this requires comprehensive support, including federal, state and local tax credits, real estate tax exemptions and rental assistance, he adds.

In France, a lack of affordability has led to low demand and consequently a supply shortage. France is exploring several initiatives to improve affordability and stimulate new construction. This includes different forms of mortgages, such as bullet mortgages, where, for example, 20% is deferred until the end of the mortgage term. There is also a push to regulate land prices more stringently, to counteract inflation and promote biodiversity. Innovative methods such as off-site production are also being considered to cut costs and construction time. Streamlining the permitting and authorisation process could significantly reduce delays and financial overheads, as highlighted by the expedited construction for the Paris Olympic Games.

Similarly in Germany, housing is slow to develop, highly regulated and expensive. Attracting investors is key to increasing housing supply. Andreas stresses the importance of predictability and reliability in the housing market. Frequent changes in housing policies at national, regional and local levels are not conducive to investor confidence, he says.

“Streamlining the permitting and authorisation process could significantly reduce delays and financial overheads.”

Office to residential conversions

The concept of converting office spaces into residential units in New York City gained traction during the pandemic, though the approach dates back to the mid-to-late 1990s when older office buildings in Lower Manhattan were adaptively reused. However, these properties are finished to a high standard with a commensurate rent. This is in contrast to the UK, where RICS-commissioned research found many office to residential developments over the past decade have been of poor quality.

The panellists highlight several challenges of such conversions, including:

  • desirability of the location
  • the building's structure
  • availability of vacant possession and
  • whether it is financially worthwhile for owners to undertake such conversions.


Sustainability and retrofitting

In France, regulations are increasingly demanding lower energy consumption and reduced greenhouse gas emissions, but investors are pushing beyond these requirements, seeking to demonstrate their commitment to sustainability as a strategy to secure better financing terms, explains Carole.

In the UK, the main challenge lies in retrofitting existing buildings quickly enough to meet net-zero targets. This requires a policy environment that adequately supports the rapid investment necessary to achieve these reductions, says Lucian.

According to the Climate Change Committee (CCC), residential retrofits need to increase to a rate of 500,000 per year by 2025, and one million per year by 2030 to meet the UK government’s net-zero target. Responding to the increasing need for retrofit services, RICS published the Residential retrofit standard in March 2024, effective from 31 October 2024. This standard provides a concise series of mandatory and recommended guidelines to ensure homeowners receive expert, regulated advice when upgrading their properties for energy efficiency.

Housing in many countries around the world remains a vexed subject and not just because of the uplift in interest rates over the past few years. Tighter monetary policy has clearly impacted affordability in the sales market but alongside this, the delivery of sufficient homes across all tenures remains an ongoing challenge, while the implementation of targets to increase the sustainable features of housing continues to be contentious. Our panel of experts discuss these issues and assess how the interplay of the economic environment, interest rates, and government policies is likely to impact the sector going forward. This webinar covers the UK, Germany as well as Europe more generally, and North America, examining the key challenges in each region and how best they can be overcome.