Housing markets in 2024 and beyond: overcoming the sector’s ‘wicked’ problems

The delivery of adequate housing across all tenures is a challenge familiar to many markets around the world. In a recent webinar, a panel of experts from across Europe discussed the drivers and barriers to creating a more sustainable supply of housing. 

Despite their different tenure structures, panellists from several European housing markets discussed very similar issues: demand for housing across tenures exceeds supply, rental and house prices have rapidly increased, while there has been a slowdown in new home building rates as financing and regulatory pressures are creating a ‘wicked problem’ for housing.

Housing shortages in Amsterdam, Berlin, London and Vienna

In Berlin, more than 20,000 new apartments are needed each year, explains Roman Heidrich MRICS, Lead Director, Residential Valuation, Value and Risk Advisory, Germany, JLL. Yet even during the peak of housebuilding in 2019, only 19,000 apartments were built. This reflects a wider pattern across Germany, where Roman predicts only around 250,000 new apartments will be built this year; a figure that comes short of the government’s 400,000 target.

In the Netherlands, the shortage of housing this year is expected to be around 400,000, or approximately 5% of the housing stock, explains Sander Burgers, Senior Economist, Housing Market, Netherlands, ING.

In the UK, successive governments have struggled to get house building numbers up to the levels that are required, states David Fell, Lead Analyst, Hamptons. The Labour government has announced targets to build 370,000 homes per year over the next five years, but achieving that figure is going to be challenging.

Rental listings this year in the UK are about 35%-40% lower than they were in 2017, says Oliver Knight, partner, Head of Residential Development Research, Knight Frank. There has been a big imbalance between high levels of new tenant demand and lower levels of landlord instructions in the UK, he continues.

Ingrid Neugebauer MRICS is Head of rental and owner-occupied apartments, EHL Wohnen GmbH. In Vienna, she says, demand has stabilised at a high level, around a 60% increase compared to 2022. Yet at the same time, Vienna has been subject to shrinking supply by 40% over the same timescale.

Rapidly rising costs are creating a wealth divide

In Berlin, the rent index is used as a benchmark for prices, explains Roman. Comparison of the index for those already living in apartments against those rents coming up for new contracts shows the price has almost doubled. The average rent index stands at EUR7.21 per square meter per month, says Roman, whereas rents for new contracts are at EUR13 per square meter per month. People new to the city are having a lot of difficulty in finding an apartment, particularly one at a reasonable rent.

In Vienna, a similar pattern is emerging. Rents are increasing at a higher rate than the inflation rate, explains Ingrid, and the leasing time – the duration until the apartment is rented – is only a few days.

Speaking about the Netherlands, Sander says ‘it is an “insider-outsider” problem. If you're in a controlled rent or if you are in an owner-occupied home, you've seen your home value being doubled, then you are very lucky to be “in”. But if you’re “out”, housing is very difficult to access regardless of whether it’s a social house, private rental home or owner-occupied. Rents are relatively high, and for young people, can sometimes take up to 50% of their income. To purchase a home, you require a salary which is double or sometimes triple the modal income in the Netherlands’.

In the UK, we’ve seen similar amounts of rental growth to Europe, says David. Rents have risen by around 35% against where they were pre-pandemic in 2019. Oliver agrees. ‘There’s an affordability crisis in some parts of the UK because of the growth we’ve seen in house prices over the last decade, and in rents more recently, albeit this has been offset in part by strong wage growth over that same time’.

Investors, landlords and developers remain cautious

Rising mortgage and interest rates have had knock on effects across the industry, says David. Investors, developers and owners are now more cautious about investing in new homes. Although rents have increased in the UK, appetite among investors remains subdued, as mortgage costs have also risen. Oliver agrees, ‘individual private landlords make up around 98% of private rented supply in the UK, for leveraged investors spikes in mortgage costs have changed affordability calculations, and come on top of regulatory and tax changes. Around half a million landlords have sold up over the last eight years’, he says.

A similar process is occurring in the Netherlands. Investors are selling their rental homes, resulting in a wave of rental homes becoming owner-occupied.

New construction in the Netherlands responds very weakly to the increase in prices and rents, explains Sander. ‘We call it a “wicked problem”, or a multi-headed monster’, he says. Higher interest rates mean higher financing costs, while the energy crisis has increased materials and building costs. New rules and regulations around new building stock and new spatial planning requirements are occurring as municipalities experience staff shortages. These factors have decreased investment appetite, he says.

Many of the reasons for low levels of new construction in Germany are common across Europe, says Roman. Longer planning periods, a lack of availability of building plots, labour and material bottlenecks are all challenges. The huge increase on the cost of financing resulted in an enormous number of project developers going bankrupt over the last 18 months, and this will create a problem for new construction over the next couple of years, he says.

‘In the UK, we’ve seen new starts decrease by 40–50% compared to what they were 18 months ago’, says David. Oliver states there has been more interest in the build to rent (multi-family) market. Investors are working a lot more closely with house builders to deliver houses and apartments for rent in more regional markets. A multi-tenure approach to housing delivery is going to continue, he predicts, and should be given more consideration from a policy perspective.

Demographic changes and shortfalls in the social housing sector

In the UK, the declining social rented sector has resulted in long social housing waiting lists and increase pressure on the private rented sector. In the 1970s, social rented housing catered for around 30% of households, whereas today it is around 16%, says Oliver. There are around 1.3 million people in the UK on the social housing waiting list. As a result, there are more households in the private rented sector, which has doubled in size over the last 20 years.

Oliver continues, while people in the private rented sector 20 years ago may have been students or young professionals in their 20s and 30s, today, an increasing proportion of private renters are in their 40s and 50s with families.

In Vienna, subsidised housing is very popular. Ingrid says, ‘I think it works, because our housing costs are among the lowest in Europe. The sector is well financed and supported, and it delivers high quality constructed housing as well’.

In the Netherlands, the social rented sector, which takes up 30% of housing, is difficult to access, with the waiting list now approximately ten years.

Rent caps, rent controls and new building regulations create second hand effects on housing supply

German tenants are well protected by legal regulation – particularly in the cities with the tightest housing markets, says Roman. An increase in the rent of more than 10% above the index-linked rate is only permissible if the owner invests a substantial amount of money in the apartment. The government has introduced a new, ‘simple’ building type (building type ‘E’), which developers build to a slightly lower standard, less energy efficient than in the past. This has lowered the building costs and made new built more attractive to developers.

Austria also implements rent caps, Ingrid explains. This is quite difficult, she says, ‘because when the rent does not increase, we do not have money to invest back into the houses in order to meet the requirements under the European Green Deal’. In Vienna, most of the housing is still gas heated, so investment is needed to bring this housing in line with changing regulation.

In the Netherlands, unfortunately investors seem to be holding out on investing in retrofit, in case the government introduces new subsidies that might help in the future, says Sander.

A lot of the UK’s housing stock is old, inefficient and expensive to retrofit, says Oliver, so change will be driven by regulation. Oliver explains that the UK government is stipulating that by 2030, landlords will not be able to let a property unless its EPC rating is ‘C’ or above. He adds that where around 60% of private rented properties in the UK are rated ‘D’ or below, there will be a huge cost to landlords to get up to standard. This will likely lead to a further reduction of supply in the rental market.

The delivery of adequate housing across all tenures is a challenge familiar to many markets around the world. Changing work and lifestyle patterns in post-pandemic, coupled with a subdued macroeconomic environment, present both challenges and opportunities for stakeholders at all levels. Access to land and the provision of finance are counted among the most pressing barriers to delivery, and further interventions, policies or initiatives are necessary to accelerate housing provision.

Our panel of experts assess the measures and innovations that are proving effective in leveraging change to secure a more sustainable supply of housing. The discussion examines how, in the context of changing political leadership, these measures are poised to impact the sector going forward.

Covering the UK and Europe, this webinar examines how key levers for change in each country are impacted by social, environmental and economic headwinds and tailwinds.

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