Increase in the cost of living and property prices 

At the highest housing cost, including housing loan costs faced by households in the eurozone, the European Central Bank reports. According to the ECB’s Consumer Expectations Survey (ECB Survey), years after the outbreak of the COVID-19 pandemic and amidst the surge in energy prices, households in the eleven largest eurozone countries have seen an increase in housing costs, including expenses for rent or higher mortgage rates, payments for home maintenance, and utilities (such as gas, electricity, and water). In January 2024, households paid an average of €765 per month in total housing costs, including utility bills, home maintenance, and rent or mortgage payments.

 The cost of housing increased by 10.2% 

 During the period from July 2022 – the beginning of the interest rate hike cycle – to January 2024, the average housing cost reported in the consumer expectations survey increased cumulatively by approximately 10.2%, compared to the cumulative increase of the Harmonized Index of Consumer Prices (HICP) of 5.5%. 

Additionally, the spread in monthly housing costs for each of the property types has increased. The total cost has increased by about 6% for homeowners, but by 12% and 9% for mortgagees and renters respectively. As reported, various factors affect each case: 

1. for homeowners, the change is due to the increasing cost of home maintenance, although the cost of utilities has slightly decreased due to recent energy price stabilization after their rise during 2022. 
2.  ii) for mortgagees, the main factor was the increase in mortgage payments due to higher interest rates on existing mortgages with variable rates and even more so on new, renewed, and refinanced mortgage loans. 
3. and iii) for renters, the cost largely followed rental developments, as well as trends in utility prices because renters have less flexibility in absorbing unexpected expenses. 

 Significant heterogeneity between countries 

Regarding individual countries in the eurozone, there is significant heterogeneity in housing costs, while the difference between costs excluding mortgage payments and those including such payments is significant, especially for countries like Italy and Spain, which tend to have higher shares of adjustable rate mortgages. 

Income growth offset costs 

As reported, since 2022, the increase in households’ nominal income has largely offset the increase in housing costs, and therefore, the ratio of housing costs to income has remained relatively stable. The housing cost index, defined as total housing cost divided by disposable income, remained unchanged overall since the beginning of 2022. Housing costs account for about 20% of disposable income for homeowners, 40% for renters, and 35% for mortgagees. However, it is indicated that this varies between income groups, with the housing cost index having slightly increased for the top 20% of incomes among households with mortgage and renters, but remaining quite stable for the lower 50% of incomes. 

According to the European Central Bank, this difference reflects, on the one hand, the fact that higher-income households are more likely to take out mortgage loans and generally do so for larger amounts, while, on the other hand, there has been a stronger increase in income for lower-income households. This may partly be attributed to recent targeted income support measures implemented by the larger eurozone governments. Among lower-income groups, a significant proportion of households are overly burdened by housing costs. 

The future development of housing costs is crucial for housing investment prospects. 

Meanwhile, it is reported that more households, particularly those with lower incomes, have stated in recent months that they expect to make delayed payments for rent or mortgage, and/or utility services. 

Given the present and future impacts, both of increased interest rates and loss of purchasing power due to inflation, households’ ability to meet housing costs and mortgage payments is a source of concern, especially for households with lower incomes. 

Furthermore, it is noted that housing investment in the eurozone may be further weakened in the near future, while the future development of housing usage costs is crucial for housing investment prospects in the eurozone.