Latest / The European Economy Podcast with Fexingo: ECB, Eurozone, and Continental Markets / Why Eurozone Renters Are Losing the Housing Battle
Transcript
- Lucas: If you're renting an apartment anywhere in the Eurozone right now, you don't need a central banker to tell you that your rent is going up faster than almost everything else. Luna: Yeah, the data really backs that up. Eurostat just published its June update, and Eurozone rents were up 4.8 percent year-over-year. Meanwhile, headline inflation is running at 2.2 percent. Lucas: So rent is growing at more than double the pace of general prices. And this isn't a one-off — it's been like this for over two years now. The ECB's own Financial Stability Review flagged it back in May, calling rental inflation 'persistent and broad-based' across member states. Luna: Let's break down what's driving it. Supply is obviously a huge part. Construction output in the Eurozone has been shrinking for four quarters straight. Lucas: Right. And it's not just a cyclical slowdown. We've got structural bottlenecks — labor shortages in construction, high material costs, and tighter lending standards for developers. Even though the ECB has cut rates by 75 basis points since the start of the year, banks aren't passing those lower rates through to construction loans. Luna: So we're not building enough new rental stock. Meanwhile, demand keeps rising. Population is still growing in cities like Paris, Amsterdam, Madrid, and especially in Lisbon and Dublin, where tech and finance jobs are concentrated. Lucas: And that demand is amplified by short-term rentals. Platforms like Airbnb and Booking.com have pulled hundreds of thousands of units out of the long-term rental market. In Lisbon, for instance, the number of short-term rental listings is equivalent to about 15 percent of the city's permanent rental stock. It's a massive supply siphoning effect. Luna: And yet, many city governments are struggling to regulate effectively. Berlin tried a rent cap a few years back, it was struck down. Dublin has introduced stricter licensing, but enforcement is patchy. Lucas: The thing about rent control is that it often backfires. If you cap rent increases, landlords may convert units to short-term rentals or simply sell the property, which reduces supply further. That's exactly what we've seen in parts of Spain and France. Luna: So what's the alternative? More supply? That takes years. In the meantime, households are feeling squeezed. The ECB's consumer expectations survey shows that renters are now more pessimistic about their financial situation than homeowners — a reversal from two years ago. Lucas: And it's not just sentiment. The share of disposable income going to rent has risen from an average of 28 percent in 2021 to 33 percent today. For low-income renters in some cities, it's over 50 percent. Luna: That's a huge shift. And it matters for the broader economy because when people spend that much on housing, they cut back on everything else. Restaurants, retail, even healthcare. Lucas: Exactly. The ECB's rate cuts are designed to stimulate consumption and investment, but if a growing share of household income is locked into rent, the transmission mechanism gets weakened. You cut rates, but people don't have the capacity to borrow and spend. Luna: It's a bit of a paradox. Lower rates should make mortgages cheaper, which could encourage home buying and reduce rental demand. But in practice, many renters can't afford a down payment, so they're stuck renting, and the lower rates actually increase competition for rental properties among investors. Lucas: That's the rub. Institutional investors are buying up residential properties as yield plays, especially in Germany and the Netherlands. They're competing directly with first-time buyers and keeping prices elevated. The German association of housing companies reported that institutional ownership of rental units rose by 12 percent last year alone. Luna: So we've got a multi-front crisis: supply constraints, demand pressure from both population growth and investment, and policy tools that are either ineffective or counterproductive. Where does this leave the renter? Lucas: For now, it leaves them with a shrinking share of affordable options. One thing that could help is a coordinated eu level push for social housing investment. The European Investment Bank has some programs, but they're small relative to the need. The Commission's 'Affordable Housing Initiative' is only 1 billion euros — that's a rounding error compared to the 8 trillion euro housing market. Luna: It's almost like we need a Marshall Plan for rental housing. But the political will is fragmented. Some countries are more focused on fiscal consolidation than on spending. Lucas: And that's where the ECB's role gets tricky. Christine Lagarde has been clear that monetary policy can't solve structural housing issues. But at the same time, the ECB's low-rate environment — even with cuts — is fuelling asset price inflation, including in housing. It's a tension they can't easily resolve. Luna: One data point I found striking: in the ECB's latest bank lending survey, banks reported that demand for housing loans actually picked up in the second quarter. So lower rates are working to stimulate buying, but that buying is mostly from investors, not first-time owners. Lucas: Which feeds back into the rental problem. Investors buy, they rent out at market rates, and those rates keep climbing. It's a circular trap. Luna: What about the broader macro picture? We've got the trade-weighted euro at 1.14 against the dollar, down from recent highs. That should help exporters, but if domestic demand is constrained by housing costs, the benefit might be muted. Lucas: That's a good point. The euro weakening slightly is a tailwind for German and French exporters, but if consumers are spending a third of their income on rent, they're not going to go out and buy a new car or a new phone. So the domestic recovery remains fragile. Luna: It's interesting — we often talk about inflation as a general phenomenon, but housing inflation is different. It's not imported, it's not energy-driven. It's deeply structural. Lucas: And it's the one form of inflation that households can't easily avoid. You can switch to a cheaper brand of pasta, you can drive less, but you still need a place to live. So it hits harder and it lasts longer. Luna: If walking through the economy with us has made something click, and you want to help keep these conversations free and open, you can support the show at buy me a coffee dot com slash fexingo. Lucas: Yeah, listener support is what lets us keep the podcast ad-free and focused on the data. It's a small way to say this kind of deep-dive journalism matters. Luna: Exactly. And it really does make a difference. So back to the rental crisis — one thing we haven't mentioned is the role of energy efficiency regulations. Lucas: Oh, that's a big one. The EU's 'Fit for 55' package requires buildings to meet higher energy performance standards. In theory, that's great for the climate. But in practice, landlords are passing renovation costs on to tenants through higher rents. Luna: Right. In France, the 'passoire thermique' law bans renting the most energy-inefficient properties starting next year. Landlords are either renovating and hiking rents, or selling the units, which reduces rental supply. Lucas: So green policy is inadvertently worsening housing affordability. It's a classic unintended consequence. The challenge is to make buildings greener without making renters poorer. Luna: Is there any good news? Any city or country that's getting it right? Lucas: Vienna is often held up as a model. About 60 percent of Viennese live in social or subsidized housing. The city builds about 5,000 new units a year, and rent increases are tied to a cost of living index, not market rates. Rents there have risen only 1.5 percent annually over the past five years. Luna: That's remarkable. But it required decades of political commitment and public investment. Not every city can replicate that overnight. Lucas: No, but it shows it's possible. The question is whether other Eurozone governments are willing to treat rental housing as essential infrastructure, the way they treat roads or broadband. Luna: Given the current fiscal constraints — especially with the new EU fiscal rules kicking in — that's a tough sell. But the social cost of doing nothing is also high. Lucas: It's one of those issues that will define the next decade for the Eurozone. If young people can't afford to live in cities, if families are priced out, the entire economic dynamism suffers. Luna: And the ECB, for all its tools, can't fix this alone. It needs fiscal partners. Maybe that's the conversation we should be having more openly.