Extreme renting: how rising rates turned the screws on tenants across Europe
Heated market in housing hotspots is compounded by increasing mortgage costs deterring buyers
Akila Quinio
© FT montage/DreamstimeMarianne B and her partner had owned their Paris flat for seven years when they decided to buy a bigger one after their second child was born.
They discovered the perfect apartment for a price that fell within their budget.
But then they spoke to lenders — and decided to plunge back into the rental market instead.
Their reason: the cost of credit.
“Borrowing €800,000 would cost us €500,000 [in interest] compared with €50,000 for €500,000 in 2019,” said Marianne, who asked that her full name not be used.
“It just doesn’t make sense.
We’re going to have to turn to a rental again.”
Like Marianne’s family, many Europeans are being pushed into rentals as high borrowing costs, income requirements and the need for large deposits make buying homes unfeasible.
But they are joining an already heated market.
Rents in European cities such as London, Paris and Berlin are at their highest level on record; renters are feeling the squeeze from the Greek islands to Tallinn.
As more middle-class buyers are forced to stay in rented homes, that extra pressure on the market has added to costs for tenants on lower incomes in sought-after locations.
Some home seekers have been driven to solutions ranging from living in vans to developing their own internet plug-ins to help snap up desirable homes.
Yet there are few workarounds; overcrowding is worsening and a scarcity of dwellings is keeping millions of young people at home with their parents, shaping their lives through to the age of parenthood and beyond.
Surging prices in London led Emily, a 29-year-old visual artist, to sleep on her sister’s sofa each week from Monday to Thursday.
At weekends, she sleeps in a room that is rented to someone else during the week.
“I can’t justify paying over £1,000 [a month] for a room, especially if it’s not [going] towards a mortgage,” she said.
“You’re just paying to exist and not even paying to fully be able to enjoy what the city has to offer because you’re just trying to keep a roof over your head.”
Paul Tostevin, head of world research at estate agency Savills, said: “Rents are rising across Europe in the face of limited supply and strong demand from domestic renters, international tenants moving for work and study, and would-be purchasers who have turned to the rental market amidst high interest rates.”
Rising rates have added to the costs facing those climbing on to the housing ladder, making that transition yet more difficult.
While average rents in some European countries have fallen in recent years, the cost of housing in employment centres and tourism hotspots continues to reach fresh highs.
But a shortage of homes is leaving these areas unable to meet demand; at the sharp end, that means homelessness is rising.
“If I have to give a one-word explanation of the issue it’s: supply,” said Boris Cournède, acting head of public economics at the OECD.
Yolande Barnes, a professor at University College London’s Bartlett Real Estate Institute, said: “These cities are victims of their own success.”
Populations are urbanising over the long term, one critical underlying trend, but the Covid-19 pandemic created hyperlocal pockets of insatiable demand in specific cities and neighbourhoods.
Rennes and Marseille in France are among places that have experienced jumps in interest since the pandemic began, as tenants look to live closer to green spaces or by the sea to improve their quality of life.
“Everybody during the pandemic became very aware that home doesn’t stop at four walls,” said Barnes.
Governments have sought to contain their populations’ living expenses after energy, food and other crucial costs rose in recent years, alongside the cost of housing.
But attempts to control housing costs can backfire.
Lisbon recorded one of the fastest increases in rents in the six months to June, data from Savills shows, partly because impending rent control policies led some landlords to pre-emptively raise rents.
In Berlin, while a cap on rents was struck down in court two years ago, other rent controls on some properties mean their residents enjoy cheap prices for spacious homes, while newcomers are priced out of many parts of the city and landlords wield immense power.
Sarah Coupechoux, head of Europe at the Abbé Pierre foundation, a housing charity, said the shortage of affordable housing had sparked a “natural selection” process for tenants that was hitting young Europeans particularly hard.
“People who are the least financially equipped are struggling to access good quality accommodation,” she said.
“This includes young people who are more likely to be in precarious employment without a stable income, especially if they are studying.”
Rising rents mean that affordable space for young people is shrinking.
Those aged between 15 and 29 are more likely to live in overcrowded housing, defined as homes that do not have enough rooms to reasonably accommodate all members of the household.
They are also having to live with their parents for longer.
In countries such as Ireland, Portugal and Poland the pandemic contributed to the “boomerang effect” in which young adults returned to live with their parents as they could no longer afford to rent while the economy was put on hold.
Rodrigo Martinez, an assistant professor of real estate at UCL who researches this phenomenon, warned that staying with parents for longer can affect young people’s socio-economic trajectories in the long term.
Staying in their hometowns can lead young people to miss out on jobs suited to them and lead to a vicious cycle of reduced economic opportunities.
National economies and labour markets, meanwhile, risk remaining static from the lack of geographical mobility, he said.
“Staying with your parents a couple of years longer means you will have a lower-paying job, it will be hard to find a family, you will be less likely to be in a couple, get married and be a parent,” said Martinez.
“The ripple effect goes way beyond just spending a couple of years more at home.”
Rental markets across Europe are shaped by their histories and their governments. Romania has the highest percentage of homeowners in Europe, a legacy of the country’s move to a market economy in the early 1990s.
The fall of communism prompted many Romanians to purchase the flats they lived in cheaply as the country underwent a wave of privatisation and currency devaluation.
Some other former communist nations, such as Slovakia, Hungary, Croatia, Lithuania and Poland, show a similar pattern.
In western Europe, home ownership levels tend to be much lower.
Some countries have used policy tools to favour home ownership; tax relief on mortgage repayments, for example, has made borrowing an attractive option in the Netherlands, said the OECD’s Cournède.
This contrasts with Italy, where there are no such tax incentives and banks are more cautious about lending and forbearances on mortgage loans, he added.
However, in cities with a high level of social housing, middle-income households may feel the squeeze more than those on lower incomes, said UCL’s Barnes.
“If you’re lucky enough to get allocated social housing then affordability is not as much of an issue,” she added.
Europe’s rental market is expected to remain tight.
“Several factors, including rising construction costs, development challenges and increasing debt costs [continue to] contribute to the limited availability of prime inventory and the upward pressure on rental prices,” Savills said.
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