European housing markets much more alike than people think, research reveals
|Friday, 21 September 2012|
Recent boom and bust in European housing markets has differed between countries but overall the euro area overall has seen much more subdued housing market behaviour in recent years, research from property consultants Savills shows.
Average house prices did not rise so high in the early noughties and have not fallen so much subsequently and in reality the UK is much more like the rest Europe than was thought in terms of typical house prices and rates of owner occupation, its latest Residential Property Focus report shows. ‘As international markets adjust to the new realities of finance and affordability, it would seem that sub-regional geographies vary far more within nations than between nations. This means that average prices are becoming increasingly meaningless and conceal a huge range of different experiences,’ said Yolande Barnes, head of global residential. The report points out that within Europe the cities of London and Paris have been behaving more like each other than like other regions in the same country. Prime international markets across the globe have more in common than those cities have with their provinces. ‘In the UK, we have long emphasised the likely different outcomes between northern regions and the London dominated South. All this has important implications for clients seeking to develop and invest under a wide range of different local circumstances. We have never had to look more closely at local demographics, economics and the migration of equity in order to assess future demand and viability,’ explained Barnes. ‘All this local diversity means there never was a worse time to be looking at one size fits all policies to stimulate housing construction, private renting or regeneration. The issues for Newcastle are very different to Newbury’s and different again to Newham where even East London is proving a very different market to West London,’ she added. A closer look at countries within Europe reveals a very direct relationship between the extent to which house prices grew prior to 2007/2008 and the extent of price falls subsequently. By this measure, only Italy looks as if it should be in for further falls, says Savills. There has been a surprisingly uniform return to similar average house price levels across Europe in many countries. Overall the report shows that average prices of homes are pretty much the same in the major European countries. In the UK the average is €205,330, in Germany it is €236,000, in France it is €216,000, in Ireland €207,000, in Italy €264,000 and in Spain slightly less at €164,000. It says that it would appear that localised differences, for example the differences between the Paris and London markets compared to the countries in which they sit, are coming to matter more than the differences between European countries. ‘By European norms, Italy still looks possibly overvalued but other differences are largely explained by reference to economic performance. The ratios of house prices to economic performance, measured by GDP per head of population, are remarkably consistent over the euro area, averaging just over five times GDP. ‘We think that the stronger European economies will continue to see real, rather than nominal house price erosion, perhaps for some time. Further economic woes in the weakest economies, that adversely impact on GDP per capita, could trigger further associated price falls,’ said Barnes. The report also reveals that it is a myth that the UK is unusual in having such a high incidence of owner occupation and low incidence of renting. While this may have been more true 20 years ago, especially in comparison to pre-unification Germany, it is certainly not true now. According to Eurostat figures for 2009, the UK had lower rates of owner occupation, at 70%, than the eurozone average of 72%. Since then, owner occupation rates have slipped further, to 69% according to the latest survey of English Housing. This leaves the UK ranked alongside countries with the lowest owner occupation rates in Europe and on a similar level to France, Denmark and the Netherlands. Even Germany, since unification, has a higher level of owner occupation than most people think. Though the lowest in the eurozone, it is still at 56% according to Eurostat. In terms of where housing markets are going the Savills house price analysis would suggest that the relative health of housing markets has more to do with the extent of over borrowing and price overheating than it does with the absolute levels of owner occupation. ‘While there does appear to be something of a negative relationship between the size of a country’s economy and levels of home ownership, there is nothing to suggest that home ownership levels per se make a housing market more volatile,’ said Barnes. ‘Belgium and Finland, for example, have higher levels of owner occupation than the UK but have simply continued to grow and have not seen price falls in recent years. It is noticeable that the old communist bloc countries, such as Hungary, Lithuania and Romania, for example, have the highest levels of owner occupation and the least developed private or public sector property investment markets,’ she explained. The report indicates that countries with larger and more mature economies seem to have developed a larger and more diverse rental stock in a wide variety of ways, driven by both private and public sector landlords. ‘The UK is increasingly in this club and it seems certain that other Eastern European economies will join as they develop,’ added Barnes. She pointed out that to understand the differences in house price performance a range of different factors need to be taken into account such as the fundamentals of housing finance and household finances in assessing whether a market is overheated rather than at the structure of home ownership.
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