Housing affordability is one of the key issues that many European markets, including Athens, are currently facing. We present our attempt to put some data in the anecdotes.
Hello everyone. Greece has been enjoying a solid economic and property market recovery since 2017 with GDP growth outperforming most European Union markets over the past couple of years and still forecasted to do so in the near term. The economy and real estate suffered significant value destruction during the decade following the Global Financial Crisis, such that despite Covid-19, the invasion of Ukraine and inflation, the market remains resilient given its lower starting point. In addition to the market repricing, a chronic undersupply of good quality residential space, continues to support price growth, as does the need for new and updated space. Greece missed most of the 2009-2021 low interest rate, high QE period and it is finding itself at an “accidentally countercyclical” position relatively to the rest of the Developed World where real estate is mostly priced for perfection, while Greece has comparably low real estate prices and a fair recovery underway.
However, if we assume that a recovery begins from sentiment, investment appetite and flows and then moves onto the fundamentals of the economy, has this materialised in Greece?
Source: FRED St. Louis Fed, Bank of Greece
Sentiment indicators have been improving rapidly since the bottoming of the economy, with government bond yield spreads back to levels not seen since before the Global Financial Crisis and real estate FDI volumes at levels never seen before in the Greek market, as can be seen in the two charts above. At the same time, Business Confidence indicators have also been on the up over the past years.
Greece officially exited the enhanced surveillance program on August 20th, following the delivery of the bulk of the policy commitments it made to the Eurogroup. These commitments had tremendous economic and social consequences; however the country is now in full recovery with investment friendly reforms, tax incentives and the digitisation of the economy supporting the economic environment further.
Source: Hellenic Statistical Authority
But has this economic recovery been widespread across the real economy? Are people in a better economic position? And has the real estate recovery affected the wider Greek population positively or negatively?
During the Greek crisis, 24% of GDP was lost and only small parts of it has been regained (with Covid-19 delaying this recovery), however, more recently GDP has been growing at a faster pace than most of Europe. As shown in the chart above, the unemployment rate has reduced to 11.5%, which is the lowest it has been since 2009, and is partly attributed to a rise in tech jobs, that according to an Endeavor Greece study, grew by 36% in 2021. This growth is underpinned by an active local start-up scene and the expansion of tech multinationals in the country that promote employment and innovation. As a result, tech has been playing a positive role in certain levels of “brain gain” activity from abroad, following a mass exodus of people from Greece during the crisis. Even the stickily high unemployment rates of 20-24-year-olds that peaked at 56% in 2012, fell below 30% at the end of 2021. Still high, but very much improved.
National house prices declined by 42% during the crisis and since the trough they have gained 28%, according to Bank of Greece data. This price uplift is good news for many Greeks, as Greece has one of the highest owner-occupation rates in Europe, meaning that the wealth of these owners has increased over past years, albeit coming off a low base.
However, if we look at overall housing costs, which is part of the Greek CPI basket (includes rentals, maintenance and utility costs) this has increased materially and is out of kilter with the national disposable income increases to-date. This can be seen in the chart on the right hand side.
Renter Perspective: Housing cost increases have created an affordability issue, that is worsening with time. This issue is not only visible in Greece, but in most Developed economies and particularly in city centers. Additionally, we would like to note that a large part of this cost increase is due to significant inflationary pressures in materials and utilities something that is currently being faced by most countries and is not specific to Greece.
Rents, and particularly asking rents, have been rising, and in certain areas and types of residential property are completely out-of-balance with the economic fundamentals as there are demand pressures from niche property subsectors, such as student housing, as well as trends like short-term rentals, which remove rental supply from the market. Anecdotal evidence and a quick browse at the country’s agency portals would point to significant increases in asking rents over the past couple of years and in more recent leases. However, the limited credible rental data on housing rents in Greece, such as the short history of “Actual Rentals Paid” in the Greek CPI basket, and the OECD Greek rental price index point to limited rental increases to-date.
The chart on the left, shows the same national disposable income data shown in the previous chart and compares it with rent data from OECD, showing a different picture from the one shown by total housing costs that include rent as well as maintenance and utilities. Important to note here, that these indices tend to lag the market, as they are often sticky relative to recent historical data and take some time for real-time changes to take effect. We should expect this rental index to start showing the rental increases that are taking place in the Greek market soon.
Additionally, the reality is that these figures are at the national level and most affordability issues are concentrated in the bigger cities, i.e the two largest cities of Greece, Athens and Thessaloniki. As together they account for approximately half the Greek GDP and the housing stock, we assume that they account for a significant part of the national rental movements. Nonetheless, there is a growing number of mostly young people that are struggling to leave the parental home and rent a place of their own and this social issue will need to be addressed.
Source: Hellenic Statistical Authority, OECD
What does that all mean?
We need to build and renovate more.
The Greek housing market and particularly rental property is expensive for the local population. The recent rental recovery from the crisis, the low supply of available and good quality rental stock which continues to decrease due to limited new development and the usage of many dwellings as short-term rentals, coupled with the extreme inflationary pressures, create high housing costs. Wages and disposable income have been increasing, while business profitability and tourist receipts are on the up but at much lower rates than rents and costs.
With house-buying a less available option for more people, we could see a scenario where the market is diverging closer to other European models, where more people need (and in some cases want) to rent, while considering lower square meters per person or dwelling, alternative areas to live and more cohabitation, either naturally or through new residential property types, such as co-living. Alternative owning structures, such as rent-to-own models can also support local renters/buyers too.
As a wishlist, we want to see the real economy improving, incomes rising further on a national level and unemployment levels decreasing further. We also want to see, incentives for buyers to acquire old properties (the majority of the housing stock), including listed buildings and refurbish them to modern standards and modern energy efficiency requirements. Greece has a lot of housing stock (4.1 dwellings according to 2011 Census), but very limited new or refurbished housing stock. As a country, we need to upgrade and use this stock, as this is the most direct, efficient and energy friendly way to increase our supply of modern housing for a better future.
Buyers Perspective: When compared internationally, the Greek housing market remains one of the most competitively priced markets in the developed world, as the below table published by Bloomberg shows, that calculates a buyer affordability score based on various indicators such as price-to-rent and price-to-income. A combination of indicators like these, attempt to paint a holistic relative affordability picture and compare it between different markets. Greece missed the 2010’s QE-led price run and as a result, since 2017 it is undergoing it’s own recovery. Average house prices are still 26% below 2008, while in many markets prices are above previous peaks. Out of 30 countries globally, Greece is the 9th most affordable.
Source: Bloomberg Economics, BIS, OECD
Concluding, the real estate recovery is continuing well, which adds to people’s wealth (at least on paper) and gives space for new companies from the investment and service industries to enter and grow. Companies have started refurbishing existing apartments and buildings, developing new spaces, and come up with new living concepts, some of which are attempting to address the affordability issue. Un-affordability is real and is heading towards unsustainable levels and should be addressed through policy, supply, property types and owning/renting structures. On the investment side, the winter is expected to be tough with energy shortages across Europe and inflation still on the up, but the relative attractiveness of real estate during such conditions and the comparatively good pricing of Greece relative to other markets, should support its continued recovery.
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