ECB Economic Bulletin Pre-Release: Increasing Housing Costs Pose Burdens for Euro Area Households

22 April 2024

By Aurėja Bobelytė – VILNIUS (Econostream) – Euro area households have experienced an increase in housing costs during the years of high inflation and tight monetary policy, according to an Economic Bulletin paper pre-released by the European Central Bank on Monday.

‘According to the ECB Consumer Expectations Survey, in the years since the outbreak of the COVID-19 pandemic and amid the surge in energy prices, households in the eleven largest euro area countries have seen rising housing costs, including expenditure on rent or higher mortgage interest payments, home maintenance and utilities’, the ECB said.

Average housing costs were reported to have risen by 10.2% over the period from July 2022, when the rate hiking cycle started, to January 2024.

‘For mortgagors in particular, the higher costs would seem to be driven by the upper end of the distribution, with the cost for the lower end remaining relatively constant’, the pre-release said, highlighting that households holding fixed-rate mortgages have remained unaffected by the ECB's monetary tightening, whereas those securing new loans have encountered elevated interest rate payments.

According to the paper, outright owners saw a 6% increase of overall costs, while for mortgagors and renters, costs rose by 12% and 9% respectively.

‘Since 2022 growth in household nominal income has largely offset the rise in housing costs, and the ratio of housing costs to income has therefore remained relatively stable’, the ECB said.

‘Housing costs take up around 20% of disposable income for outright owners, 40% for renters and 35% for mortgagors’, the paper found.

More than 60% of households in the lowest income quintile, especially renters, were reported to be overburdened by their housing costs. While the number of overburdened households in the higher income quintiles was lower, it still includes approximately 45% of households in the second income quintile and more than 20% of those in the third quintile.

‘Given the present and future effects of both increased interest rates and loss of purchasing power owing to inflation, the ability of households to meet their housing-related costs and mortgage payments is a source of concern, especially for lower-income households’, the ECB said.