Transcript Housing Markets in Europe Is the worst over?

Housing Markets in Europe
Is the worst over?
Michael Ball
Henley Business School
University of Reading
[email protected]
Huge variation in housing market
performance across Europe
CURRENT
Annual % change
% change
% change
2013 q2
2005q1-2008q2
2008q2-2013q2
European Union
Euro area
1 Ireland
2 Latvia
3 Spain
4 Lithuania
5 Croatia
6 Cyprus
7 Slovakia
8 Netherlands
9 Estonia
10 Hungary
11 Slovenia
12 Portugal
13 Denmark
14 Czech Republic
15 United Kingdom
16 France
17 Iceland
18 Malta
19 Belgium
20 Germany*
21 Finland
22 Luxembourg
23 Sweden
24 Norway
* 2012 4q
OVER CYCLE
Source: Eurostat
-1%
-2%
1%
9%
-11%
2%
-20%
-9%
1%
-7%
8%
-5%
-5%
-4%
3%
-1%
3%
-1%
5%
4%
0%
5%
1%
5%
5%
6%
24%
16%
23%
39%
40%
13%
96%
37%
22%
55%
60%
28%
-1%
20%
39%
35%
-7%
-6%
-47%
-37%
-36%
-32%
-29%
-25%
-22%
-19%
-19%
-18%
-15%
-14%
-13%
-8%
-1%
2%
2%
5%
9%
10%
14%
17%
17%
31%
• Substantial variation in house price
changes
•
Scale of impact of financial/fiscal crises
•
•
From stimulus to disastrous
NB: real price falls larger, add extra 10%+
• Notable housing market improvement in
2013 in some places
•
Suggests that the market bottoming out?
•
Though not for all countries/regions
• Housing markets linked to wider
economic and finance issues
•
But imperfect correlation
• Cannot understand current situation
without understanding the past decade
UoR - MB & specific country/city dynamics
2
Longer-run price dynamics:
the crash & recovery
OVER CYCLE
European Union
Euro area
Ireland
Latvia
Spain
Lithuania
Croatia
Cyprus
Slovakia
Netherlands
Estonia
Hungary
Slovenia
Portugal
Denmark
Czech Republic
United Kingdom
France
Iceland
Malta
Belgium
Germany*
Finland
Luxembourg
Sweden
Norway
% change
% change
2005q1-2008q2
2008q2-2013q2
24%
-7%
16%
-6%
23%
39%
40%
13%
96%
37%
22%
55%
60%
28%
-1%
20%
39%
35%
-47%
-37%
-36%
-32%
-29%
-25%
-22%
-19%
-19%
-18%
-15%
-14%
-13%
-8%
-1%
2%
2%
5%
9%
10%
14%
17%
17%
31%
• Substantial booms prior to
2008
– Except Germany, Switzerland & Austria
• Large increases in mortgage
debt
– Limited deleveraging since
• Crisis countries
geographically concentrated
– C.E.Europe, Islands (incl. Ireland, Iceland,
Cyprus); Spain; Greece
– All over-built, highly indebted
– Long-recovery
• not yet complete/underway
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Strongest markets in recent years
• Nordic (ex-Denmark)
• Germany, Switzerland &
Austria
– Late bloomers
• France
– Political cycle
• UK
– Significant upswing in
2013
Drivers
• Strength of economy
• Low mortgage interest
rates
• Mortgage availability
• Population/migration
• Major cities take lead
• Government policy
– Variable impact due to
fiscal conditions
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Signs of some improvement in 2013
Levelling off
• UK, Baltic States,
Ireland, Denmark
Continuing weakness
• Netherlands, Croatia,
Spain
Renewed concerns
• France, Belgium
• Recoveries are fragile
• But likely to continue
– Monetary policy
– Modest economic
growth
– Pent-up demand after
long crisis
• But is Europe growing
fast enough?
• Is there a threat from
deflation in Eurozone?
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Housebuilding has been worst
affected
EU Building permits (blue line) and output (brown line)
2000-2013
• Housebuilding slumped in
aftermath of 2008
financial crisis
• Compounded by Euro crisis
• Biggest changes seen in
permits data
– But they exaggerated pre2008 expansion
• Greater cyclical
fluctuations in
housebuilding inevitable
– but past 5 years worst for
generations
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Large variations in housebuilding across
Europe
Euro area
EU
Greece
Denmark
Netherlands
Portugal
Cyprus
Turkey
Spain
Ireland
Croatia
Italy
Hungary
Slovakia
Finland
Malta
Czech Republic
Poland
Romania
Sweden
Slovenia
Bulgaria
France
Luxembourg
Austria
United Kingdom
Estonia
Germany
Belgium
Norway
Lithuania
Switzerland
Latvia
Annual growth
Growth
2013 q2
2010q4- 2012q4
-15%
-17%
-83%
-67%
-50%
-65%
-71%
-45%
-64%
-43%
-47%
-36%
-40%
38%
-37%
-34%
-11%
-18%
-11%
-11%
-8%
7%
-5%
-4%
16%
27%
12%
29%
32%
29%
98%
89%
20%
-19%
-15%
-77%
-68%
-67%
-58%
-55%
-50%
-49%
-47%
-40%
-36%
-28%
-26%
-21%
-17%
-14%
-14%
-9%
-9%
-6%
-2%
2%
6%
8%
16%
18%
21%
21%
30%
38%
89%
104%
• Much less signs of revival
in housebuilding
• Majority of countries are
still seeing falls in permits
– Though output declines
may be less
• Typically, housebuilding
leads housing market
cycle
– In this upswing, it is lagging
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Why is housebuilding lagging the cycle?
•
•
•
•
Nature of crisis
Oversupply of new and existing homes
Low transaction levels
New build consumers badly affected by
unemployment & credit constraints
– E.g. first-time buyers
• Regulatory & building cost constraints remain
• Lack of property development finance for
small/medium sized enterprises & start-ups
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The state of the economy matters
% GDP growth
OECD May 2013
2013
2014
0.4
1.9
France
-0.3
0.8
Italy
-1.8
0.4
0.8
1.5
Belgium
0
1.1
Ireland
1
1.9
-0.9
0.7
Norway
1.3
3
Poland
0.9
2.2
Spain
-1.7
0.4
Sweden
1.3
2.5
Switzerland
1.4
2
Germany
UK
Netherlands
• Housing markets generally
strongest where economic
growth has been strongest
• In 2014, growth likely to be
most robust in Nordic
region, Germany, UK, &
Poland
• Some countries seeing
turnaround from major
economic slumps e.g.
Ireland, Baltic States
– Major aid to housing markets
• World economy & financial
system still fragile
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Monetary policy has been
accommodating
Average Eurozone mortgage interest rates
2003 Jan– 2013 Sept
Red line over 5 yr fixed; Blue line less than 1fixed
• Average mortgage
interest rates at historic
lows
– in many countries real
rates are 1% or less, or
even negative
• ECB has supported
mortgage supply
ECB
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But mortgage rationing has intensified
• Lenders have tighten-up lending criteria
Due to:
–
–
–
–
Higher regulatory capital costs of mortgage lending
Tighter screening of borrowers
Imposed more up-front charges
High default rates in some countries have raised
lenders’ loan risk-aversion
• Particularly hits new build
– As purchasers often perceived as higher risk
• E.g. first-time buyers
• Though some of this context is cyclical, much is
part of the ‘new terrain’ of housebuilding
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Developer finance has been badly hit
• Bankruptcies & loan defaults/restructurings in European
residential development have been large
– Though concentrated in some countries, widespread incidence
throughout Europe
• Lenders now wary or have withdrawn completely from this
market
• Particularly affects medium/small firms & potential new
entrants
• Classic churn of building/developer firms now turned
solely into a one-way exit
• Will badly affect upswing in housebuilding making
recovery much weaker & longer
• Will lead to greater firm concentration
– Those that can obtain credit will greatly increase market shares
• Governments have no response to this problem
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Government policies
• Demand-side stimulus policies have been commonplace
but more recently have suffered from fiscal constraints
– Markets were stimulated, then thrown into reverse e.g. France
• Substantial emphasis on supporting first-time buyers
– E.g. Poland, UK
• Much needed ‘structural’ policy reform has avoided or
fudged
– high levels of regulation of housebuilding & development land
• Some new policies worrying
– Total uncertainty of new monetary policy concern with asset
price inflation on housing markets
– EU’s EU ‘alarm threshold’ of 6% in deflated HPI worrying
• Some reforms suffer from ‘bad-timing’ forced by fiscal
problems
– E.g. Mortgage tax relief in the Netherlands
• Pushing its housing market further down
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The paradox of major European cities
• While many countries housing
markets froze following 2008, some
cities’ ‘prime’ markets have blazed
– London, Paris, Berlin, Stockholm, etc.
• Reasons:
–
–
–
–
International buyers
Quantitative easing
Worldwide phenomena
Belief that low risk
25
Paris apartments
All France
20
15
10
5
• Not true e.g. Paris apartments
• Typically more volatile, not less
• Can expect notable cooling to come
0
-5
2005
2006
2007
2008
2009
2010
2011
2012
2013
-10
-15
– Though technology & globalisation,
giving major cities a notable
economic edge
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Housing Markets in Europe
Is the worst over?
Michael Ball
Henley Business School
University of Reading