HOUSING AFFORDABILITY IN THE EU Current situation and recent trends

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HOUSING AFFORDABILITY IN THE EU
Current situation and recent trends
Alice Pittini
CECODHAS Housing Europe’s Observatory
RESEARCH BRIEFING
Year 5 / Number 1, January 2012
http://www.housingeurope.eu/publication/research-briefings

1


HOUSING

AFFORDABILITY
INTHE
EU
Introduction
With the current financial and economic crisis putting increasing pressure on the budget of
European households, the issue of housing affordability raises increasing concern at the
European level. Access to affordable housing is among the priorities indicated by the 2012
Annual Growth Survey
1
. Similarly, the progress report of the Europe2020 Strategy
2
highlights
that ‘the cost and quality of housing are a key determinant of living standards and well-
being, especially for the most vulnerable people’. But what is the reality of housing
affordability and what trends can be identified? In this briefing, we gather available
information on housing affordability in the EU, drawing on a number of indicators available
at the European level.
Summaryofkeyfindings
On average 33.8% of Europeans feel that they are facing disproportionate housing costs. The
most common perception is that housing affordability has become much worse compared to
five years ago and is expected to further decrease in 2012. Finding decent accommodation
at reasonable price is particularly difficult in capitals and large cities.
The average housing costs for the overall EU 27 population amount to 22.5% of disposable
income. Housing costs are hitting the poor harder: housing costs represent 41% of their
income for people at people at risk of poverty, and the gap between those above and below
the poverty line appears to be widening. Overall, in 2010 10.1% of European households,
and 36.9% of those with an income below 60% of median equalised income, spent more
than 40% of disposable income on housing. Housing expenditures makes up 22.9 % of total
household consumption expenditure, an increase from 20.4 % in 2000.
Housing affordability varies significantly across the EU. Whether we consider the overburden
rate or share of housing costs on income, the situation for poor households seems to be
particularly hard in Denmark, Greece and the UK.
Worsening affordability reflects increasing house prices and rent levels over the past decade,
increasing expenditures over domestic energy consumption and lack of choice in terms of
tenure options, with a particular shortage of affordable rental housing.
The immediately visible consequences of worsening affordability are to be found in the high
level of indebtedness over housing mortgages in a number of countries as well as an
increase in the number of households reporting arrears on rents and mortgage payments, as
well as on utilities bills. Last but not least, the phenomenon of energy poverty is widespread
with an estimated 52.08 million people in the EU unable keep their home adequately warm.
1
European Commission (November 2011)
2
Annex to the 2012 Annual Growth Survey, see above

2
1.Theconceptofaffordability
1.1 Wh at d o we me an b y ‘h ousi ng affo rdab ilit y’?
Concepts of affordability tend to be relative and context-sensitive, i.e. measured against
other economic variables such as GDP, purchasing power, etc. The most common approach
to define housing affordability is to consider the percentage of income that a household is
spending on housing costs.
1.2 Wh en s houl d h ousi ng b e c onsidere d as aff ordable?
Despite consensus across Europe on housing affordability being increasingly stretched, the
idea of what is affordable is subject to national interpretations. The most common notion of
affordable housing implies that households that spend more than 30% of their gross income
to obtain adequate and appropriate housing have an affordability problem
3
. Nevertheless,
this definition is far from being universally accepted, and poses questions on which costs
should be included (such as for instance whether to consider utilities bills). According to
Eurostat’s definition
4
, a household is considered ‘overburdened’ when the total housing
costs ('net' of housing allowances) represent more than 40 % of disposable income ('net' of
housing allowances), where housing costs include mortgage or housing loans interest
payments for owners and rent payments for tenants. Utilities (water, electricity, gas and
heating) and any costs related to regular maintenance and structural insurance are likewise
included.
1.3 Wh at a bout ‘affor dabl e ho using’?
A typically Anglo-Saxon concept, ‘affordable housing’ is generally defined as housing that is
available for purchase or rent at a market value affordable to the majority of the
population
5
.In particular, the term is used to describe housing provided at sub-market prices
to households on low incomes
6
. In the United Kingdom, the term ‘affordable housing’ refers
to both ‘social rented and intermediate housing, provided to specified eligible households
whose needs are not met by the market’
7
.
2. Perception of housing affordability in the EU
2.1 Fi nancial burden due to h ousing cost s
The European citizens’ perception of their financial burden due to housing costs is registered
by Eurostat’s Statistics on Income and Living Conditions (SILC) survey
8
, through the question
'Is total housing cost a financial burden to your household?’. Respondents are asked to
choose between; a heavy burden, somewhat a burden, not a burden at all. The results show
that about a third of European households (33.8% on average) feel that they are facing
disproportionate housing costs
9
.
2.2 Ho usin g affordabi lity: pa rt o f negative ‘soci al c limate’ ?
The Eurobarometer on social climate in its 2011 edition
10
asked interviewed citizens to give a
score according to how affordable housing is in their country, compare it with the situation 5
years ago, and predict how it would be in 12 months. The scores relating to affordability of
housing in the EU are negative: the EU27 average for the current situation for this question
3
Paris, C. (2007)
4
Eurostat, EU statistics on income and living conditions (EU-SILC)
5
Norris M. and Shiels P. (2004)
6
Oxley M. (2004)
7
Department of Communities and Local Government
8
Eurostat, EU statistics on income and living conditions (EU-SILC)
9
Idem
10
European Commission (October 2011)

3
is -3.3, based on a score from -10 to +10. The situation compared to five years earlier
received a score of -60 on the better/worse index (which ranges from -100 to +100) and the
expectations for the next twelve months are set at -33.
2.3 Ho usin g affordabi lity in Euro pean cit ies
The Flash Eurobarometer Perception survey on quality of life in European cities, collecting
people’s opinions on a range of urban issues including the availability of quality housing at
reasonable price, was conducted in November 2009 to measure local perceptions in 75 cities
in the EU, Croatia and Turkey. Apart from 10 cities, respondents held a pessimistic view
about the availability of reasonably priced housing; many cities where respondents held
such a view were capitals and/or large cities. Almost 9 in 10 respondents in Luxembourg,
Munich and Rome (88%-89%) and virtually all respondents in Paris (96%) strongly or
somewhat disagreed that it was easy to find good housing at a reasonable price.
3. Income-related indicators of housing affordability
3.1 Sh are of housing cost s in dis posable inc ome
When looking at objective indicators of housing affordability (as opposed to the subjective
indicators mentioned above), the most interesting indicators at EU level are again to be
found in the SILC survey database. The share of housing costs in disposable income (See
Chart 1 below) refers to the expenditure on housing compared to the household’s income.
Housing costs (including utilities) are calculated after deduction of housing allowances.
Chart 1: Share of housing costs as a percentage of disposable income in the EU 27 by poverty status (2010)
Source: SILC [ilc_mded01]. Data not available for Ireland
The situation varies significantly across countries. We can roughly identify three groups of
countries. Firstly, those countries above the EU average, namely: Denmark, Greece, United
Kingdom, the Netherlands, Germany, Hungary, Romania and the Czech Republic. Secondly,
another group between 17% and the EU average ranges from Estonia (17.6%) to Poland
(21.7%). Lastly, at the very bottom we see countries where housing costs have relatively less
impact on households’ income, namely Cyprus, Malta, Luxemburg, Slovenia, Ireland, Estonia,
Lithuania and Portugal.
Overall, while the average housing costs for the overall EU 27 population amount to an
estimated 22.5% of disposable income, this percentage increases on average to 41% if we
look at people at risk of poverty (i.e. those with an income below 60% of the mendian
national income). Interestingly, the gap in housing costs in disposable income between those
22.5
41.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
for total population for population at risk of poverty

4
with an income above 60% of the national average and those below seems to be widening in
recent years (see Chart 2 below).
Chart 2: Housing costs as percentage of disposable income by poverty status, EU 27 (2005-2010)
Source: SILC [ilc_mded01]
This phenomenon is not surprising if we look at recent developments in socio-economic
inequalities. OECD data show that nearly all OECD countries have witnessed rising
inequalities
11
, and the European Commission has acknowledged the aggravating impact the
crisis is having on inequalities. Findings from the most recent EU Employment and social
situation quarterly review show that most people are affected by the rise of unemployment,
but especially hard hit are the young, the low-skilled and migrants. Poverty is on the rise and
young adults, children and single parents are particularly at risk. Furthermore, the austerity
measures are further aggravating the situation of the most vulnerable
12
.
3.2 Ho usin g c osts ove r burden
But when are housing costs considered ‘unaffordable’? The housing cost overburden rate is
defined as the share of population living in households where the total cost of housing
accounts for more than 40% of household disposable income (see Chart 3 below).
Chart 3: Housing costs overburden rate in the EU 27 as a percentage of population, by poverty status (2010)
Source: SILC [ilc_lvho07a]. Data not available for Germany and Ireland.
11
OECD ( November 2011)
12
European Commission (December 2011)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
2005 2006 2007 2008 2009 2010
below 60%
median income
(i.e. at risk of
poverty)
above 60%
median income
10.1
36.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Out of total population Out of population at risk of poverty

5
Overall, in 2010 10.1% of European households, and 36.9% of those at risk of poverty, spent
more than 40% of their disposable income on housing: they are considered as
‘overburdened’ by housing costs, i.e. what they have to pay for housing is too much
compared to what they can afford. As shown by Chart 3, differences are significant between
Member States, roughly reflecting the distribution in Chart 1.
4. Housing compared to other goods
4.1 Co nsumer pric e fo r ho usin g
It is also interesting to look at housing compared to other consumption goods. Interestingly,
the housing price index has risen more rapidly than the overall price index since 2004, as
shown by Chart 4 below, where the Harmonized Index of Consumer Prices (HICP) for housing
includes housing, water, electricity, gas and other fuels.
Chart 4: Harmonized indexes of consumer prices 2001-2010, overall index and housing, EU 27 (2005=100)
Source: Eurostat, HICP [teicp000] and [teicp040]
4.2 Ho usin g relat ed e xpen ditu re
Similarly, a regular rise has been recorded in the incidence of housing costs over the total
household consumption in all countries. According to a recently published report by RICS
13
,
carrying out an analysis based on Eurostat data on households’ consumption expenditures,
housing related expenditure is currently the biggest component of consumer spending at an
aggregated European level. In 2009, the equivalent of €1500 billion were spent on housing in
the 27 EU Member States making up 22.9 % of total household consumption expenditure, up
from 20.4 % in 2000.
5. Explaining worsening housing affordability
The rising share of household spending on housing partly reflects increased house prices over
the past decade almost everywhere in Europe.
The most recent house price cycle has been particularly pronounced, with an average length
of nine years of price increases in the period preceding the global economic and financial
recession. All euro-area countries except Germany, Austria, Portugal and Cyprus (in the case
of Cyprus, due to the short period available) witnessed a cumulative growth in real house
prices of over 40% during the housing market expansion phase. A number of Euro-area
Member States entered the global economic crisis with overvalued house prices, and despite
adjustments since the second half of 2007, other variables such as the price-to-income ratio
and price-to-rent ratio may point to a higher misalignment when current levels are
13
RICS (2011)

6
compared to the long-term averages
14
. Increases in real rents also added to higher
expenditure on housing, but their contribution is likely to be lower than that of prices, as in
most countries real rents have grown at a slower pace than real house prices
15
.
Chart 5: Trends in nominal house prices in selected EU countries, 1996-2010
Source: European Mortgage Federation, HYPOSTAT
Also, the structure of EU housing markets in terms of tenures should be considered when
analysing the affordability issue. Since the 1980s, there has been a change in tenures
structure which saw the increase of owner occupied housing over rental, and in particular
social rental housing, leading to a shortage of affordable (rental) housing today.
The shortage of affordable housing and the lack of choice between different tenures imply a
lack of long-term housing market stability and make it harder for the poorest households to
find adequate and affordable housing in an overly owner-occupied market.
Chart 6: Tenure split as a percentage of total dwellings stock in the EU 27 (2010)
Source: CECODHAS Housing Europe Review 2012
14
European Commission (2011)
15
OECD (January 2011)
0
10
20
30
40
50
60
70
80
90
100
Estonia
Romania
Bulgaria
Hungary
Slovakia
Lithuania
Slovenia
Spain
Latvia
Ireland
Malta
Portugal
Greece
Luxembourg
Italy
Cyprus
Belgium
United Kingdom
Finland
Poland
Netherlands
France
Austria
Czech Republic
Denmark
Germany
Sweden
EU27
Other
Co-
operat
ives
Social
rent
Private
rent
Owner
-
occupi
ed

7
Furthermore, not only house prices but also the energy costs have a significant impact on
housing affordability. Utility bill costs have become an increasingly significant part of
households’ expenditures over the past decade. This is due both to an increase in energy
consumption for domestic use, and to the increase in energy prices (see Chart 7 and 8
below). It is also clearly linked with housing quality and energy efficiency, with 87.46 million
people in the EU living in poor quality dwellings
16
.
Source: Eurostat
6. Which signals can we see today?
The combination of increasing house prices and increasing levels of home ownership has led
to a situation of over-indebtedness in buying a home for many European households. About
26.1% of the population in the EU own their house with an outstanding mortgage
17
.
According to the European Mortgage Federation, the average residential debt to GDP ratio
for the EU27 increased from 32% in 1998 to 52.4% in 2010
18
(see Chart 9 below). The
indicator in 2010 was over 100% for the second consecutive year in the Netherlands and
Denmark.
Chart 9: Residential debt to GDP ratio
Source: European Mortgage Federation, HYPOSTAT
16
Stefan Bouzarovski, Energy poverty in the EU: A review of the evidence. Presented at DG Regio
workshop on 'Cohesion policy investing in energy efficiency in buildings', Brussels, 29 November 2011
17
Eurostat’s Statistics on Income and Living Conditions (SILC), 2010
18
European Mortgage Federation (2010), HYPOSTAT 2010 A review of Europe’s mortgage and housing
markets
Chart 7: Electricity prices for household
consumers (Euros/kWh), EU 27
(2005
-
2011)
Chart 8: Gas prices for household consumers
(Euro
s/Gigajoule), EU 27
(2005
-
2011)

8
At the same time, more and more households in the EU are experiencing problems in paying
rents and mortgages, as demonstrated by the increasing proportion of the population
reporting arrears on mortgage or rent payments, as well as utilities bills, particularly in the
case of poor households. Indeed, if on average 3.8% of Europeans report arrears on
mortgage or rent payments, the proportion increases to 8.6% of those with an income below
60% of the median national income.
Chart 10: Percentage of the population with arrears on mortgage or rent payments (2010)
Source: SILC [
ilc_mdes06]
This situation is further aggravated by the current economic crisis, as shown by the increase
in arrears in recent years.
Waiting lists for social housing are increasing, as the provision of affordable housing is not
sufficient to keep up with demand. In England for instance housing waiting lists increased
constantly from when the information became available, to over 1.8 million households in
2011 (an increase of over 76% since 2000)
19
. In France, 1.2 million applicants are registered
on waiting lists for social housing and 630,000 in Italy. This trend is most likely to be
exacerbated in the current economic downturn. For instance, the number of those in need
of local authority housing in Ireland has increased by 75% since 2008, from 56,000 applicants
to 98,000.
The phenomenon of energy poverty is also increasingly widespread. Energy poverty is the
situation in which people are unable to keep warm in the home as a result insufficient
income and/or poor housing conditions; a situation which rising energy costs across all
countries can only make worse. Although available data are limited, a recent review of the
evidence on this phenomenon estimates that 52.08 million people in the EU cannot keep
their home adequately warm and 41.74 million face arrears on their utility bills
20
.
19
Department of Communities and Local Government, Households on local authorities' housing
waiting lists: Excluding households waiting for transfers
http://www.communities.gov.uk/housing/housingresearch/housingstatistics/housingstatisticsby/rent
slettings/livetables/ (table 600)
20
Stefan Bouzarovski, Energy poverty in the EU: A review of the evidence. Presented at DG Regio
workshop on 'Cohesion policy investing in energy efficiency in buildings', Brussels, 29 November 2011
3.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Romania
Malta
Poland
Luxembourg
Lithuania
Bulgaria
Germany
Sweden
Slovenia
Denmark
Estonia
Netherlands
Italy
Belgium
Czech Republic
EU (27 countries)
Austria
Finland
Portugal
United Kingdom
Spain
Hungary
Latvia
France
Slovakia
Greece

9
Conclusions
Despite significant differences across countries, all available indicators point to the fact that
housing-related expenditure is absorbing an increasing part of households’ financial
resources.
Housing costs (including the cost of paying for utilities) are hitting hardest the poor, who are
spending on average 41% of their income on housing. Especially in the context of the current
crisis, the lack of affordable housing options risks to further aggravate inequalities.
The provision of affordable dwellings as well as of housing assistance (such as housing
allowances) is key to prevent people from falling in the poverty trap and to tackle housing
exclusion. At the same time, thanks to moderate rents/prices, it consolidates the purchasing
power of households, promoting their consumption of goods and services.
Furthermore, evidence points at a mismatch between employment opportunities and
housing availability as affordable housing is especially hard to find in large cities and
economically attractive areas. The existence of affordable housing is key to address the need
for workforce housing in the key metropolitan areas.
Finally, the availability of social housing and other affordable housing options can have an
impact on the stability of housing markets and therefore of the whole economy. As stated
by the European Commission in a recent document, “the share of social housing has a
negative relationship with [macro-economic] imbalances. […] If low income households are
more or less forced to become homeowners because of the lack of alternatives (i.e. the rental
market is not well established and there are no adequate social housing opportunities),
reducing the occurrence of housing imbalances involves fostering a stable and properly
functioning rental market”.
Housing affordability is therefore not only a fact relevant for the social policy of Member
States and the EU, but should also to be considered from an economic policy point of view
as a challenge for both individual Member States and the EU as a whole.
This is clearly an appeal to reconsider the role of the supply of, and access to, affordable
housing and other services and infrastructures for economic growth.

10
References:
Bouzarovski, Stefan (2011). Energy poverty in the EU: A review of the evidence, presented at
the European Commission Directorate General for Regional Policy workshop on 'Cohesion
policy investing in energy efficiency in buildings', Brussels, 29 November 2011.
CECODHAS Housing Europe Observatory (March 2008). Housing affordability in the
European Union. Research briefing
Department of Communities and Local Government. Definition of general housing terms
(http://www.communities.gov.uk/).
Department of Communities and Local Government. Households on local authorities'
housing waiting lists: Excluding households waiting for transfers. Live tables, table 600
(http://www.communities.gov.uk/)
European Commission (2011). Quarterly report on the Euro area. Volume 10 N. 3.
European Commission (December 2011) EU Employment and Social Situation Quarterly
review.
European Commission (November 2011). Annual Growth Survey 2012. Communication from
the Commission.
European Commission (October 2011). Social Climate Report. Special Eurobarometer 370.
European Mortgage Federation (November 2011). HYPOSTAT 2010. A review of Europe’s
mortgage and housing markets.
Norris, Michelle and Shiels, Patrick (2004). Regular National report on Housing
Developments in European Countries. Department of the Environment, Heritage and Local
Government, Ireland.
OECD (December 2011). Divided We Stand: Why inequality keeps rising.
OECD (January 2011). Housing Markets and Structural Policies in OECD Countries. OECD
Economics Department Working Paper No. 863.
Oxley, Michael (2004) Economics, Planning and Housing, Palgrave McMillan; England.Paris,
Chris (2007). International Perspectives on Planning and Affordable Housing in: Housing
Studies, Vol.22, No.1, 1-9 January 2007.
RICS (2011). The Housing Sector - Household Consumption from a European Perspective.
List of charts:
Chart 1: Share of housing costs in disposable income in the EU 27 by poverty status (2010).
Source: Eurostat, SILC [ilc_mded01]
Chart 2: Housing costs as percentage of disposable income by poverty status, EU 27 (2005-
2010). Source: Eurostat, SILC [ilc_mded01]
Chart 3: Housing costs overburden rate in the EU 27, as a percentage of population, by
poverty status (2010). Source: Eurostat, SILC [ilc_lvho07a]
Chart 4: Harmonized indexes of consumer prices 2001-2010, overall index and housing, EU
27 (2005=100). Source: Eurostat, HICP [teicp000] and [teicp040]
Chart 5: Trends in nominal house prices in selected EU countries, 1996-2010. EMF,
HYPOSTAT
Chart 6: Tenure split as a percentage of total dwellings stock in the EU 27 (2010). Source:
CECODHAS Housing Europe Review 2012
Chart 7: Electricity prices for household consumers (Euros/kWh), EU 27. Source: Eurostat
Chart 8: Gas prices for household consumers (Euros/Gigajoule), EU 27. Source: Eurostat
Chart 9: Residential debt to GDP ratio (2010). Source: EMF, HYPOSTAT
Chart 10: Percentage of the population with arrears on mortgage or rent payments (2010).
Source: Eurostat, SILC [ilc_mdes06]

11
CECODHAS Housing Europe’s Observatory
The Observatory is the research branch of CECODHAS Housing Europe – the federation of
public, cooperative and social housing. The main aim of the Observatory is to identify and
analyse key trends and research needs in the field of housing and social housing at European
level. The Observatory supports CECODHAS Housing Europe's policy work by providing
strategic and evidence-based analysis in the field.
Research Briefings Series
The Observatory's Research Briefings were launched in 2008. They aim at providing a
snapshot of key issues for the social housing sector throughout the European Union in the
form of short reviews of the latest and most relevant literature and statistics on selected
topics. To date, the Observatory has produced the following briefings:
Housing affordability in the European Union (March 2008)
Ageing and Housing in the European Union (April 2008)
Quality of Services in the Social Housing Sector in the European Union (July 2008)
The Right to Housing in the European Union (October 2008)
Regulation of Social Housing in EU member states (February 2009)
Allocation of social housing in the European Union (March 2009)
Housing issues in Eastern European countries (April 2009)
Social entrepreneurship in social housing (May 2009)
Housing exclusion (October 2009)
Impact of the crisis on housing in the EU (May 2010)
Housing needs in the European Union (August 2010)
Fiscal treatment of social housing providers (July 2011)
Youth and housing in the EU (September 2011)
For further information on the briefings’ series, please contact:
alice.pittini@housingeurope.eu
CECODHAS Housing Europe Observatory
Housing Europe Centre
18 Square de Meeus
1050 Brussels, Belgium
http://www.housingeurope.eu/about/observatory