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Study shows PRS the solution to Europe’s housing shortage

Population trends, persistent undersupply and the recent pandemic all underpin the rise of the private rented housing sector according to a white paper by US-headquartered rental housing property specialist Greystar.

The report describes rental housing as an “all weather” asset class. While no sector has been untouched by the recent pandemic, Greystar points out that some sectors have been more affected than others. Everyone needs a roof over their head while demographics and chronic undersupply conspire to increase that demand.

The report explains that urban household formation is now more than three times the broader rate of population growth in Europe. It says that the trend is driven by ‘three gears’: population growth, urbanisation and household formation.

These factors are interlinked and have resulted in urban household growth of 10% since 2010, compared with population growth of 3% in Europe, including the UK.

Meanwhile, there has been a sharp rise in house prices world-wide “driven by supply-side pressures and historically low interest rates”.

House prices in Germany have risen 20% faster than incomes and 25% faster than rents in the past five years and it has , arguably, Europe’s best developed private rented sector.

Home ownership out of reach for many

London and Paris are among the most expensive housing markets in developed countries when measure by the house price-to-income ratio. This along with increased deposit requirements has put home ownership out of the reach of many people. Renting is thus the only affordable option.

Home ownership is declining, Greystar points out. While in 2010, 28% of the EU population were mortgaged owners, this had declined to 26% by 2018.

Market renters increased from 17% to 22% during the same period and Greystar said that consequently market renters will overtake mortgage-owners by 2024. This trend could be accelerated by the effects of COVID-19, as household savings are declining and deposit requirements are rising.

“European housing markets are chronically undersupplied with completions failing to keep pace with household formations,” said Greystar senior managing director, Europe, Mark Allnutt.

“Permits are still two-thirds below the previous peak and a third below the long-term average. The current stock is outdated, poorly configured and under-managed with much of it built pre-WWII,” he added.

Allnutt said housing stock is no longer fit-for-purpose, now more so given the shift towards working from home and increased emphasis on wellbeing. And he added: “It is important to note that as aspirant homeowners rent for longer, they are more likely to have higher wages and a willingness to write a larger rent cheque for the right home.”