How does the current Covid 19 crisis affect housing and property markets?

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How does the current Covid 19 crisis affect housing and property markets?

 

If the impending Corona recession is quickly overcome, the recent price boom in the Property market is likely to continue. Social inequality will further exacerbate the crisis

But.. how does the current Covid 19 crisis affect housing and property markets? In order to discuss this question, it makes sense firstly to differentiate between the effects on the overall market on households – and secondly, both economic and social aspects are relevant for all households.

The economic level: does Covid-19 mean the end of the property price boom?

Whether the current crisis will lead to a drop in property market prices depends on the severity and duration of the economic recession. Real estate sales are likely to plummet in the first half of the year, but this will hardly affect the high price level. Overall, the general conditions that have so far led to rising property prices remain unchanged: the continuation of the low interest rate policy and the ECB’s measures to stabilize the economy are likely to make property financing even easier for investors and households than before. Likewise, demand is likely to remain at a high level, as city growth will continue in the medium term and investors – especially in the crisis – are looking for secure investment opportunities. Should the Covid 19 recession be overcome this year, it will probably leave no trace on the property market.

It would be very different if Austria and the Eurozone went into a longer recession, there were massive upheavals in the banking sector and the labor market and the states were no longer able to cope with the social consequences.  Then massive rental losses, bad credit, lack of financing and, consequently, a collapse in real estate demand could lead to a market slump.  Then the situation would be similar to what we saw in the USA or Spain in 2009. A less than desirable scenario, as much as the steeply rising prices in recent years are seen as a burden.

Households: Affordable housing – unequal concern

Long-term research shows that property markets are inherent in a trend towards social inequality – especially between households that live in property and benefit from rising property prices and a lower burden of housing costs, while tenant households are struggling with rising rent levels. 

This aspect is exacerbated by the fact that households are affected very differently by the Covid 19 crisis: better-off households (who live more often in the cities in their own homes) are more likely to use home office opportunities and suffer less income losses. Conversely, households with low levels of education and income are more affected by short-time work or unemployment. The falling household costs lead to a greater burden on rental / housing costs.

The social dimension of living

In addition, living is a non-substitutable basic human need but also has a social aspect: living is the central point of everyday actions and routines. The where and how of living influences social interactions, and ultimately living satisfaction also has a significant impact on the quality of life.

The inequality of living space in terms of quality (light, noise, open and green spaces, neighborhood) as well as quantity (occupancy density, household size) is particularly accentuated by the restrictions that last for weeks: public space, which is an important compensation for this existing inequality in living space supply – and has a buffer effect, de facto no longer exists. 

Housing can thus become a social trap for underprivileged groups: “Density stress” limits the quality of life, can lead to domestic violence or massively complicate learning or childcare options for children.

It can be assumed that issues such as sharp price increases, the risk of bubbles forming on the markets as well as the issue of affordability and social inequality on the property market, which are currently taking a back seat in the media, will continue to occupy us intensively in the future.

Source: Der Standard

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