Hypostat 2015

Housing and Mortgage Markets in 2014
lower house prices. It is also true, in fact, that lower house prices take a toll on
the economy as homeowners start to see their investment (the house) lose value,
potentially compelling them to cut consumption and investments, thus fostering a
vicious circle. The correlation is visible in a number of countries. See for instance
Spain, chart 7. The European Central Bank in a paper of 2013 estimated that in Spain
an increase of unemployment “has a negative and significant impact, -0.012 , while
a contemporaneous change in the interest rates has no effect on house prices” 3 .
CHART 8
3,000,000
2,500,000
2,000,000
Evolution of construction indicators in the EU 4 , residential units
2.2 Housing Supply Developments
Housing supply measures collected and analysed in this publication are: (1) the
number of building permits issued; (2) the number of housing projects commenced
during the year (housing starts); and (3) the number of housing projects completed
during the year (housing completions).
Chart 8 shows the evolution of these three indicators from 2000 to 2014 for the
European Union (refer to footnote 4 for the details of the samples used). The
patterns clearly show building permits and housing starts moving largely together,
though the total number of projects that received a permit but were not actually
started seemed to increase during the year (reflected in the difference between
building permits and housing starts). This may be the result of subdued demand
conditions, which increase the number of unsold properties already on the market,
thus forcing building companies to abandon projects or to postpone their start
(though this conclusion must be made with care, bearing in mind that housing
start statistics cover a much smaller sample of EU countries and therefore are
likely to underestimate the true number of building starts). Understandably, there
exists a lag between movements in housing starts (or building permits issued)
and housing completions. This, too, may reflect abandoned building projects
that were not brought to completion due to developments in the housing market
during the construction period. Again, this probably is a result of the subdued
economic activity, the lower demand for housing in Europe and the subsequent
contraction in house prices. This said, in 2014 we see a clear pick-up in building
permits issued which will probably lead to more construction in the long run.
At an aggregate level, it is clear how the housing bubble, which was substantial in
a number of EU countries (though large differences exist between them) caused
construction to peak around 2006/2007. After the burst of the bubble, construction
activity contracted very quickly and very steeply. The housing supply indicators
1,500,000
1,000,000
500,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Building Permits Issued
Source: European Mortgage Federation
Housing Completions
Housing Starts
in Chart 8 show a market that has continued to shrink, almost continuously since
2006, with a timid improvement in 2010-2011. Data for 2012 and 2013 show a
continued contraction in the market, which is still not feeling the positive effect
of a pick-up in mortgage activity in many EU countries. This mainly reflects the
existence of an overhang in the housing market in terms of unsold units, which
therefore makes new construction unnecessary at the moment. Surprisingly though
more permits were issued in 2014. This could be a sign that construction will
pick up again in the coming months, though it is hard to say when (and whether)
it will return to pre-crisis levels in Europe.
As already mentioned, developments in housing supply across different countries
in Europe also reflect a fragmented market that is moving at different paces and
in different directions. Chart 9 compares the level of issuance of building permits
in 2014 to the previous year and to the pre-crisis levels (2006). In 2006, the
housing bubble in a number of countries had already started to materialise, as
reflected in the very high number of building permits per capita issued in some
jurisdictions. From 2006 the level has dropped dramatically in most of countries
CHART 9 Building Permits per 1000 inhabitants above 18 years (ordered by the size of the proportional contraction between 2006, 2013, 2014)
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovenia
Spain
Sweden
2006 2013 2014
3
Source: European Central Bank, House Price Cycles in Europe, November 2014;
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1613.pdf?821707a7ffd9474d4a8a75ec61ef9792
4
The three indicators cover all countries in the EU for the stated period, with the exception of
the following:
Building Permits: UK, BG (2000-2005), IT (2001-2002, 2014), LV (2000-2002), RO (2000-
2004), SK (2012-2014).
Housing Starts: AT, CY, HR, DE, LV, LT, LU, NL, PT, EE, MT, BG (2000-2009), HU (2000-2003,
2010-2014), IE (2000-2003), IT (2000-2003, 2012-2014), RO (2000-2001, 2009-2014),
SK (2012-2014), SI (2009), UK (2014).
Housing Completions: AT, BE, FR, MT, BG (2000-2003), HR (2000-2001, 2012-2014),
CY (2014), GR (2012-2014), IT (2011-2014), LU (2012-2014), SK (2012-2014), UK (2014).
Please note that in order to achieve a consistent sum for the EU over time, the data gaps (i.e. the
years in brackets above) have been filled by using the closest available data to the missing point
for the given country.
2015 EMF HYPOSTAT | 11