The macroeconomy is a key factor in housing affordability
Affordable housing is one of the most widespread social aims of the housing policies in Europe. Although several definitions of the term exist in the research and academic communities, ‘affordable housing’ simply means that the ratio of housing cost to household income is not more than an arbitrary ceiling of 30% to 35%. This ratio is influenced by two main factors: the local housing market (including rent, mortgage interest rates and house prices), and the local labour market and the pension system (essentially, earning opportunities). Due to these factors, we face very different types of affordability problems across Europe. In London, a young professional couple pays 45% of their income for housing; a young couple in Salgótarján, in the economically depressed northern part of Hungary, also pays 45% of their income for accommodation. In the first case, the boom in the housing market explains the affordability problem; in the second case, this is down to the lack of well-paid job opportunities.
"We face very different types of affordability problems across Europe, due to the differences in the housing market and the availability of well-paid job opportunities"
Thanks to the European Statistical Office (Eurostat), we have quite a good snapshot of the affordability problem in European Union member states. But sadly we know less about the social consequences and the possibly worsening affordability problem due to the volatile macroeconomic environment. The social consequence of the affordability problem is that households either have to restructure their household budget ‒ which may result in an unacceptably low consumption of basic goods such as culture and recreation ‒ or are forced to change their housing situation and move to a lower position on the housing ladder, to overcrowded, sub-standard units, or a dwelling located far from the labour market and urban services. Both the local labour markets and the housing markets are volatile these days, which means that there are always chances that the affordability problem becomes serious in a short time. The key question is how much various housing and labour market institutions, such as measures, schemes, and organizations, can neutralise the stress effects of the markets. We are witnessing a very fast increase in rent of some urban regions, and the increase of interest rates, utility costs and other factors. The effects of these emerge in housing relations (tenant-landlord, bank-borrower, cooperative-member of cooperative), causing hardship for lower-income groups. If the housing regime is dominated by institutional solutions without any safeguards against economic stress, there is a serious risk of housing becoming less affordable. But there are several solutions that slow down the macroeconomic effects (the aim is not to separate the housing market from the economy): for example, flexible rent regulations, reserve funds for cooperatives, fixed interest rates, and better use of second homes.
"At a European level we need programmes based on the comparative knowledge of the interplay of housing and welfare regimes"
Household income revenues are influenced by institutional factors, such as trade union agreements and welfare programmes (including income benefit support and unemployment benefit). In a country where 20% to 25% of working people are self-employed (and typically forced into this status), or where 20% of salaries are informal (and therefore not taxed), economic stress had a straightforward effect on household income. If there are no efficient income benefit programmes, households will face real hardship to pay housing costs. Social research, being too specialised, neglects the proper study of these relations. Housing policy and housing regimes have to reconsider different housing solutions from a broader point of view and go beyond classification of the tenure structure (unitary or residual models). The same is true for the labour market contract and welfare programmes, where comparative analyses are needed to evaluate the different solutions in terms of how room is given for households to cope with market stress. At a European level we need programmes based on the comparative knowledge of the interplay of housing and welfare regimes. These can introduce pilot projects to test sustainability and evaluate the efficiency of different solutions, such as social housing models, rent regulations, mortgage products and cooperative housing solutions. Europe should promote housing policy and welfare measures that contribute to social stability.
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