Income too low?

These are the construction sites for affordable housing

The rise in interest rates and stricter lending guidelines have suddenly made home ownership unaffordable for many families.

(Bild: Krone KREATIV/Wenzel Markus)

For eight out of ten Austrians, housing costs are a burden. On top of this, interest rates for home loans have risen sharply - coupled with high real estate prices and a slump in new housing projects.

Whether young or old - everyone is feeling the impact on their bank account of the fact that life has become more expensive in recent years. Austrians find the sharp rise in housing costs particularly burdensome.

According to Statistics Austria, these are a certain burden for one in two people and even a heavy burden for another third. "There have been increases in rents across all segments, but especially for free contracts," explains Wifo housing expert Michael Klien. For low-income families, housing costs already often account for more than 40 percent of household income.

An end to rent increases is not in sight. The indexation of contracts means that inflation is also having an impact this year. The "rent brake" will limit the increase in guide value and category rents as well as in public housing to five percent in 2024. Last year, Austrians paid an average rent of €625 per apartment including operating costs across all tenancies (old buildings, new builds, subsidized, temporary, permanent). Ten years ago, it was €200 less (see chart below).

(Bild: stock.adobe.com)

Expensive interest rates put the brakes on new residential construction
Housing construction is caught in a vicious circle. Property prices have risen steadily in recent years, only falling slightly in 2023. As loans cost nothing ("zero interest rate policy"), people were able to "afford" property - albeit often only with a stomach ache. The rapid and sharp rise in interest rates by the ECB then destroyed affordability. This had become necessary because the low interest rates and tax advantages played into the hands of real estate developers and drove prices up further.

The financial juggler René Benko and his companion Alfred Gusenbauer, former SPÖ chancellor, provided a chilling example of this. The Financial Market Authority (FMA) had to tighten lending guidelines and the dream of home ownership was shattered.

Less demand combined with a sharp rise in construction costs due to inflation brought new construction to a standstill. While over 50,000 residential units were approved before the crisis in 2019, this figure was just over 23,000 in the previous year.

Wifo housing expert Michael Klien

(Bild: Wifo/Alexander Müller)

Vicious circle looms for real estate prices
The government's housing package will stimulate housing construction again. However, it will be years before there is more supply. "Unfortunately, the policy was too late here," summarizes the housing expert. Due to the reduced availability in the coming years, there is a risk that property prices will rise again - a vicious circle.

The federal states can do something to ease the situation. Vorarlberg, Tyrol and Salzburg, for example, should reconsider their sometimes high building standards. Many building contractors are also likely to offer more aggressive prices than before due to the current slump in orders - which also helps potential builders.