Global Housing Affordability Crisis Deepens
As property prices soar across major markets, experts warn of a deepening global housing affordability crisis requiring urgent government intervention.
Published June 02, 2024 - 00:06am
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The housing crisis in major economies is poised to exacerbate the challenges of securing affordable housing in the coming years, and governments are urged to take decisive action to address the issue. According to a Reuters survey among real estate sector experts, property prices are expected to rise by more than four percent this year across most of the main markets due to a lagging supply and the anticipation that central banks will soon lower interest rates. Even though the predicted growth rate is relatively modest, it's significant considering the already high property prices.
With the exception of Germany, property prices in all seven key markets surveyed by Reuters are expected to continue rising. The survey, conducted between May 9 and May 30, covered markets in the USA, Canada, UK, Germany, India, Australia, and New Zealand. An acute shortage of affordable first homes has been a longstanding issue that has worsened during the COVID-19 pandemic and is unlikely to be resolved soon, as expressed by experts in the Reuters survey.
This suggests that the majority of new homebuyers will need to raise more funds or delay their purchase until sufficient money can be saved for a down payment. A vast majority, 93 percent, of analysts believe the supply of affordable homes will continue to lag behind demand, with over one-third expecting demand to falter as well.
"The key role will ultimately be played by lowering interest rates. If interest rates are not reduced this calendar year, prices will be under pressure next year, as the demand-driven support they receive will eventually reach a limit. We are approaching... the limit of pricing affordability once again," said Liam Bailey, the global head of research at Knight Frank. The decrease in prices below a certain level is currently only hindered by the scarce supply of housing space in the numerous markets we cover," he added.
Besides the rising number of homeless people in the developed world and increased focus on the construction of premium apartments while neglecting basic housing for those desperately in need of shelter, calls for government investment in combating the housing problem have become frequent. Almost three-quarters of participants in the Reuters survey believe governments should be more engaged in enhancing the supply of affordable housing. In contrast, the US government, according to a slight majority of surveyed analysts, should not interfere with the housing supply.
The escalating house prices continue to stretch beyond the means of many, particularly affecting millennials and Gen Zers who are struggling to secure a foothold in the property market. This demographic is increasingly facing the prospect that homeownership may remain a pipedream. Rising prices are not solely a reflection of supply and demand dynamics; they are also affected by the cost of construction materials, which have surged due to global supply chain disruptions. Moreover, higher labor costs in the construction sector further compound the issue, as skilled workers are in short supply after the pandemic.
Government policies have been put under the microscope as experts discuss the role of interventions such as property taxes, land release for development, and incentives for homebuilders. On the other hand, regulatory constraints and lengthy approval processes for new construction have been identified as critical bottlenecks, further constricting the already tight supply of new housing.
While some regions have embraced innovative approaches, such as modular and prefabricated homes, to speed up the delivery and reduce the cost of new housing, adoption on a larger scale remains sluggish. The need for a more streamlined process is clear as it could also aid in alleviating the pressure on the rental market, where prices have been skyrocketing parallel to the rise in home prices.
Another dimension of the housing crisis is the socio-economic impact on society. The widening gap between homeownership and housing affordability is leading to greater economic disparities within communities. This growing divide not only affects individual living conditions but also has broader implications for social cohesion and economic mobility. The stability that comes with owning a home is increasingly elusive, contributing to the sense of uncertainty among younger populations.
Amidst this backdrop, some analysts argue for a rehabilitative approach towards existing structures, emphasizing renovation and repurposing to meet housing needs. This could include converting commercial buildings that have fallen out of use into residential units, a trend that has seen some success in urban centers seeking to rejuvenate their neighborhoods.
However, it's not all gloom and doom on the housing front. Innovative financing models are emerging, tailored to assist first-time buyers and lower-income groups. Shared equity schemes, rent-to-own plans, and government-backed loans are some of the instruments being developed to make homeownership more accessible. While still at a nascent stage, these financial innovations show promise in addressing the housing affordability puzzle.
As the housing crisis continues to evolve, it will require a concerted effort from policymakers, the real estate industry, and financial institutions to forge a sustainable path forward. Success will depend on the ability to balance market dynamics with social imperatives, ensuring that the dream of homeownership does not become an exclusive privilege but remains an achievable aspiration for the many.
The dialog surrounding the housing crisis is gaining urgency as it becomes increasingly clear that immediate and creative solutions are necessary to prevent a further dip into a housing emergency. It is a sobering reminder of the importance of collective action and the need for comprehensive strategies that not only stimulate the housing market but also promote equality and protect the most vulnerable. The global economic landscape is shifting, and with it, the need for innovative approaches to housing that can withstand the pressures of the 21st century.