Housing projects in Europe: $90 billion investments on the way

Major European cities are grappling with rising rents due to a shortage in housing supply, as investors prepare to pour money into new homes, but stumble upon a confusing set of hurdles.

According to Al Sharq Bloomberg, office and retail real estate is suffering from the impact of remote work trends and online shopping, and real estate investors have allocated an additional amount of 82 billion euros ($90 billion) for housing projects in Europe until 2025, according to a survey conducted by Savills), but a quagmire of rules, regulations, and bureaucracy stands in the way.

Real estate rental

"Despite the abundance of capital looking to enter Europe, there are obstacles in terms of scarcity of supply and lack of existing inventory" said Mark Allnut, CEO of Greystar Real Estate Partners, a private equity firm that specializes in real estate leasing.

Housing has become a thorny political issue in Europe, where difficulties in finding affordable living space raise social tensions and voter discontent. But there is no quick solution to the matter.

The obstacles vary across Europe, from rent controls to planning hurdles, and will require sustained government efforts to enable the investments needed to ultimately ease the pressure on cash-strapped households.

United Kingdom

In Britain, even a reference to the planning system is often enough to elicit a frown from property investors, where development decisions are in the hands of overworked local councils, and public input can stifle ambitious projects.

Allnut said, “Some councils understand the obstacles, others do not understand them... and the number of those who do not understand these obstacles exceeds those who understand them.”

Local authorities usually have up to eight weeks to make a decision, or 13 weeks for major projects, but only two in ten applications for large housing developments were considered in that period between July and September last year, according to government statistics.

The potential for new rules is also a problem. The Labor Party, which is leading in opinion polls, has pledged a series of reforms to address Britain's housing shortage, while London Mayor Sadiq Khan has repeatedly called for restrictions on rent increases.

Real estate bubble in Ireland

Ireland is still suffering from the housing bubble that burst during the financial crisis, with rent increases there permanently set at 2% per year, meaning that the recent rise in inflation rates has not been taken into account, affecting investment in new housing supply.

The result was a worsening housing crisis and rising tensions. Agitators involved in violent riots in Dublin during November took advantage of citizens' problems, as a shortage of affordable homes coincided with an influx of refugees and asylum seekers.

New homes

The Irish government has pledged to build an average of 33,000 new homes a year between 2021 and 2030, but for developers, persistently high inflation means the numbers don't make sense.

“Rent control should not be an issue,” said Bob Faith, CEO of Greystar, but the rules need to be better aligned with costs and risks.

Rent in Germany

Less than half of Germans own their own homes, one of the lowest proportions in Europe, but while this means there are investment opportunities in the rental sector, buying existing homes carries renovation risks. Germany has a large number of rental homes, but a large portion of them is “very old and unlivable,” according to Faith, of Gray Star.

The ruling coalition led by Chancellor Olaf Scholz failed to meet the target of building 400,000 new homes a year, and so suspended tougher efficiency rules for new buildings in September in an attempt to boost construction. But the move does not address rising interest rates and rising construction costs, and investors remain concerned about when the rules will return.

Interest rates in the housing sector

“Housebuilding urgently and quickly needs support, not more uncertainty,” said Felix Pakleba, executive director of the Central German Construction Sector Association.

At the same time, strict rules on protecting tenants make it more difficult to attract investors. Rolf Buch, CEO of Vonovia SE, the largest real estate owner in Germany, said that the government plans to tighten regulations, such as reducing the ceiling on rent increases, “and this will lead to a decline in construction work instead of an increase... Therefore, Lawmakers are thinking about it carefully.