Housing Expenses Rise by Up to 12% After ECB Rate Increases

Quick Look:

• ECB rate hikes since July 2022 raised housing expenses; homeowners +6%, renters +9%, mortgage holders +12%
• Average monthly housing cost in the Eurozone is €765; renters and mortgage holders pay 40% and 35% of income, respectively
• Geographic disparity: Ireland is highest at €900+; Austria is most expensive proportionally, dedicating 29-33% of income to housing

In recent months, an escalating financial strain has become evident across Europe, especially among low-income groups. Research conducted by the European Central Bank (ECB) has highlighted a worrying trend: a growing number of Europeans with lower incomes anticipate difficulties in meeting their financial obligations on time. This includes essential payments like rent, utilities, and mortgages. The research reveals that this pressure intensifies due to increasing interest rates and housing costs.

The ECB’s decision to raise interest rates beginning in July 2022 has pronounced impacted housing expenses across the Eurozone. According to a detailed report by Omiros Kouvavas and Desislava Rusinova, housing costs have surged significantly since the rate hike. Homeowners who have paid off their houses experienced a 6% rise in related costs, whereas those with mortgages saw an increase of 12%, and renters faced a 9% hike. As of January 2024, the average monthly expenditure on housing-related costs stood at €765, encompassing utilities, home maintenance, and either rent or mortgage payments.

Renters and mortgage holders are particularly hard hit. Renters now spend about 40% of their income on housing, while those with mortgages allocate around 35%. However, those burdened with a mortgage are feeling the greatest financial pinch, with their monthly payments now exceeding €1,100 on average. The report also highlights that the lowest-income earners who rent are spending approximately half of their monthly wages on housing costs alone.

Geographic Disparities in Housing Affordability

The ECB’s study also sheds light on the geographic variations in housing costs within the Eurozone. Ireland stands out with the highest housing costs, where residents pay around €900 monthly, excluding mortgages, which can soar to more than €1,200 when mortgage payments are included. Germany and Austria follow, with housing expenses (including mortgages) around €900 and €750, respectively. Conversely, Greece and Portugal report the lowest housing charges among the surveyed countries.

Furthermore, when housing costs are measured as a proportion of household income, Austria emerges as the most expensive, with 29% of income dedicated to housing-related expenses, rising to 33% when mortgages are factored in. This percentage starkly contrasts with the more manageable ratios seen in less affected countries within the Eurozone.

The ECB’s findings are a clarion call to policymakers and stakeholders. They indicate a pressing need to address the affordability crisis that threatens the financial stability of Europe’s most vulnerable populations. As interest rates continue to shape the economic landscape, targeted measures could be crucial. These measures aim to support those at the lower end of the income spectrum and could help mitigate the impact of rising costs. Consequently, this situation requires immediate attention and a concerted effort. It is essential to ensure that housing remains accessible and affordable for all Europeans, regardless of their economic standing.