Eurozone Squeezed: Rising Costs and Interest Rates Threaten Housing Affordability

Rising rents and mortgage payments are putting a strain on consumers in the eurozone, according to new research by the European Central Bank (ECB). The report, published this week, highlights a growing concern: many households are struggling to keep up with housing costs due to a combination of factors.

  • Inflation’s Bite: Years of above-target inflation have eroded purchasing power, leaving less money for essentials like housing.
  • Interest Rate Shock: The ECB’s recent interest rate hikes, aimed at curbing inflation, have significantly increased borrowing costs for mortgages. This is making homeownership less attainable and putting pressure on existing mortgages.
  • Rental Squeeze: The surge in interest rates has also impacted the rental market. Reduced investment in new properties has tightened supply, leading to rent increases in many cities.

The ECB report found that the share of lower-income households expecting to delay payments for rent or utilities has risen sharply. In the first quarter of 2024, over 20% of low-income respondents anticipated late payments, compared to around 15% in 2023. For mortgage holders, the situation is even more concerning. The ECB estimates that nearly 30% of households now expect difficulty meeting their mortgage payments, nearly double the rate from the previous year.

“The ability of households to afford housing is a source of concern,” the ECB researchers stated, acknowledging the dual threat of inflation and rising borrowing costs.

This growing strain on housing affordability could have significant social and economic consequences. With more people struggling to make rent or mortgage payments, there’s a risk of an increase in evictions and homelessness. Additionally, a slowdown in the housing market could dampen overall economic activity.

The ECB and policymakers across the eurozone will need to find solutions to address this challenge. Balancing inflation control with measures to support vulnerable households will be crucial in the months ahead.


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