Stournaras: Central banks must act on housing affordability
Yannis Stournaras, Governor of the Bank of Greece, outlined how central banks can contribute to addressing housing affordability. Speaking at the Dubrovnik Economic Conference, he emphasized the macroeconomic implications of rising housing costs.
Affordability: A macroeconomic challenge
Housing affordability has emerged as a defining economic and social challenge, with costs consistently outpacing incomes across advanced and emerging economies.
This imbalance is rooted in fundamental demand and supply dynamics.
Demand is fueled by rising household income, accumulated wealth, and demographic shifts such as smaller household sizes and increasing urbanisation.
Concurrently, supply often lags due to high construction costs, land scarcity, and restrictive zoning regulations.
Monetary policy, particularly a prolonged period of low interest rates, has also contributed by enhancing real estate's appeal as an investment and reducing saving incentives.
A significant share of property purchases, especially in Europe, is not mortgage-financed, suggesting demand is increasingly driven by accumulated wealth and investment motives, which crowds out less affluent households.
This situation leads to considerable efficiency losses, including reduced labor mobility and constrained productivity growth, underscoring housing affordability as a critical macroeconomic concern.
Greece's enduring housing paradox
The Greek housing market exemplifies the challenges of housing affordability, particularly in metropolitan areas.
Prices and rents have risen significantly, placing a high cost burden on households despite high homeownership rates.
This is due to relatively low incomes, rising housing-related costs, and an aging, energy-inefficient housing stock.
Supply has only partially recovered from the economic crisis, hampered by high construction costs and regulatory complexity.
Demand remains strong, fueled by domestic factors, foreign investment, and the perception of real estate as a safe asset.
Many transactions are financed by savings, making demand less sensitive to interest rates.
This housing insecurity also affects Greece's demographic trends, delaying household formation and impacting the labor force.
Beyond interest rates: A shared responsibility
Central banks can no longer ignore housing affordability, especially as traditional monetary policy struggles against wealth-driven demand.
Macroprudential tools, including borrower-based and capital-based measures, offer a direct way to curb speculative risks and support access for first-time buyers.
Yet, this is a shared responsibility; fundamental solutions require broader fiscal, structural, and supply-side policies beyond central bank mandates.