This similarity between international housing markets perhaps comes as a surprise to those of us who are used to being told how different our housing market is to Europe’s. Both the media and learned journals have often reported in the past that the UK is unusual in having such a high incidence of owner-occupation and low incidence of renting.
While this may have been more true 20 years ago, especially in comparison to pre-unification Germany, it is certainly not true now. According to Eurostat figures for 2009, the UK had lower rates of owner-occupation, at 70%, than the eurozone average of 72%. Since then, owner-occupation rates have slipped further, to 69% according to the latest survey of English Housing.
This leaves the UK ranked alongside countries with the lowest owner-occupation rates in Europe and on a similar level to France, Denmark and the Netherlands. Even Germany, since unification, has a higher level of owner-occupation than most people think. Though the lowest in the eurozone, it is still at 56% according to Eurostat (see Graph 1.4).
Market health check
So, other than illustrating the increasing similarities between Europe’s housing markets and dispelling some old myths, does this tell us anything about the health of those markets or a country’s economy? Our house price analysis would suggest that the relative health of housing markets has more to do with the extent of over-borrowing and price overheating than it does with the absolute levels of owner-occupation.
While there does appear to be something of a negative relationship between the size of a country’s economy and levels of home ownership, there is nothing to suggest that home ownership levels per se make a housing market more volatile. Belgium and Finland, for example, have higher levels of owner-occupation than the UK but have simply continued to grow and have not seen price falls in recent years. It could be that higher levels of owner-occupation are more indicative of a lack of rental alternatives. It is noticeable that the old communist bloc countries, such as Hungary, Lithuania and Romania, for example, have the highest levels of owner-occupation and the least developed private or public sector property investment markets.
Countries with larger and more mature economies seem to have developed a larger and more diverse rental stock – in a wide variety of ways, driven by both private and public sector landlords. The UK is increasingly in this club – and it seems certain that other Eastern European economies will join as they develop.
Market fundamentals
To understand the differences in house price performance then, we have to look at a range of different factors and are better looking at the fundamentals of housing finance and household finances in assessing whether a market is overheated rather than at the structure of home ownership.
Meanwhile, whether closer political and economic union is achieved or not, average European house price levels seem to bear an increasing similarity at a national level. It is the local and sectoral variations between regions and cities that, we suspect, will start to matter much more.
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