Erste Bank : Rising housing costs unsettling Austrians

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11.09.2020

Rising housing costs unsettling Austrians

• 66 per cent of interviewees are currently satisfied or very satisfied with their housing situation
• But only 24 per cent of Austrians considered housing these days to still be affordable. People expect the situation to keep intensifying until 2030
• When taking out new loans, eight out of ten customers these days opt for fixed-interest loans
• The European Investment Bank (EIB) and Erste Bank are providing 300 million euros for affordable housing

The coronavirus crisis has so far had no impact on Austrians' satisfaction with the current housing situation. The latest survey by IMAS International, conducted on behalf of Erste Bank und Sparkassen in two stages - one in February before the crisis and one in June in the middle of the pandemic -, asked Austrians about their housing situation, to which two thirds (66%) said they were 'very satisfied' and 22 per cent said they were 'satisfied' with their housing situation. Only twelve per cent are currently quite or totally dissatisfied with their living conditions. This good outcome is due in no small part to the fact that 60 per cent of Austrians own their own home or apartment, and only 40 per cent rent. 'So even the pandemic hasn't changed people's level of satisfaction with their current housing situation. The results before and after the pandemic are almost identical in this respect. But, given the 875,000 people who are currently unemployed or have had their working hours reduced, and who are thus experiencing existential angst about a loss of livelihood, the issue of satisfaction is now playing more of a secondary role', says Erste Bank CEO Peter Bosek.

Rising housing costs causing concern for Austrians

Austrians consider the trends in housing costs to be much more problematic. Forty-nine per cent of the 900 interviewees have already found costs over the last five years to have 'risen somewhat', while 19 per cent have found them to have 'risen a lot'. Only a third of study participants found that not to be so. 'But that is also due to the fact that Austria fortunately has very good social housing in the form of community and co-operative housing, otherwise the survey results would have been much worse', says Bosek. While 77 per cent of Austrians considered housing 'affordable'/'very affordable' in the 1980s, that figure is now only 25 per cent. Barely 18 per cent think housing will still be affordable in 2030. 'It's a bleak prospect that a fifth of all Austrians today believe they will no longer be able to afford a house in ten years' time. This should be sending alarm bells ringing', adds Bosek.

Income not rising as fast as property prices

While the actual wages of Austrians have, according to the Austrian Institute of Economic Research (Wifo), only risen by 4.9 per cent since 2015, rent prices, according to the ECB's consumer price index, have shot up by 15 per cent. They have indeed become a whopping 27 per cent more expensive in the same time period. 'House prices have risen the most by far, and exceed average income growth by nearly three-fold. This development is alarming, because housing needs to keep being affordable. Even coronavirus won't be able to ease the pressure on the market, because land and property are in increasingly short supply' says Bosek.

Coronavirus-induced uncertainty

The coronavirus pandemic has, however, had a noticeable impact on Austrians' housing-related desires. While 59 per cent wanted to change their housing situation in February, that figure had dropped to 54 per cent by June. 'The numerous uncertainties on the job market mean people are putting their housing desires on hold. Many people's financial situations have also become more complex during the crisis', says Schaufler.

Despite the adverse conditions, people continue to want to own their own home

Twelve per cent of people want to renovate, eleven per cent want to modify their outdoor areas (+3 per cent compared to the start of the year) and eleven percent want to buy their own home (+5%). The pandemic sparked a notable 7% rise in those wanting to buy their own home, particularly among 18 to 34-year-olds, between February and June 2020.

Demand for home loans unchanged

The Austrians who can afford it are currently continuing to take advantage of the low interest rates. 'New business in home loans to private individuals rose by 7.2 per cent from 5,068 billion Euros (Q2 2019) to 5,461 billion Euros (Q2 2020) Austria-wide. During the same period, new home loans rose by 9.8 per cent to 1,042 billion Euros at the Sparkassen Group', says Thomas Schaufler, Head of Private Customer Busi-ness at the Erste Bank.

Customers are also placing more and more emphasis on safeguards. While only 68 per cent considered this important before the coronavirus pandemic, 74 per cent of interviewees now believe it is important to safeguard financing.

Fixed-interest loans provide certainty

The Erste Bank also considers it important for customers to be on safe side when it comes to long-term property investments. And fixed-interest loans are the only way to go here. The charges can be planned for, and repayment amounts are not affected by economic activity or interest trends. 'This is also clear from customer behaviour. When taking out new loans, eight out of ten customers these days are opting for a fixed-interest rate. Six years ago, the situation was the total opposite. So, anyone who today still has a foreign-currency loan or a variable-interest loan should take this opportunity to make the switch. The conditions for fixed-interest loans won't be getting any better over the next few years', says Schaufler.

A prime opportunity to switch from foreign-currency loans to Euros

Another security-related issue that has preoccupied customers since the 2008 financial crisis is that of foreign-currency loans. Now is another great time to switch to a fixed-interest loan. Local measures are being taken to combat Covid-19 in the Eurozone, and these are set to further brighten the economic-activity data. For the Swiss franc (CHF) and Japanese yen (JPY), this would mean a continuation of the gradual weakening that began in May - a great opportunity to switch from foreign-currency loans to euros. The interest rate for euro financing is also very favourable. Austrians have currently borrowed 117 billion euros for home loans. 10.7 billion of these are still in foreign currencies. Private individuals have borrowed a total of 10.6 billion euros' worth of Swiss francs, and 338 million euros' worth of Japanese yen. (Source: Austrian National Bank, 06/2020)

Erste Bank is actively approaching its private customers and offering them the option of switching from foreign currency to a euro loan with either a fixed-interest term of up to 10 years for bullet loan, or 15 years for amortised loans. If a customer switches from CHF to euros, it will only be a 0.25 per cent hit to their current interest rate. In the case of JPY, the new interest on debit balances is 1 per cent. No processing fees are charged for the switch.

Erste Bank secures 150 million euros for affordable housing

The European Investment Bank (EIB) has provided Erste Bank with 150 million euros in funding to support affordable housing in Austria. Erste Bank will also double this funding by providing an additional 150 million euros of its own, meaning a whopping 300 million euros in total will be provided by the Erste Bank for social housing over the next three years. 'This money will enable fixed-interest loans with terms of up to 28 years to be granted for new subsidised or community rental flats', says Bosek. The same model was used by the EIB and Erste Bank back in May 2019 to grant a total of 200 million euros within the space of 14 months. This first allotment was used to build around 2,200 affordable homes for some 3,900 residents in Austria.

Presentation Housing study 2020 (in german)

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