To own or to rent? A housing question

The choice between owner-occupied housing and tenancy is one of the major housing decisions that people need to make. Interestingly, if we look at the European Union, we can find a variegated landscape of tenure mixes. While in some countries an overwhelming majority of people own their apartments, other are characterized by a more balanced mix, with more or less equal proportions of ownership and tenancy, or even a majority of the latter.

Contrary to what one would expect, countries with the highest share of owner-occupiers are not necessarily the most affluent ones. Homeownership peaks at 80-90% in the countries of Central and Eastern Europe with only slightly lower rates in the Mediterranean region. Both the prevalence of the family-based welfare provision over the state-based one, and the underdevelopment of social and private rental markets can be seen as factors explaining why ownership is largely preferred over tenancy. In the post-socialist context also the mass privatisation of previously publicly owned housing stocks needs to be taken into account.

Countries like Austria, Germany as well as their non-EU neighbour Switzerland are sometimes regarded as “tenant nations”. In each of these states, the share of rental housing is close to or exceeds a half of the market. High number of tenants makes tenancy regulations an issue of great social and political importance, as described in an earlier post on this blog by Fabian Wenner. In general, there seems to be a widespread view that in the abovementioned countries tenancy is a stable tenure that can be considered not only a temporary but also a long-term choice. As shown by the Household Finance and Consumption Network data, in Germany rentals are a widespread choice also among people who accumulated substantial savings.

An interesting question is also how the risk of being overburdened by housing costs is differentiated by tenure. Data provided by the Eurostat may help to shed some light on the issue. In the case of tenants, there is a substantial difference between rentals at market price and rentals at discounted price (which can be largely attributed to the widely used term “social housing”). Even though social housing is aimed in most cases at households with lower incomes, higher cost overburden rates are found in the case of market-price rentals. This result may indicate that the scope of the social housing stock is not sufficient to meet the needs of all the vulnerable households. At the same time there is an apparent geographical pattern, as countries from the south of Europe have a higher share of tenants with financial problems than countries from the north.

Overburden rent

In the case of owner-occupiers, the risk of housing cost overburden strongly depends upon the outstanding mortgage debt. However, the risk is not necessarily the highest in countries where mortgage debt makes up a high percentage of the GDP. Instead, high overburden rates are found in countries where mortgage loans are a relative novelty, but due to small supply of rental apartments homeownership is a preferred choice also among households with moderate incomes.

Overburden owner

In the years to come, are we going to see are we going to see more people buy or rent the dwellings? Homeownership is believed to be an important personal objective for many people, and partly as a result of public support it has been on the rise in many countries in the 1990s and 2000s. Nevertheless, in today’s time some conditions seem to favour rentals. High labour mobility is a part of everyday experience in the same way as flexible living arrangements are. Indeed, as noted in “The state of housing in the EU 2015” report the share of tenants has recently increased in some countries. However, at this point it is too early to say whether there is a case for a significant change in the trend.

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