AFFORDABLE, SUSTAINABLE HOUSING DEPENDS ON BLENDING PUBLIC SUPPORT AND PRIVATE CAPITAL

Luca Bertalot, Secretary General, and Eva Dervaux, Research and Data Adviser at the European Mortgage Federation and European Covered Bond Council (EMF-ECBC) dissect the reasons for the current global housing crisis and the role of housing finance in addressing local, regional and national challenges.

By Luca Bertalot and Eva Dervaux

Housing lays the foundation for freedom, dignity and opportunity, paving a solid path towards lasting peace and shared prosperity. Housing policies for their part represent a major social boost, with the potential to support each and every citizen in realising their future expectations. The housing market not only provides shelter for all but also builds communities and supports the broader goals of European integration. Europe is shaped by ongoing political and cultural changes, sustainable building requirements, increased consumer mobility and volatility.

Not only Europe but the entire world is facing a severe housing shortage, with the root of this crisis lying in a simple economic principle: demand is exceeding supply. In major cities, the cost of living has outpaced wage growth, resulting in a significant portion of the population being unable to afford adequate housing. Addressing the global housing crisis requires innovative solutions and a collaborative global approach, and housing finance is increasingly being seen as a global private sector solution to address local, regional and national challenges.

The imbalance between supply and demand has led to skyrocketing housing prices, making it increasingly difficult for many people to afford a place to live. The Hypostat 2024 House Price Index (HPI) shows how residential property prices change over time, providing valuable insights into the different rates at which HPIs are increasing across Europe and the different housing market dynamics.

The demand for new construction in Europe has largely followed a downward trend due to high mortgage rates and high construction prices. Nonetheless, during the last few years, ongoing initiatives and an increased emphasis on building sustainability, such as the Energy Performance of Buildings Directive and the Renovation Wave initiative, may have helped to prevent a more significant decline in construction volumes. As urban populations swell and economic pressures mount, the urgency to find viable solutions grows more pressing, especially in the light of the transition to a greener economy as more than 40% of pollution comes from the building sector. The housing crisis manifests itself in various ways across the globe.

The housing market is still recovering from the consequences of the 2020 pandemic which led to reduced construction activity, supply constraints and economic uncertainty. These factors lie at the heart of the affordability challenge in Europe and the long-term increase in house prices across Europe is a central focus of the current policy debate. Affordability depends on a number of factors, including wage growth, which affects purchasing power, and inflation and fiscal policy, which affect the cost of borrowing. While average house prices continue to rise, relatively low interest rates have helped keep the mortgage market somewhat affordable.

In the last few months, with a view to addressing the current challenges and to seize new opportunities, the EU has adopted a variety of initiatives. The Affordable Housing Initiative, announced in the European Commission’s Renovation Wave Strategy for Europe, aims to ensure access to adequate and affordable housing for all Europeans, while also promoting energy efficiency and environmental sustainability. At the heart of this initiative is the recently announced European Affordable Housing Plan, which will provide a roadmap to tackle the root causes of the crisis.

The challenge of delivering both affordable and sustainable housing requires vast domestic and international support, mixing public subsidies and private capital market resources, supported by a set of market products. Combined and coordinated actions from the public and private sectors will help to ensure the scaling-up of effective housing policies and broader access to capital markets, and foster the development of global opportunities for lenders and investors while benefiting consumers.

The EMF-ECBC community has fostered a housing philosophy that responds with international solutions to local needs, fostering convergency, common best practices and financial stability for mortgage and housing markets. We are ready to assist the EU institutions by sharing knowledge, advice and best practices, cooperating, and supporting the housing agenda with an ecosystem approach, bringing affordability, energy efficiency and renovation solutions over the coming years.

In particular, we believe that we can provide a tangible contribution with our expertise in developing and leading global market initiatives such as the Covered Bond Label with its specific disclosure section of the Harmonised Transparency Template for Green & Sustainable Covered Bonds, the Energy Efficient Mortgage Initiative (EEMI), the Energy Efficient Mortgage Label, the International Secondary Mortgage Market Association (ISMMA) and a global housing and finance database (HOFINET). Initiatives, in which innovation and harmonisation of best practices have already helped leverage the market to scale-up efficiencies, demonstrate both the capacity and willingness of our sector to assume and play its full role here.

Luca Bertalot is the Secretary General and Eva Dervaux is a Research and Data Adviser at the European Mortgage Federation – European Covered Bond Council (EMF-ECBC), which acts as the main voice of EU mortgage lenders and the global covered bond community. Working with European institutions to shape mortgage and housing finance policy, its goal is to ensure a sustainable housing finance system for EU citizens.

The EMF has recently released Hypostat, its latest annual statistical report on housing and mortgage market developments in Europe and beyond. The 2025 edition covers data up to the end of 2024 and includes analysis for 31 European countries plus nine non-European markets. Its other key publication, the EMF Quarterly Review, tracks short-term trends in EU mortgage and housing markets using indicators such as interest rates, outstanding residential lending, gross and net mortgage lending, and nominal house price indices.