A new policy study titled “The Role of the Supply-Demand Gap in the Rise of Housing Costs” by Ioannis Navrozidis, Christos Loukas, and Nikos Rompapa, published today by KEFIM.
The study’s main conclusion is that the current housing pressure cannot be explained solely by short-term rentals, the “golden visa,” or rising incomes. Rather, it stems from the interaction between a supply that remains limited and inflexible and a demand that is simultaneously driven by many factors.
According to the policy paper, the root of the problem lies in the severe disinvestment that occurred during the crisis. Between 2007 and 2017, residential investment fell by 95%, while building permits dropped by 84%. Despite the recovery in recent years, construction activity has not returned to pre-crisis levels, resulting in a significant shortfall in new housing supply.
At the same time, the existing housing stock cannot immediately fill the gap. Although Greece has a high percentage of homes that are not used as primary residences, a large portion of them is not actually available for long-term rental or purchase due to their age, the need for renovations, pending legal or urban planning issues, as well as a geographical mismatch with demand.
The key findings of the study are as follows:
- The rise in housing prices is primarily due to a structural supply shortage, which was created by a fifteen-year decline in construction activity and exacerbated by the rapid resurgence of demand.
- The increase in the number of households, despite a declining total population, is a significant factor driving demand. As households now consist of fewer people, the need for more housing is increasing, particularly for smaller apartments in major urban centers.
- The housing market exhibits significant geographic and qualitative imbalances. Pressure is most intense in urban and tourist areas with high demand, particularly for small and more affordable properties.
- Access to mortgage loans remains limited for a significant portion of households, particularly for young people and those without sufficient equity. If credit standards are relaxed without a corresponding increase in supply, the additional demand could further intensify price pressures.
- Foreign investment, mainly through the “golden visa” program, and short-term rentals are boosting demand in specific areas, but they do not, on their own, constitute the main explanation for the rise in prices at the national level.
The study points out that policies that boost demand without correspondingly increasing the actual available housing supply may have limited effectiveness or even lead to further price increases. For this reason, stabilizing the housing market requires policies that facilitate the construction of new housing, the faster utilization of the existing housing stock, and the reduction of institutional, administrative, and urban planning barriers.
KEFIM President Nikos Rompapas stated:
“The housing pressure currently experienced by thousands of households—and especially by young people in major urban centers—cannot be addressed with simplistic explanations or piecemeal measures. The problem is deeper and structural: for many years, Greece virtually stopped building new homes, while today demand is rebounding from many different sources.
If we want more affordable housing, we must focus on increasing the available supply, reducing the barriers that keep properties off the market, and creating a more functional framework for housing. Without more available housing, policies that merely boost demand risk leading to higher prices.”
Why identifying the causes of high housing costs concerns us all
- Because housing is one of the largest household expenses and directly affects disposable income, savings, and quality of life.
- Because the problem affects not only those who are currently renting, but also young people who want to move out of their parents’ home or buy their first home.
- Because high housing prices affect workers’ mobility, family autonomy, and ultimately the ability to start a family.
- Because it is not enough to look for an easy “scapegoat” when the problem stems from the accumulation of many factors on both the supply and demand sides.
- Why do misguided policies risk exacerbating the problem if they increase demand without increasing the actual available housing supply?
*See the detailed KEFIM report in the “Supporting Materials” column on the right.