As many parts of Europe entered a second lockdown in November 2020, the fundamental role of the home has been reinforced. In the words of Margaret Sweeney, CEO of Irish Residential, “Everyone’s home has now become the epicentre of all their daily lives – family, work, school and study, leisure activities, fitness, etc. This has given everyone an opportunity to assess their living arrangements”. The sentiment is not only echoed by Helen Gordon, CEO of UK-based Grainger, when she says that “homes have never been so important” but surely shared by nearly all of us.
The pandemic has brought the role that our homes play in our lives into sharp focus. As people reassess their living priorities – both during the pandemic and in the years to come – the impact on the residential market could be significant. For the more financially stable, this might mean a transition to a slightly larger home with a premium placed on the outdoor living area and a potential move away from the historically congested city centres.
For those that have seen a significant impact on their livelihoods, the pandemic has created more uncertainty and increased strains on affordable housing. Preben Bruggeman, CFO of Home Invest Belgium, points to the fact that we are “witnessing the benefits of having a strong social welfare system” that has stepped in at the hour of greatest need to protect incomes and ensure families can maintain a roof over their heads.
The impact of the pandemic on economies across the EU has varied greatly. Jani Nieminen, CEO of Finland-based Kojamo, sees the residential sector as one that is seeing only temporary effects, such as in Finland, where the market has already adjusted to these realities, with short term rental supply constricting and transitioning to the long-term rental market.
While the lockdowns and economic restrictions have had different impacts across different markets, one thing that many of them share is that the crisis has cut housing production. In Finland, according to Nieminen, “housing production need is on average 30,000 to 35,000 annually. Due to the crisis, the start-ups have declined, and only approximately 28,000 new apartments are estimated to be started during 2020”. This is an issue that Sweeney has also noted in Ireland, where annual demand for new housing is estimated at around 35,000 annually, yet completions could sit at around 16,000 by the end of the year.
If this trend continues and production – and investment – is not increased, it could have inflationary pressures on the housing market, with significant negative effects on the availability of affordable housing.
Rolf Buch, CEO of Germany-based Vonovia, was quick to point out that one of the major impacts the pandemic has had is that people are more reluctant to move during a crisis, something that Home Invest Belgium’s Bruggeman agrees with to an extent, except that it has also created an increasing need for flexibility, particularly in the form of the letting market: “Young families are staying longer on the letting market. People who intended to buy are postponing, and this accelerating trend of owning to letting is a clear positive for the residential letting market”.
Whether renting or purchasing, one common shift the market has been forced to adopt is COVID-secure viewings. Where virtual viewings were once seen as a niche nicety, they are proving to be crucial innovation in the socially distant world we are living in. According to companies such as Kojamo and Grainger, who have implemented digital leasing and letting platforms, the impact on getting renters to view properties has been less severe.
The economic impact of the COVID-19 pandemic is far from over. Extended furlough schemes can only last for so long, and the more permanent changes in our economy will only begin to be realised once the dust has started to settle. In contrast to the focus that has been placed on rent forgiveness in the retail market, the residential market, according to all of those surveyed, has not seen a significant increase in arrears. The combination of government income support and significant reductions in discretionary spending has meant that the majority of people have been able to make their payments in full and on time.
But what do the next ten years look like? For Buch, the answer is simple: “The pressure on the housing market remains as a result of too little housing construction”; a problem that will, in particular, be exacerbated by economies that are quick to recover and see more immigration. To put it succinctly, according to Buch “there is too little social housing”.
Whether governments refocus their recovery plans on increasing the availability of quality, affordable housing through massive construction efforts remains to be seen. For Grainger’s CEO, Gordon, the UK market is set to witness a “metamorphosis from [one] dominated by private, small landlords to a more professional, institutional asset class”. In addition, as Bruggeman from Home Invest Belgium mentions, “We are more convinced than ever that housing for the letting market is the right asset class to be invested in”, particularly in a market where there is a “demand for low-risk assets with stable yields”.
Sweeney, of Irish Residential, is inclined to agree, pointing out that given current demographics, Ireland can “expect demand for residential – both build-to-buy and rental – to increase, primarily driven by our young and growing population”. Countries with younger and growing populations will continue to see demand in the residential market, but the question remains as to how or if COVID-19 will fundamentally change the way we live and work.
The argument that has been central to many articles in recent months is that cities are dead. The image of the ghost-like city centres at the height of the lockdowns across Europe created a knee-jerk reaction that led some to declare that cities were becoming obsolete. This is not the first time pundits have declared the end of our cities, but is this time different?
For Grainger and most others, the allure of cities remains and will ultimately still attract the top talent, creating a need for quality residential. As Helen Gordon states, “There remains a strong case for city living, with fundamentals still supporting the urbanisation trend, albeit demand in the short term will be centred on well-designed homes with outdoor access.”
Kojamo agrees, particularly in Finland where it believes “that after the pandemic, urbanisation will continue even stronger”. No one can peer a crystal ball and truly see the future, but as Jani Nieminen continues, “The pandemic has not changed the basic fundamentals: people want to live in cities close to services and good transport connections.”
Across the board, the leaders of these companies are convinced of the merits of residential. The impacts being felt across other property sectors have been comparatively mild for residential as, in the words of Rolf Buch, “The core business in the housing market is far less dependent of economic fluctuations than the rental of commercial property.”
The pandemic has forced us all to look at our living arrangements in a different light, but for those able to capitalise on the renewed demand for high-quality and affordable living arrangements, the future seems to be bright, regardless of this ‘long, dark winter’.
