UNPACKING EUROPE'S LIVING REVOLUTION

Unpacking Europe’s Living Revolution – Executive Summary

Europe’s housing needs are evolving rapidly as evidenced by the many emerging sources of demand such as the private rented, student accommodation, senior living and affordable housing segments.

Demographic and societal changes illustrate clearly why this is the case. Europe’s major city populations are forecast to grow by 5-15% by 2040, its numbers of over 65s are forecast to grow by 20-40% and full-time student numbers are also climbing helped by rising international admissions.

Bratislava is no exception to this trend. The real range within which the population of the capital could move in 2050 (the range between the high and low scenarios) is from 470,000 to 561,000 people. According to the most likely scenario, the population of Bratislava is expected to increase to 519,000 people by 2050.

The range of the possible population of Bratislava will increase during the forecast period and will reach its highest value in 2050, at 90,000 people. Compared to the present, this would represent an increase in the population of 43,200 people, or 9.1%. This is a relatively significant increase, which gains even more weight in the context of Slovak development.

All relevant forecasts for Slovakia expect the most likely development of the population of Slovakia to decrease from 1% to 8%, most likely around 4.5%. This means that a decrease in the population is expected in most municipalities and towns in Slovakia in the coming decades, while the population in Bratislava is very likely to increase.

The Deterioration of Housing Affordability and Its Impact

In addition, the deterioration we have seen in housing affordability in the past decade is unlikely to reverse in our opinion, leading to lower home ownership rates and continued strong demand from so called ‘generation rent’.

In Slovakia, homeownership rates have risen in recent years, driven by low mortgage interest rates, reaching 91%, significantly above the EU average of 70%. However, the situation has changed dramatically in the past two years, making it increasingly difficult to meet housing needs, particularly for young people who simply cannot afford to buy property. This has resulted in overcrowded households in Slovakia, with 2.9 people living in each household, the highest in Europe. In most cases, these are young working people who still live with their parents, as the average age at which they leave their parents' home is 31 years. The European average is 26.5 years.

Implications for Housing Demand and Investment

All of this points to sizeable demand for and required investment in a variety of different types of housing over the next couple of decades. From a demographic perspective, countries with a blend of growing populations and/or potential for further urbanisation offer the most attractive near-term risk-return trade-offs. Examples here include the UK and Ireland, the Benelux countries, Spain and Sweden.

From an investor and developer perspective, the demographic and societal backdrop presents a strong tailwind, one which supports continued solid rental growth over the medium term. Furthermore, we are confident that a gradually more accommodative outlook for interest rates in Europe should kickstart a recovery in living capital values from the second half of 2024 onwards.

That said, with interest rates and construction costs still elevated, viability remains a near term hurdle to rapidly expanding housing output. While there is no short-term silver bullet to overcoming this, government support aimed at alleviating developers’ cost challenges together with more streamlined planning processes could make a material difference in our view.

It is also important that governments resist the temptation to aggressively regulate living markets in response to rising rents over the past number of years as we believe such moves are ultimately more likely to prolong Europe’s housing crises than solve them.