Europe’s rents are on the rise: Who’s hardest hit?

Almost all major European cities are experiencing rent increases and, as a result, some form of housing crisis. Rising rents hit low-income workers and those without stable employment hardest, as they have to spend a significant proportion of their income on housing, if they can afford it at all. In general, higher wages can soften the blow of the housing crisis, but the real solution may be government intervention, which remains rare.

The conventional wisdom among financial experts is that you should not spend more than 30% of your income on rent. This traditional rule of thumb is becoming increasingly outdated, at least for those who want or need to live in Europe’s major cities. Low- and even middle-income earners are increasingly being priced out of Europe’s major cities. The lowest earners, such as part-time workers, freelancers and gig workers, barely have enough income to afford rent, and even middle-income citizens, those in the middle of the income distribution in any city, are expected to pay more than 30% of their income if they want to rent their own apartment in most places.

We collected data on rent-to-wage ratios and the reasons for rising housing costs in 26 major European cities in order to identify the causes and potential remedies for Europe’s housing crisis. Our findings are twofold. First, cities with higher nominal wages are generally still better off. Rising rents hit residents particularly hard in cities where wages are already low, and the impact of tourism, low supply or gentrification, to name but a few problems, push rents up much more in proportion to incomes. Second, it is still helpful if states, municipalities or cities protect tenants and introduce programmes to support social housing.

One of the best-performing cities in our data, Vienna, has avoided most of the effects of the factors driving up rents in other places due to its extensive social housing stock, strict rent control policies and extensive tenant support systems. On the other hand, Budapest, the worst performer in our data, has a minimal number of such policies. The Hungarian government’s now decade-long commitment to family home ownership at the expense of regulating the rental property market has left the Hungarian capital in a disastrous housing situation with no prospect of a solution in the near future.

Why look at individual renters?

Individuals who want to rent on their own and low-income renters are a crucial element of any city’s ecosystem, which is threatened by rising rents. Young people entering the workforce, blue-collar workers such as cleaners, and gig workers such as Uber drivers or food delivery workers all play an important role in keeping a city functioning, which is threatened if the salary they can earn cannot cover a decent rental property around their place of work. Commuting long distances from cheaper areas is not feasible in most cities due to a lack of public transport or the absence of such cheaper areas. Even if there is a solution to travel to work, long commutes can easily deter people from taking jobs in the city centre, leading to the disappearance of key demographics from the workforce. After all, who is going to clean Europe’s cities if the cleaners can’t afford to live near them?

What our data says

We used the average rent index from Housing Anywhere, an international rental property website operating in most major EU cities. The website produces an annual rent index for different types of property advertised on their website, based on all advertisements that appear in the period. We contacted Housing Anywhere, who claimed that while their data reflects market conditions in the cities where they operate, the properties advertised on the platform tend to be in better condition than the average rental unit, they are usually furnished and the prices often include some bills. As a result, Housing Anywhere’s prices do not reflect the cost of very run-down, poor quality accommodation, nor do they show the cost of social housing. However, the prices on the website do appear to be relatively representative of what a first-time renter trying to get decent quality accommodation at market prices would get.

To look at salaries, we used Salary Explorer, one of the most popular salary comparison websites. This, like our housing data, should be treated with caution. The salary data on this and similar websites reflect the self-reported incomes of the people contacted by the site. Some may therefore report incomes below the minimum wage, and the mean and median may differ from official national statistics. However, self-reporting has some advantages. People working outside structured employment or part-time can report their actual earnings, which may in fact be lower than the minimum wage in some places. In addition, data are widely and consistently available at city level for large cities, so that the countryside, where wages tend to be lower, does not distort the figures.

Using this information, we created our wage-to-rent ratios for the lowest and median wages in each city to rent a room, studio or apartment, respectively. In addition to the 23 cities available in the Housing Anywhere data, we collected similar price information for Belgrade, Bucharest and Dublin.

Our findings in the cities studied by the Housing Anywhere index don’t leave much room for optimism. In every city in our dataset, the average price of an apartment for rent on the platform is unaffordable for a low wage earner, and in the case of two cities, Budapest and Lisbon, such a rental would cost more than a staggering 300% of a low wage earner’s salary. The situation is not rosy for middle-income earners either. In our data, only four cities, Vienna, Turin, Helsinki and Brussels, fall below the magic 30% line, meaning that residents in the middle of the income distribution in these cities would have to pay less than a third of their income for such a rental, while everywhere else it would be more.

Lisbon and Budapest are also the most critical on this list, with rents advertised at 88% of the median wage, making it virtually impossible for a single median earner to rent an apartment on their own.  The problem is not confined to the EU: in Belgrade, data collected by CINS suggests that renting an apartment would currently cost almost 58% of the average wage in the city. Dublin is not much better, where this ratio would be 69%, suggesting that it would be difficult for anyone to afford such rents on their own. 

It is painfully clear that in most of the cities we examined, the lowest earners would struggle to find an affordable room to rent at market prices. Only in Brussels is the price of a room close to 30% of the lowest income, and in Budapest it exceeds this (although not the official national minimum wage for an 8-hour day). Our own data collection shows that a room in Bucharest would cost around 50% of the lowest income, putting the Romanian capital in the average group of European cities.

Explanations and possible solutions

Tourism
Europe’s housing crisis is obviously a multi-dimensional issue, but some themes seem to recur when examining the commonly cited causes of house prices getting out of control. The first culprit, common to many cities, is the excessive presence of tourism, particularly Airbnb and other similar rental sites, which allow property owners to rent out potential residential properties as temporary accommodation for tourists. The profitability of Airbnb units means that many houses remain unoccupied, i.e. not occupied by a regular tenant.

“In Budapest, the proportion of uninhabited flats has increased over the past two decades, from 10% in 2001 to 13% in 2011 and 17% in 2022,” says Bálint Misetics, chief advisor to the Budapest mayor, when asked about the phenomenon. Many of the unoccupied units are likely to be used for short-term rentals, which are particularly common in Budapest.

“The use of residential units for short-term rentals (including Airbnb) is common in Budapest. It is reasonable to assume that this has contributed to the sharp increase in rents in the city. Our pre-Covid analysis showed that, controlling for population size, Airbnbs were much more prevalent in Budapest than in Belgrade, Bratislava, Bucharest, Vienna, Warsaw or Zagreb”.

In 13 of the 26 cases we analysed, tourism and short-term rentals were among the most frequently cited reasons by the journalistic and expert sources we contacted to explain housing problems. To address this issue, some tourist cities, such as Barcelona and Florence in our data, have recently introduced restrictions on short-term rentals in the hope of reducing rents. Nevertheless, the short-term rental market remains relatively undisturbed in most cities.

National and international migration

Another common theme is that cities are experiencing a large influx of people moving there. Internal migration, where people move to a city from different parts of the same country, is far from a new phenomenon. But industrial centres, such as the major German cities of Berlin, Frankfurt and Hamburg, are particularly attracting new residents in search of better paid opportunities. Some places, such as Berlin, are trying to counteract this with new building programmes, but the speed and success of this remains to be seen.

A much bigger distortion in prices comes from international migration, where people from different countries move in. In many cases, the new residents will be employed remotely or have different sources of income to their home country, allowing them to pay significantly more for a unit than locals, driving up prices. Lisbon and Porto, some of the most unaffordable cities on our list, have recently seen a large influx of white-collar workers, particularly tech workers, from other European countries who work remotely and rent in the cities. Belgrade, meanwhile, is experiencing the same problem due to wealthy Russians moving to the city since the start of the war in Ukraine.

“The Russians came here without asking how much the rent was, and we already had a shortage of rental apartments on the market and a shortage, let’s say, of standard apartments that could be sold at affordable prices,” says Kaća Lazarević, a specialist who has been advising on the Belgrade property market for over 30 years. “Now we have rental apartments, especially in the old city centre, and when the Russians came, the rents doubled because people realised it was a chance to make money. What used to rent for €300 went up to €600 or €700 with the arrival of the Russians.

Of course, the city’s problems are not only due to the arrival of foreign tenants; Belgrade, like other cities on our list, had a shortage of rental properties long before the war. A positive example of international migration, on the other hand, is Brussels, one of the most affordable places to live on our list. The influx of professionals working in and around the city’s centre of international institutions has not priced out other residents, who also enjoy competitive salaries and are not at a major disadvantage in the market.

Low supplies and disappearing neighbourhoods

In all cities, there are some limits to the amount of new construction that can take place, meaning that some places will inevitably struggle with low supply. In addition, gentrification – the influx of wealthier residents into poorer neighbourhoods and the change in their character – is a relatively common problem everywhere. A good counter-example is Vienna, where the city’s well-established and extensive social housing system both addresses the supply-side issue and prevents wealthier residents from turning more affordable places into rich and therefore expensive neighbourhoods. Across the border in Budapest, however, years of dwindling government support for tenants have created serious problems.

“The government’s housing policy is very one-sided, with the sole aim of promoting home ownership (with a strong natalist motive, i.e. especially for families with three or more children), without any policy to support the public or affordable housing sector. The Hungarian welfare system lacks any support system specifically for tenants (housing allowances, rent subsidies, housing vouchers, etc.),” points out Misetics, emphasising that while municipalities try to support residents, their toolkits are very limited compared to what governmental measures could achieve.

However, if we look at rental prices in nominal rather than percentage terms, we can see how much a higher median income can soften the blow of a housing crisis for residents, even in the absence of good support policies. In the case of Budapest or Lisbon, renting an apartment or even a small studio eats up a significant proportion of wages, leaving residents with little disposable income after paying for housing. On the other hand, in wealthier countries, similar prices take up much les s of people’s income, so that even after paying a high rent, people have sufficient income left over.

Of course, this does not mean that countries with higher wages are safe from the housing crisis. As mentioned above, even in these places, the lowest wages are far from sufficient to afford a rental property. Even if the median citizen can find a reasonable rental option, cities may still lose key workers and young people who are unable to pay the rent on the market.

Original source: https://hvg.hu/eurologus/20250131_Europa-alberleti-dijai-emelkednek-Kiket-erint-a-legrosszabbul-exc