MacroPolis

Although media scrutiny of the issue has been scant, as is often the case with matters that put the government in an uncomfortable position, Greece is experiencing a serious housing crisis. Aside from structural issues, this can partly be attributed to the policy choices made by the Greek authorities.

Construction, and specifically housebuilding, was one of the main drivers of Greek growth in the years that followed the euro adoption in the early 2000s. The single currency brought ample liquidity to the Greek economy with euro interest rates that Greeks had never experienced before, leading to significant credit expansion for all types of loans, notably mortgages.

Housing investment peaked in the years between 2004 and 2008, when it was in the range of 10 pct of GDP and represented more than 40 pct of total investment in the same period.

The debt crisis of 2010 hit the property market instantly, with housing investment following a precipitous path to near insignificance in economic activity, dropping to the recent low of 0.6 pct of GDP in 2017. Meanwhile, housing dropped to just 5.2 pct of total investment in the same year.

The length of the debt crisis, which did not allow Greece any economic and political calm for almost a decade, meant that disposable income in Greece remained under pressure for many years. This led to a collapse in housing demand and the residential price index fell from above 100 points to below 60 in 2017.

Disposable income and the residential price index recorded drops as deep as 10 pct annually in 2010 and 2012 and did not return to growth before 2018.

The unprecedented severity and length of the crisis also caused structural issues in the property market as barely any properties were built for the best part of a decade.

In a study published last week, Piraeus Bank estimates that during the crisis some 197,000 new households were created, against an estimated 155,000 new properties built in the 2012 to 2022 period.

This imbalance of roughly 40,000 properties due to property unavailability is compounded by the fact that Greek household income has barely recovered from the debt crisis, taking a further hit from the pandemic in 2020 and the inflation wave pressing real incomes for nearly two years now. This raises a legitimate question about decisions taken by the government that aggravated the housing crisis in Greece.

The same Piraeus Bank study finds that demand for properties in the Greek market was amplified by 197,000 properties being made available on short-term rental platforms like Airbnb, leading to a total shortage of properties by 212,000.

With such a market imbalance it begs the question why the Greek authorities pursued so aggressively the Golden Visa scheme for foreign property investors, which was also touted in previous years as a major success. At the same time, the government made only minor interventions that aggravated the problem and left the short-term rental market largely unregulated, primarily focused on securing as much revenue as possible from the segment.

An estimated 5.54 billion euros of foreign funds has flowed into the Greek property market via the Golden Visa scheme. Based on data from the Migration Ministry, the number of approved applications and those that are due to be approved imminently will reach 22,298. Last year alone, 8,351 applications were submitted and 4,231 were approved, leading to an estimated 2 billion euros of investments.

Up to early last year, the eligibility threshold was the purchase of a property costing 250,000 euros or more. Amid some pressure from the opposition and the fact that housing problems became an issue in the 2023 election campaign, the threshold for certain sought-after locations like Athens, Thessaloniki and the Cycladic islands doubled to half a million euros.

The government had been warned that such a selective move to raise eligibility would lead to spillovers in other nearby areas. This is already evident in Piraeus, Athens’s port, which has experienced a jump in property prices that exceeds 10 pct.

It is clear since domestic buyers are hard-pressed after a decade-long crisis the market is experiencing short supply, purchases would be dominated by foreign buyers with deep pockets willing to pay what is required to secure hassle-free travel around the world.

Applications are dominated by Chinese buyers, who stand at roughly half of more than 15,000 visas granted, with Turkey, Russia and Lebanon also having sizable portions.

These dynamics have led many Greeks to being priced out of the property market as prices have risen by close to 40 pct since the 2017 low, while disposable incomes for households have barely moved during that time.

Greeks are also challenged by the European Central Bank’s tight monetary policy and the dependency of securing loans from banks. The average variable rate for mortgages in December was more than 5 pct according to Bank of Greece data.

Ahead of last year’s general elections, the government acknowledged that young couples were being excluded from the property ladder and introduced the My Home scheme, which offered young couples aged up to 39 years old cheap loans of up to 150,000 euros for properties worth as much as 200,000 euros.

Although the scheme attracted interest and applications gained traction since it was launched last April, the market realities soon started to bite. It was reported that applications were being approved by banks, but there were no eligible properties available, and couples were priced out of purchases.

The current state of the housing market means some bold decisions are required now that the Greek economy has returned to a more stable path. One of those decisions will have to be about the viability of the Golden Visa scheme, which helped generate some revenues during the crisis, but which now seems to be doing more harm than good.

Kathimerini reported over the weekend that the government is considering raising the Golden Visa threshold in response to the housing crisis the scheme has helped fuel. Also, the authorities are reportedly looking at ways in which they can make available to the market some 650,000 properties that currently lie empty but which have irregularities and are in the hands of services that have taken on bad loans from banks. It appears that the government is now acutely aware of the size of the problem, which its decisions have contributed to.