Housing Shortage: “New Construction Market in Austria is Dead”
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Loading... - Gabriel Fortin
- 05 Jul 2024
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The Austrian real estate industry is raising alarms over a looming housing shortage and potential rise in unemployment. Many potential buyers are unable to secure financing, leading to prolonged periods where properties remain unsold. Additionally, new apartment construction has nearly come to a halt.
Gerald Gollenz, chairman of the real estate trade association, stated, "The new construction market is currently dead," highlighting a severe slowdown in apartment sales. The outlook for 2025 appears increasingly grim, with projections indicating an 80 percent decline in new construction output. This downturn could have significant repercussions across the economy, impacting everyone from large corporations to caretakers. Construction workers, traditionally busy during warmer months, are now experiencing downtime unprecedented in the industry. A housing shortage is anticipated throughout Austria.
For months, the real estate industry has pinpointed the KIM regulation, with its stringent lending rules from the Financial Market Authority (FMA), as a major factor in the slump in home sales. Starting July 1st, 2024, there will be some relief as rules for exceptional quotas will be simplified. Despite this, borrowers will still need to meet specific requirements: a minimum of 20 percent equity for loans, a maximum loan term of 35 years, and a repayment rate not exceeding 40 percent of the net household income. Although 20 percent of new loans can deviate from these rules, this flexibility has not been fully utilized due to complex regulations.
The sharp rise in construction costs and interest rates has placed significant pressure on real estate developers, following several years of booming activity. Medium-sized companies have been particularly hard-hit, with some facing bankruptcy. The fate of unfinished apartments remains uncertain, but property developer spokesperson Hans Jörg Ulreich believes projects nearing completion will be finished, as banks recognize the minimal value of incomplete construction sites.
Ulreich also highlighted the increasing difficulty in obtaining loans for both property buyers and project developers. He recounted his own experience, where securing financing took eight months instead of the usual three weeks. He criticized the FMA, accusing young WU graduates of intimidating bank directors with reliability checks, and called on FMA chief Helmut Ettl to reconsider and eliminate the KIM regulation.
Parts of the government’s construction stimulus package are proving ineffective. There are unresolved issues regarding state-subsidized loans of up to 200,000 euros, which are supposed to have interest rates capped at 1.5 percent instead of market rates exceeding 4 percent. The criteria for eligibility for these loans remain unclear, leaving many young families waiting to realize their dream of homeownership.
