Will owning a home remain affordable? Social inequality in the housing market
Owning a home remains an important dream for many Flemish people. But rising house prices, higher mortgage costs and stricter energy regulations are making that dream increasingly difficult to achieve. How is the Flemish housing market evolving? And is the gap between those who already own property and those searching for a first home likely to keep growing? Professor Sven Damen (Finance, Faculty of Business and Economics) analyses developments in the Flemish housing market and their impact on first-time buyers, housing affordability and social inequality.
In short
- Since 2020, the affordability of an 'own' house had decreased for newcomers due to COVID and a recent increase of interest rates.
- The rising energy prices and the renovation obligation introduced in 2023 continue to put pressure on the housing market.
- For the moment, Flemish people’s wishes when it comes to housing are far removed from a compact home with shared living spaces (cohousing).
Why are house prices rising? High demand and too few homes
In Flanders, the average house costs 356,000 euros and the average apartment 278,000 euros, the most recent Real Estate Barometer shows. Interest rates have tripled in the past two years, making a mortgage considerably more expensive. ‘There has been a clear trend break since 2020,’ says Professor of Finance Sven Damen. ‘Until 2019, affordability was stable for someone buying an average house with an average income. That’s no longer the case.’
According to Damen, a key explanation lies in the limited housing supply. 'Even though house prices continue to rise, relatively little new housing is being built. If supply does not keep pace, additional demand translates directly into higher prices. 'This combination of strong demand and insufficient supply remains one of the main drivers of rising house prices in Flanders.'
Decreased affordability for first-time buyers
Since 2020, newcomers to the housing market have experienced a clear decrease in affordability, according to Damen. ‘COVID has greatly affected the housing market. The pandemic may have changed people's preferences somewhat – suddenly detached houses with large gardens became very popular – but the housing market also came to a standstill for a while because home visits could not take place. When those suddenly became possible again, many people started looking for a home at the same time, which led to the market being overwhelmed. This resulted in drastic price increases.
Combined with a sharp increase in interest rates since 2022, this makes it more difficult for newcomers on the housing market to buy their own home, because they have to compete with owners who are looking to trade up and who already borrow at lower interest rates and have seen a sharp value increase of their properties.’ This phenomenon contributes to increasing social inequality in the housing market.
Rising energy prices and the renovation obligation make buying more expensive
‘The rising energy prices and the renovation obligation introduced in 2023 are two more factors that can make buying a home considerably more expensive,’ says Damen. ‘If you buy a home with a bad energy score, you are obliged to renovate it. At the same time, construction materials became more expensive, maing renovating a costly affair.’
Energy-efficient homes have the best value increase, Damen says. ‘They’re appealing on the real estate market, because energy costs are low. This means the price keeps increasing, although there’s no guarantee this won’t stop in the future. Many Flemish people think real estate only goes up in value, but the price increases in recent decades have really been exceptional.’
Does the housing market increase social inequality?
The housing market plays an important role in wealth accumulation. People who own a home often benefit from increases in property values. Those who cannot afford to buy generally remain tenants and accumulate less wealth. As a result, housing affordability may have an increasingly important impact on social inequality. If home ownership becomes less attainable for first-time buyers, the gap between homeowners and non-homeowners could continue to widen. This is precisely why an adequate housing supply remains crucial for an accessible and affordable housing market.
'The housing preferences of people in Flanders are still far removed from compact forms of living. Most prefer a detached or semi-detached house and do not want to live in an apartment building of ten storeys or more.'
Kangaroo housing & cohousing: a solution for affordable housing?
Alternative housing models such as cohousing and kangaroo housing are regularly presented as possible answers to the housing crisis. However, research shows that many Flemish people still strongly prefer a traditional home. 'We have very little information on the current popularity of those alternative forms of housing,’ says Damen. ‘The most recent Flemish housing survey showed that Flemish people’s housing wishes are far removed from a compact home."
- 72% of respondents still prefer open or semi-open construction.
- One in three households want to be in an urban centre, but nobody wants to live in a flat of ten storeys or higher.
- Flemish people are less open to sharing living areas with other families. For 85%, it was out of the question to share a living room or kitchen.
Can rent-to-own homes improve access to home ownership?
And what about rent-to-own homes (where someone rents a home with the intention of eventually purchasing it, editor’s note), are they the future? ‘This new product definitely has potential,’ Damen thinks. ‘It would basically be a compromise between buying and renting. This would allow people who cannot buy anything but can afford rent to make the transition in a flexible way. For first-time buyers who currently struggle to enter the housing market, rent-to-own schemes could become an interesting option in the future.’