In October 2025, experts from the European Commission’s Directorate-General for Economic and Financial Affairs prepared a comprehensive study on the state of the European housing market. The document, titled Housing in the European Union: Market Developments, Underlying Drivers, and Policies, provides a detailed analysis of housing price trends, the drivers of supply and demand, and the regulatory and policy factors that influence housing affordability in EU member states. Below we summarise the main findings of this study, with particular regard to trends in Hungary and the Central European region. We consider the document prepared by the European Commission’s experts to be of particular importance, as the Oeconomus Economic Research Foundation also deals extensively with domestic and European housing issues, and with this analysis we would like to bring to the public discourse a number of new, hitherto less discussed aspects that may provide a fresh approach to the topic.
Price trends in the EU
Over the past decade, housing prices have risen sharply across Europe, at a rate that has exceeded income growth. Between 2014 and 2024, house prices in the EU rose by an average of 50 per cent in nominal terms, while in several Central and Eastern European countries – including Hungary, Lithuania, the Czech Republic, Portugal, Estonia, Bulgaria and Poland – the increase exceeded 200 per cent. In real terms, prices rose by an average of 25 per cent in the EU between 2014 and 2024, and by more than 50 per cent in Central and Eastern European countries.
It is important to note that while in the early 2010s housing prices rose mainly in high-income countries in Western Europe, by the second half of the decade the centre of gravity of growth had shifted to the east. When the coronavirus pandemic broke out (2020), the housing market experienced another wave: the EU median annual price increase jumped from around 6 percentage points to 12 percentage points in the first two years of the pandemic, exceeding 20 per cent per annum in several countries. During the pandemic, governments helped households with various support measures, such as loan repayment moratoriums and income replacement measures, while central banks made loans cheaper by cutting interest rates. Lockdowns meant that people were able to consume less, so their savings increased, and in an uncertain capital market environment, real estate became an attractive investment vehicle. At the same time, the construction industry was hit by shutdowns, labour shortages and supply chain disruptions, which held back the construction of new homes. As a result, the market stalled in 2022-2023.
With the end of the lockdowns, the slowdown was followed by a correction: by the end of 2023, prices in several Western and Northern European countries (e.g. Austria, Denmark, Finland, France, Luxembourg, Sweden) were lower than at the 2022 peak. However, the market began to pick up again in 2024: by the end of the year, an average increase of 5 per cent was recorded, and in some countries, such as Bulgaria, Spain and Hungary, double-digit price increases were seen again. This suggests that long-term structural supply and demand tensions continue to drive prices up as soon as the macroeconomic environment allows. In European terms, therefore, the rise in Hungarian housing prices is not a unique phenomenon, but its pace is among the highest in the region.
Affordability and accessibility
Housing affordability has deteriorated significantly in recent years. Between 2014 and 2025, household incomes in Europe grew on average about 10 per cent slower than house prices: before 2014, property prices rose faster than incomes in almost all countries, but the trend reversed in 2016, when property prices began to rise faster. The difference increased significantly during the pandemic, but has been moderating since 2022. Figure 1, prepared by Oeconomus using data from the study, shows the change in the ratio of house prices to household incomes. The increasing value of the bands indicates a deterioration in housing affordability, i.e. that more and more income is needed to purchase an average home.
Figure 1: Price to income ratios in EU countries in 2016, 2020 and 2024. Source: European Commission. The figure can be referenced here: https://public.flourish.studio/visualisation/25738053/
There is a wide variation in trends between countries: relative to income growth, the highest price increases were in Portugal, the Netherlands, Luxembourg, the Czech Republic and Slovenia. Hungary follows these countries, with processes similar to the European trend taking place here too, but not to an extreme degree, rather as part of the dynamics characteristic of the EU. Hungary is followed directly by Greece, Ireland, Spain and Austria, which clearly shows that rising prices are a common challenge throughout Europe. In a few countries, such as Romania, Cyprus and Finland, property prices have fallen relative to incomes, making it relatively easier to buy a home there today than in 2014.
According to the study, the affordability of home purchases in recent years has depended not only on price trends but also increasingly on financial conditions. The vast majority of households, especially younger ones, now overwhelmingly rely on mortgages to buy their own homes, so the housing market is also strongly influenced by the lending environment and interest rates. Affordability in the traditional sense therefore refers not only to the ratio of house prices to income, which has been taken as a given until now, but also to the total cost of financing, i.e. the combined effect of interest rates and lending conditions. In a low interest rate environment, high prices are more bearable, while rising interest rates reduce affordability in the housing market even when prices are falling.
Figure 10 of the Commission’s analysis, which may seem complicated at first glance, shows how the dual impact of rising interest rates and income changes shaped the maximum amount of credit that households can take out between 2022 and 2024 compared to 2019. The yellow bands indicate the negative impact of interest rate rises, while the blue bands show the positive impact of income growth and the black lines show the maximum amount of credit that households can take out. The dotted lines indicate nominal house prices. In each country, the balance between the first two factors determines the net result: if the blue bar is longer than the yellow one, the situation of households has improved; if the opposite is true, it has deteriorated. The figure clearly shows that the impact of the two factors varied from country to country.
Figure 2: Households’ borrowing capacity and house price changes, % change vis-à-vis 2019 (Source: European Commission (DG ECFIN, 2025), Housing in the European Union: Market Developments, Underlying Drivers, and Policies, Graph 10.)
- In Central and Eastern Europe – particularly in Bulgaria, Romania, Croatia, the Czech Republic and Hungary – strong income growth (blue) offset the negative impact of interest rate rises (yellow), thereby improving households’ creditworthiness.
- By contrast, in Western and Northern Europe, for example in France, Portugal, Slovakia, Luxembourg and Sweden, interest rate increases dominated, causing a 10-30 per cent decline in borrowing capacity.
Overall, the data show that in 2024, household borrowing capacity in 12 EU member states was lower than in 2019. The main reason for this is the increase in interest rates, which reduced the amount of credit available. However, in the other 15 member states, including Hungary, creditworthiness increased, mainly because nominal incomes grew dynamically, offsetting the impact of higher interest rates.
Not only buying, but also renting is a challenge for young people and new households today. Figure 3 shows the increase in average rents and housing prices between 2014 and 2024 on the left, and the ratio of new rents (yellow bars) to income compared to rents nine years earlier (blue dots) on the right.
Figure 3: House prices and rental prices in the EU, indexed on 2014 (lhs); new rent in prime locations as a % of income, selected locations, 2014 and 2023 (rhs) (Source: European Commission (DG ECFIN, 2025), Housing in the European Union: Market Developments, Underlying Drivers, and Policies, Graph 12.)
Interestingly, as we can see in the graph on the left, official rent indices show that average rents have risen less than housing prices over the past decade, meaning that it has become relatively cheaper to rent than to buy. However, this is misleading, as the rents included in the consumer price index mostly refer only to existing rental contracts, which are regulated or indexed in many countries. In the case of new rental contracts, however, there is no such control: the rise in house prices has also pushed up new rents, as investor-owners can only recoup their high purchase prices by charging higher rents. As a result, new tenants – typically young households just starting out on their own – face much higher costs. In many large European cities, the rent for a newly rented two-bedroom flat exceeds 50 per cent of the median household income, which poses a serious affordability problem. In Budapest, for example, the monthly rent for a larger flat can also amount to more than half of one’s income, which clearly shows that renting is often also not an easy alternative to buying a flat for the younger generation.
The drivers of supply and demand
What is driving prices up? According to the Commission’s analysis, the housing market boom is driven by both demand factors (more people are looking for housing) and supply constraints (not enough new homes are being built).
The growth in housing demand (hereinafter referred to as D) is mainly driven by the following factors:
D1 – Household income and wealth concentration
Household income is one of the strongest long-term demand factors in the housing market. The study also showed a clear correlation between average per capita income (in euros) and nominal square metre prices for housing between 2013 and 2024. As European economies strengthened in the 2010s, household incomes rose and many people accumulated significant savings. Higher incomes meant greater creditworthiness and bigger down payments, allowing more people to be able to afford to buy a home. Wealthier households also purchased property for investment purposes, confident of value appreciation and rental income. This process is increasingly leading to wealth concentration and generational inequalities, as purchases by wealthier groups, especially in attractive urban areas, reduce the availability of housing for local residents.
D2 – Loose lending conditions in the previous decade
The 2010s saw record low interest rates and an expanding supply of credit. Easily accessible, cheap mortgage loans attracted many new buyers to the market. (It should be noted that this trend reversed in 2022 with interest rate hikes, but by then prices were already starting from a high level.) Over the past decade, the previously close relationship between house prices and mortgage lending has broken down. Although mortgage loans remain the most important source of financing for home purchases, the growth in the loan portfolio has lagged far behind the rise in prices. This suggests that more and more purchases are being made from personal savings or alternative forms of financing, such as seller instalment plans, private loans, joint ownership arrangements or community financing. According to EU data, the total value of transactions and mortgage loans continues to be strongly correlated, but there are significant differences between countries: in higher-income, more heavily indebted countries, the proportion of loans in real estate transactions has declined, while in Portugal and Bulgaria, for example, only about half of home purchases are financed by loans.
D3 – Demographic and social changes
Internal migration and urbanisation are increasing the demand for urban housing. Across Europe, the population is flowing mainly into large cities, putting even greater demand on a limited supply, which is driving prices up further. Changes in family structure – for example, more young people living alone, families having children later, fewer generations living together in one home – are also increasing demand for housing: more smaller households are forming, all of which require separate homes. This is a particularly characteristic trend in Central and Eastern Europe, including Hungary: after the regime change, the proportion of privately owned homes became very high, with the result that most young people sooner or later want their own home, which creates intense demand in the market.
D4 – Investor demand, new preferences
In a low interest rate environment, real estate has become an attractive investment not only for the general public but also for institutional investors. Pension funds, real estate funds and even large rental property portfolios have appeared in some markets, especially in large cities, further stimulating demand. In addition, the phenomenon of short-term rentals (Airbnb) has emerged, with many investors buying flats specifically for short-term rental purposes. This trend is particularly reducing the supply of long-term rental flats in tourist hotspots and pushing up prices, while making housing more expensive for local residents. The coronavirus pandemic also reinforced another type of demand: with the spread of remote working, many people started looking for larger properties in green areas, as they no longer needed to commute to the city centre every day. This change in preference has also reshaped demand in certain segments: on the one hand, there has been a decline in office construction and demand for broadband internet.
Meanwhile, housing supply (hereinafter referred to as S) has been unable to keep up with demand. According to the authors of the study, the main reasons for this are as follows:
S1 – Historic low in new housing construction
In the European Union, the expansion of the housing stock over the past ten years has fallen far short of the demand caused by demographic and economic trends. The study highlights that the volume of new construction has fallen to a historic low: after the 2008 financial crisis, construction activity declined dramatically, and although there was a moderate recovery after 2013, the sector stalled again in the early 2020s. The ratio of household investment to GDP is now similar to that in the pre-crisis period, but this is not reflected in the number of new homes. An increasing proportion of capital is being directed towards renovations and energy upgrades, particularly in response to EU climate policy targets (such as the Renovation Wave). As construction capacity is limited, the renovation boom has displaced new housing construction in many places. In addition, housing supply inelasticity is characteristic of many EU member states. The ratio of building permits and actual housing construction is particularly low in Southern and Eastern Europe, where permitting is lengthy, investments are capital-intensive, and local governments have limited regulatory leeway. This means that even a surge in demand and rising prices do not provide sufficient incentive for new construction.
S2 – Strict regulations and permitting
Building and urban planning regulations have become stricter in most EU countries, which is understandable in itself (for environmental and safety reasons), but it slows down and increases the cost of housing construction. The expansion of residential areas is limited, there is little land available for development in many large cities, and a significant proportion of existing land is not being put on the market for development. Buildable land is often concentrated in the hands of a few owners, who bide their time or hold back plots for speculative purposes, further limiting supply and driving up prices. The high proportion of vacant properties is another anomaly: it is estimated that one in six dwellings in the EU is vacant, partly as second homes for investment purposes, which can be considered wasteful in light of the shortage of supply.
Figure 4: Building permits (m2 per 1000 inhabitants) in the EU, 2000-2024 (Source: European Commission (DG ECFIN, 2025), Housing in the European Union: Market Developments, Underlying Drivers, and Policies, Graph 27.)
Figure 4 shows the long-term trend in building permits on the left-hand side based on the average for the EU27 and the euro area (EA20) between 2000 and 2024, measured in square metres per thousand inhabitants. The peak in 2006–2007 is clearly visible, followed by a sharp decline after the crisis, which was only followed by a temporary upturn at the end of the 2010s. By 2024, licensing activity had once again fallen to a historic low. The figure on the right shows the volume of permits by country: the blue bands indicate the range of values between 2000 and 2024, the black line indicates the 2019 data, and the yellow dots indicate the 2024 data. In most countries, the 2024 value is at the lower end of the previous range, indicating that construction activity has declined almost everywhere in the European Union.
S3 – Construction costs and investment financing
One of the strongest constraints on supply is the rise in construction costs. The document highlights that key input prices, particularly for construction materials and energy, have risen sharply in recent years, exacerbated by the pandemic, disruptions to global supply chains and the energy price shock following the outbreak of the Russia-Ukraine war. Material costs rose by an average of 25-30 per cent in the EU between 2019 and 2023, but in some countries (e.g. Germany, Hungary, Ireland) they rose by as much as 40 per cent. Although energy efficiency regulations (such as the new Energy Performance of Buildings Directive) reduce operating costs in the long term, they further increase construction costs in the short term. Investment financing is also a bottleneck. High interest rates have made it more expensive to finance developments, especially for smaller construction companies with less access to institutional financing. The fragmented corporate structure typical of the construction industry – many small businesses with low capitalisation – means that the sector has little capacity for innovation and economies of scale.
S4 – Labour market factors and productivity
Labour shortages and stagnating productivity in the construction industry are a serious supply constraint. The average age of workers in the sector is rising steadily, while young people are less and less inclined to choose this profession. Cross-border employment and migration alleviate the problem to some extent, but the exodus of skilled workers to Western Europe is particularly noticeable in the Eastern European member states. Low productivity can be explained in part by technological backwardness. Construction processes remain labour-intensive, with digitalisation and modular construction technologies spreading slowly. Construction productivity in the EU has practically stagnated over the past twenty years, while other sectors of industry have achieved average growth of 20-30 per cent. This results in structural cost increases and slow supply response.
S5 – Land use, land prices and zoning restrictions
Rising land prices and limited availability of buildable land are among the most important structural barriers to supply expansion. In the EU, 75 per cent of all land is used for agriculture and forestry, compared to only 3 per cent for housing. Furthermore, according to the study, land prices have risen faster than house prices in most EU countries, especially in capital cities and coastal tourist regions. The supply of land is further constrained by zoning rules and heritage and environmental protection regulations, which, although they serve important purposes in themselves, collectively limit the spatial possibilities for new developments. The regulatory system varies from member state to member state, but is multi-level everywhere: EU, national and local regulations all apply. In the case of land-use and zoning rules, member states introduce standards that are even stricter than those laid down in community directives. According to the study, relaxing these rules could increase supply.
Based on the findings of the study, we can conclude that the inflexibility of supply has become a permanent feature of the housing market: not enough new homes are being built, so price increases are becoming a permanent feature of the system. According to experts, reversing this trend would require far-reaching reforms in regulation and the construction sector.
Policy challenges and responses
Addressing the housing crisis across Europe is a complex task, as it requires responding to both affordability concerns and market imbalances. The Commission’s analysis emphasises the need for a comprehensive and coordinated policy package. There is no single silver bullet; interventions are needed at national and local level in several areas. Some key directions are:
- Stimulating supply, building reforms: removing barriers to housing construction is a priority. Land use and urban planning rules may need to be reviewed where unjustified restrictions are hindering new developments. Of course, environmental and urban landscape considerations must be taken into account, but certain relaxations or accelerations (e.g. digitised licensing) can greatly help to expand supply. Infrastructure development (public transport, roads) can bring new areas into residential use. The authors of the study point out that increasing supply is one of the most effective ways to improve affordability. This includes encouraging the construction of social housing – the supply of affordable housing must be increased through state or local government investment. In many countries, the proportion of social housing has fallen dramatically since the transition to a market economy, so the private market does not offer an alternative for low-income earners. This shortfall can only be alleviated through public investment.
- Reforming tax incentives: the current system of housing market taxes does not promote stabilisation in many places. For example, in many countries, high transaction fees (property acquisition fees) burden home purchases, while annual property taxes are hardly levied. According to experts, it would be worthwhile to shift the emphasis from one-off transaction taxes to regular property taxation, as this would distort the market less and discourage purely speculative ownership. In addition, many countries offer tax breaks to homeowners, such as mortgage interest tax relief or stamp duty exemption on the purchase of a first home. Although these are politically popular, in the longer term they have the effect of driving up prices by stimulating demand. Several member states, mainly in Western Europe, have already recognised this and are gradually phasing out mortgage interest tax relief and rethinking housing subsidies. In Central and Eastern Europe, however, demand-side support measures (e.g. interest-subsidised loans, family home creation subsidies) remain common, which help buyers in the short term but may contribute to keeping prices high.
- Rental market and tenant protection: according to the study, the development of the rental market is essential to make it a real alternative to home ownership. Many countries have considered or introduced some forms of rent control. Limiting (indexing) annual increases in existing rental contracts is a widely used tool that prevents tenants’ rents from suddenly skyrocketing. However, limiting the initial rent for new rental contracts is more controversial: overly strict controls may discourage investors from renting out their properties, further reducing supply. Experts recommend a balanced approach: protect tenants from excessive price increases and evictions, but encourage long-term rentals (e.g. through tax breaks or greater legal certainty for landlords). Some cities are also tightening regulations on short-term rentals (Airbnb) – for example, by limiting the number of months per year that properties can be rented out – to prevent too many properties being taken off the long-term market. All these measures can help to alleviate the housing crisis, but care must be taken to ensure that they do not stifle investment.
- Macroprudential and financial measures: The lesson learned in the 2010s is that, in order to preserve financial stability, many countries introduced restrictions such as loan-to-value (LTV) or debt-service-to-income (DSTI) caps. These rules prevent banks from issuing overly risky mortgages (e.g. with low down payments), thereby mitigating the risk of a potential property bubble. Such systems are already in place in almost all EU member states, which has contributed to more restrained lending, especially among young buyers with low savings. In Hungary and several other countries in the region, particularly strict supervisory rules were introduced after the foreign currency loan crisis, with separate limits applying to mortgages in foreign currencies, for example. Although these measures are not directly aimed at improving affordability in the housing market, they have the side effect of curbing debt-driven demand and thus cooling price increases in the longer term. At the same time, it is important to be aware of who is adversely affected by such measures – typically, they limit the opportunities for young people buying their first home, so they need to be combined with other forms of support (e.g. first-time buyer programmes, targeted subsidies) to ensure social justice.
In summary, the issue of housing has become one of the most pressing economic and social problems in Europe today. The sustained rise in prices and the deterioration in affordability are particularly challenging for younger generations and middle-income groups. The shift in the balance between supply and demand is structural in nature, so there is no quick fix. Experts agree that comprehensive housing policy reforms are needed, including expanding supply, responsible lending and fairer taxation. This is the only way to ensure that housing does not become a luxury item in the European cities of the future and that young people and families can find affordable homes.
Economist, public policy expert. He holds degrees from Corvinus University of Budapest and the University of Edinburgh (Public Policy MSc). He has participated in a number of national and international scholarship programmes, including the John N. Lauer Leadership Training Program, the Young Hungarian Leaders Program and the Hungarian Public Administration Scholarship Program. Previously, he worked at the Center for European Policy Analysis think-tank and the Hungarian Prime Minister's Office. Since 2023, he has been working in the Strategic Division of Oeconomus, where his main analytical focus is on domestic and international social policy.
Summary
In October 2025, experts from the European Commission’s Directorate-General for Economic and Financial Affairs prepared a comprehensive study on the state of the European housing market. The document, titled Housing in the European Union: Market Developments, Underlying Drivers, and Policies, provides a detailed analysis of housing price trends, the drivers of supply and demand, and the regulatory and policy factors that influence housing affordability in EU member states. Below we summarise the main findings of this study, with particular regard to trends in Hungary and the Central European region. We consider the document prepared by the European Commission’s experts to be of particular importance, as the Oeconomus Economic Research Foundation also deals extensively with domestic and European housing issues, and with this analysis we would like to bring to the public discourse a number of new, hitherto less discussed aspects that may provide a fresh approach to the topic.
