Affordable housing and shelter are a need of time, amidst the pandemic the rates of global housing markets have skyrocketed. Economists and the stakeholders of the real estate market are speculating whether the boom in the housing market will last or will it fall. The financial crisis of 2008 was also triggered by the housing sector which sent shockwaves across the world. Earlier, in 2005, the housing prices had observed an increase in prices of homes from 15 to 13 percent. This time the story has turned, and the housing market across the globe is on an upward trajectory.
Graana.com through this blog explores the reasons why the housing market across the globe is observing a boom. Since most of the people particularly in the developing countries are tenants and pay hefty amounts on rents, the rising housing market is further exacerbating the situation.
Housing Supply and Demand
The point of departure for the global housing market in terms of the boom in housing prices lies in the Supply and Demand issues. Owing to the tangible nature of the real estate market, the rising trend in prices is dependent on the law of supply and demand. Since the demand for housing units is more than the supply of housing units, the prices of housing units are skyrocketing across the globe. As per the research of Bank for International Settlements and World Economic Outlook out of sixty countries, twenty-three observed an increase of 5pc in the housing prices. These countries are also included in the IMF’s Global House Price Index 2020.
Supply Chain Disruptions
The pandemic almost brought every industry at halt. The supply chain disruption was a common phenomenon across the globe, hence disruptions in the supply chain of the construction industry were also observed. This factor also played a major role in the supply and demand of housing which also impacted the housing prices. Simultaneously a phenomenon regarding the increase in prices of the rental was also observed across Europe. In a study conducted by the International Monetary Fund (IMF), it was revealed that some households paid as much as 40pc of their total incomes on the house rents. Hence, the pandemic sent shockwaves to every aspect of the real estate market whether rentals or prices of housing units.
Banking Interventions
Banking interventions in terms of low-interest rates have also given an impetus to the rising prices of housing units across the globe. In between the pandemic, the better off group of people had accumulated the money which led to investment in the housing sector. Since most of the housing sector relies on mortgages, the low-interest rates increase the demand side while putting pressure on the supply. The insufficiency combined with supply-chain disruptions leads to a cycle of increasing housing prices around the world. The study of the Dutch Bank had shown that prices of housing units correlate directly to the borrowing capacity rather than supply. In China, particularly in the city of Shenzhen, the housing prices have increased by 16pc in the city thus raising concerns regarding affordability.
Changing Nature of Workplaces
Analysts during the research have taken into consideration the changing lifestyle preferences. Amidst the pandemic, the trend of Work from Home (WFH) also led to increasing prices across the globe. The Bank of England has elaborated on the changing nature of the workplace in a way that people have started to search for more spaces. Bigger houses, in particular, are gaining importance due to the availability of large spaces and the suburbs of major cities are becoming a major locus point in terms of homes.
Role of Foreign Investors
Another reason that can be attributed to the increasing housing prices across the globe includes the role of foreign investors. No doubt the role of foreign investors is a great driver of the economy however, the presence of foreign investors in the real estate market is pushing the prices of housing units. The explained reason has a direct relation with the tourism sector of the country as it helps to attract foreign investors in the country which has a direct impact on the prices of the housing units. Many experts in the real estate market are of the view that a boom in the housing industry is difficult to predict but it will not have serious financial consequences unlike 2008.
