Austria’s house price rises accelerating
Lalaine C. Delmendo | July 06, 2021
Austrian housing prices continue to rise strongly, despite a struggling economy amidst the COVID-19 crisis. During the year to Q1 2021, the residential property price index in Austria was up by a huge 12.34% (10.86% in real terms), sharply up from the previous year’s 3.4% growth and the biggest y-o-y rise since Q2 2012, according to figures from the OesterreichischeNationalbank (OeNB). During the latest quarter, nationwide property prices increased 3.91% q-o-q (3.56% in real terms).
- House prices in Vienna, Austria’s capital, rose by 10.94% during the year to Q1 2021 (9.48% in real terms), the highest growth in eight years. During the latest quarter, Vienna’s residential property price index increased 3.28% (2.94% in real terms) from the previous quarter.
- In the rest of Austria, the residential property price index rose by a record 14.05% (12.54% in real terms) in Q1 2021 from a year earlier – a sharp improvement from the previous year’s 2.84% increase. On a quarterly basis, house prices increased 4.65% (4.3% in real terms) in Q1.
Statistics Austria’s figures showed more muted results, with the overall house price index rising by 7.32% during 2020 (6.04% in real terms), following y-o-y rises of 6.24% in 2019, 4.87% in 2018, 6.55% in 2017, and 6.96% in 2016.
By property type:
- For new dwellings, the average price rose by a modest 2.98% (1.76% in real terms) during 2020, following a strong growth of 8.09% in 2019.
- For existing dwellings, the average price increase was 8.81% (7.51% in real terms) in 2020 from a year earlier, following a 5.55% rise in 2019.
- For existing houses, the average price rose by 7.54% y-o-y (6.26% in real terms) in 2020, after rising by 5.48% in the prior year.
- For existing flats, the average price was up by 9.81% (8.5% in real terms) y-o-y in 2020, an improvement from the previous year’s 5.59% rise.
Construction activity is falling, despite the robust demand. During 2020, the total number of dwellings approved for construction in Austria fell 4% y-o-y to 74,763 units, following an increase of 11.4% in 2019, according to Statistics Austria. As of April 2021, total housing loans stood at EUR 127.73 billion (US$155.68 billion), up strongly by 7.5% from a year earlier, according to the European Central Bank (ECB).
Demand is expected to continue rising, because people consider real estate as a hedge against economic uncertainties and risks.
“Lots of people are scared about the future so they want to put their money in a safe place, like residential property,” said Peter Marschall of Marschall Real Estate. “We did very well in the second half of last year and we have started well this year, so we are expecting 2021 to be a good year for business.”
Austria’s economy contracted by 6.6% during 2020, mainly due to the economic repercussions of the COVID-19 pandemic and related containment measures. The Austrian economy is mainly driven by exports, mostly to its biggest trading partner, Germany. More than 75% of Austria’s exports go to Europe, 30% to Germany.
The economy is expected to return to growth this year, as remaining curbs are gradually lifted amidst an accelerated vaccine rollout. The economy is projected to grow by a modest 3.4% this year and by another 4.3% in 2021, according to the European Commission.
There are no restrictions on foreigners buying properties in Austria.
Differences in local house prices
Vienna is ranked as the world’s best city to live in, in terms of quality of life, according to the 21st Mercer Quality of Life study published in 2019 (Mercer did not publish a study in 2020 due to the pandemic). In fact, the Austrian capital has had the world’s highest quality of living for a decade now. The study examined social and economic conditions, health, education, housing and the environment.
“Globally, Vienna tops the ranking for the 10th year running,” said Mercer. “Vienna remains the highest ranking city in Europe and globally, providing resident and expatriates with high security, well-structured public transportation and a variety of cultural and recreation facilities,” Mercer added. It is a no brainer that these qualities have attracted a lot of foreign investors into purchasing homes.
Wealthy Eastern Europeans are attracted to Austria due to cultural similarities, and see Vienna as a very safe environment and a safe haven for their investments. In the high-end residential market, Austrians represent about 60% of property buyers while the remaining 40% are foreigners, mainly from Eastern European countries like Russia and Ukraine.
Vienna’s “super prime” area, on the other hand, attracts a more diverse set of foreign buyers. Some of these come from Switzerland, the United States, the Middle East, and Hong Kong, according to Otto Immobilien Gruppe’s head of residential marketing, Richard Buxbaum.
The First District, also called "Innere Stadt", which means "Inner City", is a UNESCO heritage site blessed with baroque architecture as well as the Imperial Palace. The First District is the center of Vienna’s luxury and secondary home market. In June 2021, Innere Stadt apartments cost on average around EUR 16,655 (US$20,246) per sq. m., up strongly by 12.5% from a year earlier, according to the Immopreise.at. Prices even reach EUR 30,000 (US$ 36,468) per sq. m. in exceptional cases. Slightly lower prices are seen in surrounding areas such as the 2nd to the 9th districts. Prices of condos or villas in the 19th, 18th, and 13th districts range from EUR 6,500 (US$7,901) to EUR8,400 (US$10,211) per sq. m.
In Graz, houses cost, on average, EUR 3,896 (US$4,736) per sq. m. in June 2021 according to the Immopreise.at. In Linz, houses are currently offered for an average price of EUR 4,688 (US$5,699) per sq. m. On the other hand, Salzburg houses cost about twice as much, at around EUR 9,179 (US$11,158) per sq. m.
The long boom
House prices in Vienna have been rising consistently since Q3 2004. During first decade of the housing boom (2003-2014), house prices in the capital soared by 114% (70% in real terms). Property prices in the rest of Austria rose much less, by just 37% (9% in real terms) from 2003 to 2014.
In the following years, this trend was reversed, as the capital city had become expensive. Vienna’s house prices rose by 26% (16% in real terms) from 2015 to 2020, while the rest of Austria registered stronger growth of 37% (27% in real terms).
Why did Vienna’s house prices rise faster than the rest of Austria from 2004 to 2014? It is puzzling, but it may be partly because it is difficult to build in the centre of Vienna, so new supply is very limited. It may also be because in an era of low interest rates, people are putting money into rental properties, and Vienna offers relatively easy renting (though returns are quite moderate). Another possible factor is that the majority (about 70%) of residential real estate in Vienna is owned by institutional investors, i.e., banks and companies.
Housing permits falling
Housing permits have fallen last year, amidst the coronavirus pandemic. During 2020, the total number of dwellings approved for construction in Austria dropped 4% y-o-y to 74,763 units, following an increase of 11.4% in 2019, according to Statistics Austria.
Housing permits grew by an average of 9% annually from 2013 to 2017 but declined by 14% in 2018.
The number of new dwellings built in Austria was around 66,000 units yearly in the 1990s, but the number fell to about 40,000 units a year during 2001-2004. Almost 78,000 dwellings were completed in 2019, up more than 12% from a year earlier and the highest ever recorded, according to figures from Statistics Austria.
The total dwelling stock as main residences in Austria was about 4 million in 2020, up by more than 10% from a decade ago. Vienna accounted for 23% of the stock, followed by Lower Austria (18.5%), Upper Austria (16.2%), and Styria (13.9%).
Currently, about two-thirds of Viennese citizens live in municipal or publicly subsidized housing, as noted in an article by The Guardian. About 80% of flats built in Vienna are financed by the city’s housing subsidy scheme. Vienna’s local government plans a 30% boost in housing construction implying that about 13,000 new homes will be built in Vienna every year, up from the current 10,000.
Rental yields are low to moderate
Austria’s rental market is segmented via tenure, regulation and market forces into a hierarchy of low rents for municipal, other social tenants and long-term incumbents in the private sector, but higher free market rents for recent entrants into the private rental sector (though even the "free" sector is substantially controlled, with maximum rents clearly specified by the authorities). Global Property Guide’s figures cover the "free" market sector only.
Rental yields in Vienna’s Innere Stadt (Old Town) are poor as compared to the other upscale areas in Vienna, with yields ranging from only 1.72% for 130-sq. m. apartments to 2.33% for 50 sq. m. apartments, according to Global Property Guide research. At this kind of yield, no-one is buying an apartment to rent it out. These are the residences of the rich.
In Vienna’s other luxurious areas, such as Margereten, Mariahilfen, Favoriten, Hernals, or Leopoldstadt, gross rental yields range from nearly 5% for very small apartments, to 3% to 4.4% for large apartments.
Outside Vienna, Salzburg apartments offer gross rental yields ranging from 2.4% to 3.8%. Gross rental yields in Graz are slightly better than in Salzburg - ranging from 2.5% to 4.9%. The smallest apartments return the highest rental yields.
An oversupply of rental units during the 1990s led to a fall in rents. The rent decline stopped in 2000 and rents even rose briefly until 2001, but fell once more in 2002. Rents have been continuously rising since, albeit at a moderate pace of about 3.6% annually. Moreover, the continued increase in home prices in Austria, especially in Vienna, has resulted to a fall in rental yields.
Large rental market
The average rent per dwelling in the country rose by 4.1% to EUR 415.9 (US$505.7) per month during 2020, according to Statistics Austria. If measured per square meter, the average rent increased by a more modest 3.9% to EUR 6.2 (US$7.5) over the same period.
In Vienna, the average rent of dwellings rose by 5.1% y-o-y to EUR 425.6 (US$517.5) .
Vienna has one of the highest percentages of renter households in the world, with about 75% of homes rented. In Austria as a whole, households own 56.4% of primary residences, while 41.2% are rented, according to a recent Austrian microcensus. Austria’s homeownership rate of about 55% is way below the EU-27’s average rate of more than 70%.
The high percentage of rented residential properties is due to the large proportion of subsidized low-rent apartments in the general rental market, according to Martin Schneider of the OeNB. Limited tax incentives for home ownership also contribute to the high proportion of renters.
Currently, there were about 1.7 rented dwellings in Austria, up by 1% from the same period last year.
Interest rates remain at record lows
In March 2021, the average interest rate for new housing loans fell to 1.18%, from 1.4% a year earlier and 1.78% two years ago, according to the OesterreichischeNationalbank (OeNB).
Average interest rates for new loans in March 2021 were:
- Interest rate fixation (IRF) under 1 year: 0.95%, a decline from 1.18% a year earlier and 1.51% two years ago.
- IRF over 1 and up to 5 years: 1.25%, down from 1.45% last year and 1.71% two years ago.
- IRF over 5 years and up to 10 years: 1.38%, down from 1.62% in March 2020 and 1.92% in March 2019.
- IRF over 10 years: 1.35%, down from 1.56% a year earlier and 2.14% two years ago.
For outstanding housing loans, the average interest rate was 1.48% in April 2021, down from 1.68% in the previous year and 1.83% in April 2019. Over the same period:
- Maturity of up to 1 year: 1.36%, down from 1.59% a year earlier and from 1.73% two years ago.
- Maturity of over 1 and up to 5 years: 1.37%, a decline from 1.62% a year earlier and from 1.77% two years ago.
- Maturity of over 5 years: 1.49%, down from 1.69% a year earlier and 1.83% two years ago.
The persistently low mortgage rates are partly attributable to the European Central Bank’s (ECB) reduction of its key rate to a record-low of 0.00% in March 2016, where it has remained since.
Mortgage market is still small
In terms of size, the Austrian mortgage market has expanded to 33.4% of GDP in 2020, up from 17.1% of GDP in 2003. Austria is relatively under-mortgaged: the EU’s average is 50% of GDP. As of April 2021, total housing loans stood at EUR 127.73 billion (US$155.68 billion), up by 7.5% from a year earlier, according to the European Central Bank (ECB).
In March 2021, new loans to households for housing purposes rose by 5.5% from a year earlier, according to the OeNB.
The share of foreign-currency denominated mortgage loans is declining. From 18.8% in 2016, its share to total mortgage loans fell to just 8% in Q1 2021, according to the central bank’s June 2021 Financial Stability report. About 97% of these foreign-currency denominated loans were in Swiss franc (CHF).
Housing loans accounted for more than two-thirds of households’ total outstanding loans in Q1 2021.
Pandemic-induced economic recession
Austria’s export-reliant economy contracted by 6.6% during 2020, mainly due to the economic repercussions of the COVID-19 pandemic and related containment measures, typical of contractions observed across the eurozone. The Austrian economy is mainly driven by exports, mostly to its biggest trading partner, Germany. More than 75% of Austria’s exports go to Europe, 30% to Germany.
In Q1 2021, the economy continues to struggle, with real GDP declining by 5.5% y-o-y, following annual contractions of 5.6% in Q4 2020, 3.8% in Q3, 13.6% in Q2 and 3.6% in Q1.
Despite this, the Austrian economy is expected to return to growth this year, as the remaining curbs are gradually lifted amidst an accelerated vaccine rollout. The economy is projected to grow by a modest 3.4% this year and by another 4.3% in 2021, according to the European Commission.
Austria experienced relatively strong economic growth from 2004 to 2007 with an average annual GDP growth of 3%. After contracting by 3.8% in 2009, the economy emerged from recession with growth rates of 1.8% in 2010 and 2.9% in 2011. Though the economy has stagnated in recent years, posting an average real GDP growth rate of 1.3% annually from 2012 to 2019.
In 2020, the country recorded a huge budget deficit of 8.9% of GDP, in sharp contrast to surpluses of 0.6% of GDP in 2019 and 0.2% of GDP in 2018, according to Statistics Austria, as government spending surge to ease the impact of the COVID-19 crisis on economic activity. The budget shortfall is projected to fall slightly to about 7.6% of GDP this year, according to the European Commission. Though the country’s gross public debt was estimated to continue rising to 87.2% of GDP this year, up from 83.9% in 2020 and 70.5% in 2019.
In May 2021, the unemployment rate improved to 7.7%, compared to 8.6% in the previous month and 11.5% a year earlier. Yet it remains far above the average jobless rate of just 5.2% from 2009 to 2019.
Inflation stood at 2% in March 2021 – the highest level achieved since February 2020, according to Statistics Austria. The European Commission expects Austria’s inflation at 1.8% this year.
Caps on refugees, coalition deal between the Austrian conservatives and Greens
Austria has been among the EU members with the highest numbers of asylum applicants since 2015, with about 90,000 applications. Vienna took in 43,200 people to reach a total population of 1.84 million. Of the 141,718 registered unemployed in the city, around 58,000 were foreigners, representing a 17% annual increase in the number of jobless foreigners in the city.
Aside from having a direct effect on the country’s unemployment rate, Statistics Austria also reported that more than half of all asylum seekers in Austria commit crimes. More specifically, from 2004 to 2014, almost every other migrant had committed some kind of criminal offence after coming to the country and seeking asylum. The report revealed that about 80% of the criminals were young men. Moreover, a number of suspected jihadis were detained in 2016 after a series of raids in cities across Austria.
To address these concerns, the government announced in January 2016 that they would set a maximum number of 37,500 asylum applicants annually in the next four years. The following month, Austria introduced a cap of 80 asylum seekers a day allowed to enter the country to make an asylum application, while 3,200 persons are allowed to transit toward other countries.
The government also revealed a plan to deport about 50,000 failed asylum seekers over the next four years.
In fact in February 2016, the Minister of Interior Johanna Mikl-Leitner announced that the "Balkan route", the main passage used by migrants, commonly from the Middle East, to reach affluent countries to the north, would be closed permanently.
As a result, asylum applications fell dramatically to 24,735 in 2017, 13,746 in 2018, 12,886 in 2019 and to 14,775 in 2020, according to Statistics Austria. In 2020, about 35% of asylum applications came from citizens of Syria, followed by Afghanistan (21%), Morocco (5%), Iraq (4.9%), and Somalia (4.8%).
The immigration crisis has had a substantial political impact. In the legislative elections of 2013, the Social Democratic Party (SPŐ) and the Austrian People’s Party (ÖVP) - a Christian Democratic party - emerged with the highest number of seats (27% of the vote and 52 seats for the SDP, and 24% and 47 seats for the People’s Party) and formed a ‘grand coalition’.
However in May 2017 the ÖVP elected a new young leader, the right-wing populist Sebastian Kurz. Kurz had previously called for stricter controls on migrants, and steered through an Islamgesetz (Islam Law) prohibiting the funding of mosques by entities from abroad, paying imams’ salaries, and regulating the version of the Quran that may be used in Austria.
Partly as a result of his leadership the Grand Coalition broke in mid-2017, and a snap election held in October was won by the ÖVP which took 31.5% of votes and 62 of the 183 seats. The SPŐ was second with 26.9% and 52 seats. The ÖVP disdained its previous socialist partners and formed an alliance with the newly-strong right-wing Freedom Party of Austria (FPÖ) which had finished in 3rd place, receiving 26% of the votes and 51 seats.
The victory of the center-right People’s Party (ÖVP) and the radical right Freedom Party (FPÖ) further strengthened the country’s insistence on restricting immigration and limiting support for immigrants. As Chancellor, Kurz has brought Austria closer to the Visegrad Group, particularly the Eurosceptic and populist governments of Andrej Duda in Poland, Victor Orban in Hungary, and Milos Zeman in the Czech Republic.
The government has stopped the private housing of asylum seekers, providing instead only centralized accommodation facilities. Moreover, it also substantially reduced minimum social welfare support for recognized asylum seekers, reduced access to German courses and apprenticeship programs and take their cash to help pay for basic needs.
As Austria held the EU’s rotating presidency in 2018, Kurz has made curbing unregulated migration a priority not just in the country but in Brussels as well. In fact in October 2018, the Austrian government announced its withdrawal from the UN global migration pact to promote safe and orderly migration (known as the Global Compact for Safe, Orderly and Regular Migration).
However tension between Kurz and his coalition government has increased steadily since it was formed, and the FPÖ’s “Ibizagate” scandal, in which leading FPÖ members were taped agreeing to helping a Russian oligarch with Austrian connections in return for financial support, and revealing contacts with Russian President Putin with a view to forming a "strategic alliance", caused Kurz to be voted out of office in a Parliamentary no confidence vote in May 2019.
During the September 2019 snap election, Kurz’s ÖVP won the most votes of 37.5%. The FPÖ suffered heavy losses while the Greens scored their best-ever result, receiving 13.9% of votes, amidst growing calls for urgent action on climate change. In January 1, 2020, Kurz struck a coalition deal with the Greens to ensure his return to power and bring the left-wing party into government for the first time. The Greens will control 4 of 15 ministries.
Recently, anti-corruption prosecutors opened an investigation involving Kurz over allegations that he made false statements to a parliamentary commission. Earlier in February 2021, the home of close ally and finance minister GernotBlümel was raided by prosecutors in an investigation into illegal party funding involving a gambling company.
- Prices, competitiveness (OesterreichischeNationalbank): https://www.oenb.at/en/Statistics/Standardized-Tables/Prices--Competitiveness.html
- Sectoral price development (OesterreichischeNationalbank): https://www.oenb.at/en/Statistics/Standardized-Tables/Prices--Competitiveness/Sectoral-Price-Development.html
- House price index (Statistics Austria): https://www.statistik.at/web_en/statistics/Economy/Prices/house_price_index/index.html
- What will happen to Austria’s property market in 2021? (The Local): https://www.thelocal.at/20210127/what-will-happen-to-austrias-property-market-in-2021/
- Housing (Statistics Austria): https://www.statistik.at/web_en/statistics/PeopleSociety/housing/index.html
- Housing costs (Statistics Austria): https://www.statistik.at/web_en/statistics/PeopleSociety/housing/housing_costs/index.html
- Building permits (Statistics Austria): https://www.statistik.at/web_en/statistics/PeopleSociety/housing/construction_of_buildings_and_dwellings/building_permits/index.html
- Residential property prices continue to rise also in first quarter of 2021 (OesterreichischeNationalbank): https://www.oenb.at/en/Media/20210604.html
- Financial Stability Report (OesterreichischeNationalbank): https://www.oenb.at/en/Publications/Financial-Market/Financial-Stability-Report.html
- What could Vienna’s low-cost housing policy teach the UK? (The Guardian): https://www.theguardian.com/society/2017/dec/12/vienna-housing-policy-uk-rent-controls
- Prices have risen significantly in Vienna, and yields are moderate (Global Property Guide): https://www.globalpropertyguide.com/Europe/Austria/Rental-Yields
- Vienna tops Mercer’s 21st Quality of Living ranking (Mercer): https://www.mercer.com/newsroom/2019-quality-of-living-survey.html
- The price comparison for real estate in Austria (Immopreise.at): https://immopreise.at/Preisentwicklung/Wien/Wien-1-Innere-Stadt/Wohnung/Miete
- Economic forecast for Austria (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/austria/economic-forecast-austria_en
- Consumer price index (Statistics Austria): https://www.statistik.at/web_en/statistics/Economy/Prices/consumer_price_index_cpi_hcpi/index.html
- Asylum applications (Statistics Austria): https://www.statistik.at/web_en/statistics/PeopleSociety/population/migration/asylum/index.html
- Austrian leader Sebastian Kurz investigated by corruption inquiry (BBC News): https://www.bbc.com/news/world-europe-57087817
- House prices soar outside the Austrian capital, but Vienna slows - March 28, 2017
- Austrian housing market vibrant, despite weak economy - April 14, 2016