The recovery picks up speed
The residential property price index for Vienna rose by 7.8% for the year, and that for Austria as a whole rose by 3.1%. In nominal terms, prices are now above the previous peak in 1994 – but of course in real terms they have declined very significantly.
The performance of Austrian property is better than that of immediate neighbors which have experienced spells of housing market stagnation. Swiss house prices, which bottomed out in 1999, recorded 3.2% growth in 2006 Germany saw prices up only 1.2% over the year.
Austria saw a dramatic rise in dwellings prices during the period 1987-1994. House prices in Vienna rose by almost 150% during this period, following positive developments in Eastern Europe, increased immigration, and the expansion of owner occupancy. In some suburbs prices even tripled.
However, the price rises ended when the immigration inflow ended, optimism waned, and when extra housing supply came into the market. By 2001, property prices in Vienna were 14% lower their 1994 level.
Austria has been enjoying stronger economic growth, with 3.3% GDP growth in 2006, after 2% growth in 2005, and 2.4% growth in 2004. Despite substantial immigration (66,000 in 2006), by some measures the unemployment rate has fallen significantly from 7.3% in 2005, to 5.1% today. One measure of increased optimism is stock market performance – since early 2003 the stock market has risen fivefold to its 2007 peak (though it has fallen back somewhat lately).
Residential mortgage rates have been rising along with the rest of the Eurozone, but as in Germany most mortgages are fized-rate, so the Austrian housing market tends to ignore interest rate shifts.
Rental market
The oversupply of rental units in the 1990s led to a fall in rents paid to private landlords. The sharp fall of rents stopped in 2000 and they even rose briefly until 2001, but fell once more in 2002. Rents are now rising again, especially in good locations and top-tier property.
Vienna has one of the highest percentages of renter households in the world at 82%, while the figure for Austria as a whole is around 40%. Around half of the rental stock in Vienna and Austria is privately owned.
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 much higher free market rents for recent entrants into the private rental sector.
The recent upturn in the housing market can be attributed to the lack of quality supply combined with the trend to move to the city center. The number of new dwellings built in Austria fell to about 40,000 units a year 2001-2004, from around 66,000 units yearly in the 1990s.
There is now some recovery in investment in housing.
