Austria’s house prices are now falling, amidst weakening demand

Austria’s housing market is now slowing, which is not surprising given the weakening demand, falling residential construction activity, as well as struggling economy.

The residential property price index in Austria fell by 2.35% in Q4 2023, in stark contrast to y-o-y increases of 5.24% in 2022, 12.54% in 2021, 9.98% in 2020, 3.05% in 2019, and 7.4% in 2018, according to figures from the country’s central bank Oesterreichische Nationalbank (OeNB). It was the third consecutive quarter of y-o-y decline. When adjusted for inflation, prices dropped by a bigger 7.38% last year.

During the latest quarter, nationwide property prices dropped 1.37% q-o-q (-2.37% in real terms).

Over the same period:

  • In Vienna, Austria’s capital, house prices were down by 3.01% (-8.01% in real terms) in Q4 2023 as compared to a year earlier. The past three quarters have been its worst showing since 2001. During the latest quarter, Vienna’s residential property price index declined 1.43% q-o-q (-2.42% in real terms).
  • In the rest of Austria, the residential property price index fell by 1.88% (-6.94% in real terms) in Q4 2023 from a year earlier, in contrast with the prior year’s 5.58% growth. Quarterly, house prices were down by 1.35% (-2.34% in real terms) in Q4.

Austria’s house price annual change

It is important to show that there is a wide disparity of price movements by property type in Vienna:

  • For single-family houses, the average price fell by 2% (-7% in real terms) during the year to Q4 2023, in contrast from the previous year’s 4% growth. Yet quarterly, prices were up by 1.4% (0.3% in real terms).
  • For new condominium units, the average price rose slightly by 1.2% (but still down by 4% in real terms) in Q4 2023 from a year earlier, a sharp slowdown from the prior year’s 8.3% increase. Quarter-on-quarter, new condo prices dropped 1.4% (-2.4% in real terms) in Q4.
  • For existing condominium units, the average price fell by 5.3% (-10.1% in real terms) y-o-y in Q4 2023, following a modest increase of 2.8% in Q4 2022. Quarter-on-quarter, prices dropped 1.8% (-2.8% in real terms).

Austria House Price Indices graph

There are signs that demand is now weakening. In December 2023, the total amount of housing loans outstanding fell by 2.5% to EUR 138.65 billion (US$149.41 billion) from a year earlier, according to figures from the OeNB, amidst rapidly rising interest rates and stricter lending criteria in banks.

Residential construction activity is also plunging. In the first three quarters of 2023, the total number of dwellings approved for construction in Austria fell sharply by 24.7% to 34,626 units compared to the same period in the prior year, following annual declines of 18.8% in 2022, 5.8% in 2021, and 9.3% in 2020, based on figures released by Statistics Austria. In Q3 2023 alone, dwelling permits dropped 16.8% y-o-y to 11,463 units.

The housing market is expected to remain weak in the medium term, amidst rising interest rates, high inflation, and lackluster economic performance.

Austria’s export-reliant economy contracted by 0.7% during 2023, in stark contrast to y-o-y growth of 4.8% in 2022 and 4.6% in 2021, mainly due to weaker private consumption and investments. The European Commission expects the Austrian economy to grow by a meager 0.6% this year, before slightly picking up to 1.4% in 2025. OeNB’s forecast is not significantly different, projecting a real GDP growth rate of 0.6% in 2024 and 1.7% in 2025.

Local house price variations

Vienna is ranked as the world’s best city to live in, in terms of quality of life, according to Mercer’s 2023 Quality of Living survey. The Austrian capital has had the world’s highest quality of living for more than a decade now. The study examined social and economic conditions, health, education, housing, and the environment.

“In Europe, Vienna takes the top spot as the city with the highest quality of living, known for its rich history, stunning architecture, and vibrant cultural scene,” noted the Mercer report.

“Vienna remains the highest ranking city in Europe and globally, providing residents and expatriates with high security, well-structured public transportation, and a variety of cultural and recreation facilities,” said Mercer in an earlier report. 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. There are no restrictions on EU foreigners buying properties in Austria. Residents outside of the EU and EEA require a special permit to purchase property. The regulations for obtaining this permit are set independently by each region.

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 January 2024, Innere Stadt apartments cost on average around EUR 19,907 (US$21,453) per square meter (sqm), up by 8.8% from a year earlier, according to the Though prices can reach as high as EUR 30,000 (US$ 32,329) per sqm 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 currently range from EUR 8,200 (US$8,837) to EUR 9,200 (US$9,914) per sqm.

In Graz, houses cost, on average, EUR 4,378 (US$4,718) per sqm in January 2024, down by 5.3% from a year ago, according to figures from In Linz, houses cost slightly higher, at around EUR 4,581 (US$4,937) per sqm – down slightly by 2.2% from the same period last year.

On the other hand, Salzburg houses are currently offered for an average price of EUR 9,022 (US$9,722) per sqm, down by 15.7% from a year earlier.

Housing cycle

House prices in Vienna have been rising consistently since Q3 2004. During the 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.

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 center of Vienna, so the 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.

In the following years, this trend was reversed, as the capital city had become expensive. Moreover, during the Covid-19 pandemic from 2020 to 2021, work-from-home setup became popular, resulting in a decline in property demand in the city center and an increase in demand for larger residences in less crowded, more quiet residential locations. Vienna’s house prices rose by almost 41% (24.6% in real terms) from 2015 to 2021, while the rest of Austria registered stronger growth of more than 56% (38.4% in real terms).

However, in 2022, house price growth moderated, with Vienna’s house prices rising by 4.76% (and declining by 5.29% when adjusted for inflation). The rest of Austria remained strong, registering an average house price increase of 5.58% (-4.54% in real terms) in 2023.

The effect of high inflation, coupled with surging interest rates and an ailing economy, started to be felt in the housing market last year. Nationwide house prices fell by 2.35% (-7.38% in real terms) while housing prices in the capital city dropped by 3.01% (-8.01% in real terms).

Austria Residential Property Price Index graph

Housing permits continue to fall

Housing permits have been falling in the past three years, since the onset of the Covid-19 pandemic. In the first three quarters of 2023, the total number of dwellings approved for construction in Austria fell sharply by 24.7% to 34,626 units compared to the same period in the prior year, following annual declines of 18.8% in 2022, 5.8% in 2021, and 9.3% in 2020, based on figures released by Statistics Austria. In Q3 2023 alone, dwelling permits dropped 16.8% y-o-y to 11,463 units.

In Q3 2023:

  • New residential buildings with 1 or 2 dwellings: 2,523 units, sharply down by 39.2% from a year earlier
  • New residential buildings with 3 or more dwellings: 6,310 units, down by 4.9% from a year ago
  • New other buildings: 57 units, down by 53.7% from Q3 2022
  • Attachment, construction, and conversion work: 2,573 units, down 10.2% from a year earlier

Housing permits grew by an average of 9% annually from 2013 to 2017. After declining by 14% in 2018, permits rose again by 11.4% in 2019. The number of dwellings approved for construction has been falling since the onset of the pandemic.

Austria Apartment Building Permits graph

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. In 2022 (the latest figures available at Statistics Austria), dwelling completions increased by 5.7% y-o-y to 77,346 units, following an annual increase of 5% in 2021 and a decline of 1% in 2020.

Total dwelling stock as main residences in Austria reached 4,067,000 units last year, up by 1.2% from a year earlier and by more than 10% from a decade ago. Vienna accounted for 23.1% 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. 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.

Austria Main Residences Dwelling Stock graph

Low rental yields, increasing rents

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.

Property prices in Vienna continued to increase in recent years, despite the Covid-19 pandemic. Therefore, you can expect that gross rental yields - the return on investment on a property before all expenses - are weak. But you can generate higher yields in less expensive districts. It all depends on where you buy it.

Nationwide, the average gross rental yield stands at 3.28% in Q1 2024, slightly down from 3.66% in Q3 2023, based on a recent study conducted by the Global Property Guide in February 2024.

In Vienna’s Innere Stadt (Old Town), gross rental yields are poor, ranging from only 1.14% to 1.82%, roughly the lowest rental yields in Vienna. With this kind of rental return, no one is buying a property to be purely rented out. Innere Stadt is considered the most expensive district of Vienna by price per square meter.

But moderate yields can be generated in Vienna’s other luxurious areas, such as Floridsdorf, Penzing, Favoriten, Liesing, and Landstraße. Gross rental yields in these districts range from 2.47% to 5.24%. 

Outside Vienna, Salzburg apartments offer gross rental yields ranging from 2.07% to 2.88%, with a city average of 2.59%. Gross rental yields in Graz are slightly better than in Salzburg - ranging from 2.86% to 4.27%, with a city average of 3.61%. 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 4% annually. Moreover, the continued increase in home prices in Austria, especially in Vienna, has resulted in a fall in rental yields.

From 2005 to 2022, rents have risen by a cumulative 72.4% nationwide and by a higher 83.6% in Austria.

Rent increases have been accelerating since last year, amidst heightened inflationary pressures. In Q3 2023, the average rent (excluding running costs) per dwelling in the country rose by 8.2% y-o-y to EUR473.40 (US$508) per month, according to Statistics Austria. Quarter-on-quarter, rents increased by 1.3% in Q3 2023.

If measured per square meter, the increase in average rent is even higher at 9.2% y-o-y to EUR 7.10 (US$7.6) over the same period.

Austria Dwellings Average Monthly Rent graph

Large rental market

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 micro census. 

Austria’s homeownership rate declined to 51.4% in 2022, down from 54.2% in the prior year and way below the EU-27’s average rate of more than 70%, based on figures from Eurostat.

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.

There were about 1,777,900 rented dwellings in Austria in Q3 2023, up by 3.8% from the same period last year, according to Statistics Austria.

Austria Number of Rented Dwellings graph

Interest rates for housing loans rising sharply

In December 2023, the average interest rate for new housing loans rose sharply to 4.16%, from 2.86% a year earlier and 1.23% two years ago, according to the Oesterreichische Nationalbank (OeNB).

By initial rate fixation (IRF), the average interest rates for new housing loans in December 2023 were:

  • IRF under 1 year: 4.75%, far higher than 2.92% in December 2022 and 0.97% in December 2021.
  • IRF over 1 and up to 5 years: 4.16%, sharply up from 2.75% in the prior year and 1.27% two years ago.
  • IRF over 5 years and up to 10 years: 3.84%, up from 3.04% in the same period last year and 1.35% two years earlier.
  • IRF over 10 years: 3.31%, up from 2.74% a year earlier and 1.38% two years ago.