The housing market in nearly every European country is characterised by a supply-side crisis. But not Austria’s.
While locals say it is by no means perfect – for example, it isn’t easy for young families to get a mortgage in the capital, Vienna – affordable rents are in abundance.
As such, the country’s average rent was just €467.50 in the second quarter of this year, according to the Federal Statistical Office.
This is made possible by Vienna’s 220,000 city-owned flats and 200,000 subsidised flats. Eligibility criteria is based on relatively high income thresholds, so around 80pc of all Austrian households can live in them.
There is also an abundance of housing, which is paying off now that construction costs have shot up and house building is no longer as easy as it once was.
Outside of Vienna, Austria is home to the highest rate of self-builds of any European country.
To put this in perspective, around 7pc of homes in Britain are self-builds versus 70pc in Austria, according to data from independent think tank Centre for Cities.
Ant Breach, of Centre for Cities, said housing in Vienna is certainly cheap considering how affluent the city is.
He added: “But we tend to talk about Vienna – which is home to lots of social housing – as if that’s the whole story in Austria. It’s not.
“If you look outside Vienna, there’s lots of private housing, too. So they take a two-pronged approach, which is important.”
Mr Breach said it would be hard to replicate Austria’s approach in the UK, in large part because the landlocked country – home to nearly nine million people – is a federation.
“Different states tackle problems differently. It would be like London raising taxes to increase social housing, but then other cities would instead focus on building more private housing.
“It’s not unthinkable to get to this point in the UK, but we’d need devolved taxation and more local governments.”
Historically, Vienna’s property market has had it easier than other major cities. Once the capital of a huge European empire, it has since experienced a long period of decline, which in turn lent itself to fewer housing pressures – demand has only been ticking up in recent decades.
Mr Breach said: “The city has had an easier job than London and Paris. It’s much more like Berlin in that sense.”
Austria’s population has been growing steadily, with persistent demand for housing – particularly in urban areas like Vienna and Graz – which creates an attractive market for developers.
While some Austrian developers have slowed building due to costs and profit margins, much like in the UK, there are still optimistic developers betting on strong demand in a few years’ time.
The country expects more migration into the country over the coming years, projecting two million more inhabitants by 2025.
Rents of €4.47 per square metre
Historically, tenants have enjoyed very generous regulatory protection in Austria. Lukas Schwarz, head of capital markets for Austria at CBRE, said one can certainly speak of the Viennese housing market in particular being “pro-tenant”.
He added: “An important point in this very comprehensive protection of tenants is the complex set of rules – which include various rent caps and rent restrictions.
“Effectively, these lead to tenants in historic neighbourhoods and buildings paying comparatively very low rents.”
An extreme example, according to Mr Schwarz, would be that owners of some flats in historic buildings can only charge base rents of approximately €4.47 per square metre per month.
This is compared with fair market rents charged in comparable properties ranging from €14 to €16 per square metre.
Rent subsidies can also knock off a substantial amount. If a rent would usually be €700, state-backed subsidies could whittle this down to €550 or even €500.
Several development companies, such as ARE and ARWA, are also state-owned and their focus is building affordable housing.
Mr Schwarz said through these players, affordable housing supply on the market corrects market rates downwards.
He added: “Apart from this direct action on the property market, there is a large system of subsidies and cooperatives.
“These associations develop, build, rent and sell units with the obligation not to exceed a certain rent or price. This type of system exists in many European countries, but in Austria the system is particularly strong.
“In Vienna, around 60pc of people live in a unit that is subsidised in one way or another. These can be social projects or flats with reduced rents.”
In cities with an imbalanced housing supply, rent caps tend to have the opposite effect. In Scotland, rent controls are pushing rents up rather than down. Data published by Zoopla this week showed that Scotland has now overtaken London with the steepest hikes in rental inflation.
Nationally, new rents are up 12.7pc in Scotland compared to 2022, and 10.4pc in the UK. In Edinburgh, rents are up by 15.6pc over the same period, and in Glasgow by 14pc.
In Austria, people don’t tend to take out a mortgage if they want to build their home. Instead, they will sell an apartment and use the proceeds towards building their next home.
Richard Buxbaum, head of residential international at local estate agent Otto Immobilien, said banks allow homeowners to take out up to 80pc of the equity from their apartment to fund the build of their new home.
The remaining 20pc is held as a contingency by the bank until the build is complete, and then used to pay off any debts.
Mr Buxbaum said: “When you look at other parts of Austria, houses are built by the owners – unlike Vienna, which is a rental market.
“If Austrians want to build, they sell something else. They will sell an apartment so they don’t need the financing to build the house. It’s not a financing market.”
In the UK, environmental constraints make self-builds incredibly tricky. Especially since a 2018 European Court judgement, which ruled that member states need to take care of their nitrogen emissions.
Mr Breach said: “We’ve been very strict and gone further than other member states in how we’ve interpreted the rule. Natural England effectively says that if there is any uncertainty in an ‘affected area’ as to whether a development might contribute to these nutrients then it must be refused.”
Often referred to as ‘nutrient neutrality’ rules in the UK, the Government has now publicly backed the easing of these rules to free up more land for house building.
Mr Breach said: “It’s an interesting puzzle for government. It doesn’t help that we have such a different planning system to the rest of Europe. Natural England has so far gold-plated this directive, which has led to construction being decided on a case-by-case basis.”
Not all rosy
For those buying their first home in Austria, Mr Buxbaum said government-backed loans are available, and that the state also provides financial assistance for home renovations or energy-efficient upgrades.
Without any help, it is now very hard to get a mortgage. New rules introduced in August 2022 require prospective buyers to put down a 20pc deposit.
Since the rules were introduced, house prices in Austria have fallen by their most in a decade. The fall relates predominantly to the “second market”, or older houses, with prices down 10pc to 15pc over the past couple months.
New developments continue to be sold at market rates, with some help from the banks which is driving more building.
Mr Buxbaum said: “We have very strong regulations in Austria. They are too strong and officials are thinking about changing them. But this will take at least another year or two.
“In Vienna, if you want to buy you can’t borrow more than 40pc of your net income per month. On a €500,000 apartment, this simply isn’t affordable for a normal family. Higher interest rates also do not help.”
Banks do have some leeway to grant loans outside of these restrictions, but it is limited to below 10pc of their overall loan books.
Mr Buxbaum said: “Living in Vienna, it doesn’t always feel like the government is doing everything right. But it is certainly better than other cities.”