Front Burner - Lessons for Canada from Europe’s housing fails

Episode Date: May 21, 2024

Europe has a reputation as a place that is generally ahead of the curve on things like social housing. So it might surprise some Canadians to learn that much of the EU is well into the throes of a full-blown housing affordability crisis — and the general patterns bear a striking resemblance to our own.Senior Politico reporter Aitor Hernandez-Morales explains just how bad things are getting, and what we might learn from how it's unfolding.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hey guys, it's Jamie. So we do a lot of stories on the pod about housing in Canada. And for good reason. We have one of the worst housing affordability crises in the developed world.

According to some estimates, benchmark prices for a single-family home have doubled in most parts of Canada in the developed world. According to some estimates, benchmark prices for a single-family home have doubled in most parts of Canada in the past decade. It is truly terrible. Today, though, we want to take a look at the housing situation somewhere else. Somewhere that I think a lot of Canadians might imagine would have done a better job at figuring this stuff out. Europe. Countries across the continent are facing an incredibly similar housing crisis to ours. And we want to talk about it today because it's actually striking how similar the trajectory is that led them to this point. And maybe we can learn something from that. My guest today is Aitor Hernandez-Morales. He's a senior reporter of

Politico Europe and the author of Politico's Living Cities Global Policy Lab. Aitor, hi. Thanks so much for being here. Happy to be here. So I wonder if you could start by giving me a picture of how bad the housing crisis is in different parts of Europe, especially the countries where this has gotten particularly bad. So what we're seeing is a situation where the housing crisis really is basically a European problem. Now, there is no country within the EU that's immune to this situation. But certainly, there are some countries

where the situation is really, really out of whack. So overall, what we've seen is that over the past decade, there's been a dramatic rise both in house prices and rental prices. When we talk about house prices, we're looking at an increase of around 46% across the block. Whereas with rental prices, we're looking at a 20% raise in the price of rents on average. So when we zoom into specific countries that are part of the EU, you have really dramatic situations, for example, in Estonia, where house prices are now 200% of what they were 10 years ago. Similarly, in Hungary, you're seeing between 150 to 200% jump, and that's actually mainly concentrated around Budapest. You see it to a lesser extent everywhere else. So even countries that we would consider generally

prosperous and stable, like Germany, there you have house prices going up between 75 and 100 percent over the past decade. So there really has been a pretty dramatic shift in that sense. And it's certainly one that the average European is feeling on a day-to-day basis. I don't know if you know this, but here in Canada, it's kind of like a national pastime for us to talk about the price of housing. I don't know if I want to say I'm comforted to know, it's kind of like a national pastime for us to talk about the price of housing. I don't know if I want to say I'm comforted to know that it's also pretty bad in Europe. I feel like that would kind of be cruel for me to say that. But our producer, Ali, was playing with this tool on the OECD website where you can compare housing to price-income ratios for different countries.

And it's basically a measure of affordability. So she compared Canada and all the European countries. Canada, I mean, we still are the second worst price to income ratio in 2023. I don't, that's not a medal that you want, but Portugal was actually the very worst, which surprised me. What is going on there specifically? Why is it so unaffordable? It's a really fascinating situation. With Portugal, it's directly related to the popularity of the country. So I'm pretty sure even Canada has noticed that Portugal really is on the map lately.

It was definitely very fashionable from 2015 onward. Madonna moved over there. It seemed like everybody was traveling to Portugal and spending their summer there. And while that's been great for the Portuguese economy and for this country that had been intervened by the EU and had been facing bankruptcy, it's been disastrous for the housing situation within the country. So you have a combined factor there. On one side, it's short-term rentals for tourists. And that really has become part of the economy. Many, many, many Portuguese people are now just basically living from managing Airbnbs.

And that's really just reduced the amount of available housing stock in cities like Lisbon and Porto. but definitely in the south, in the Algarve, it's become a really dramatic situation. The country welcoming 2.8 million tourists in the first three months of the year, that figure even higher than the pre-pandemic quarterly record of two and a half million tourists from the same period in 2019. And then you have the added factor of the so-called golden visa program, whereby the Portuguese government would let wealthy foreigners gain residency automatically if they made an investment in property. And so a lot of people were just buying basically European citizenship

that way. Lisbon has become prime property for wealthy foreign workers able to work from home. And the influx of these so-called digital nomads is being seen as an opportunity to charge rents that are beyond the salary of the average Portuguese worker. Many overseas professionals have been lured by the visa scheme for remote workers. So that completely threw off the standard value of homes in the country. And as a result, what you have now is a situation where Lisbon actually has the most expensive rents in Europe. It really is remarkable that you will you'll pay more for a flat in Lisbon than say, you know, in Amsterdam, or even in certain parts of London. And this, you know, it's a really tragic situation because the Portuguese haven't seen their income raised in parallel to these higher prices. So the average wage across the country is still very low.

And that does really lead to a desperate situation where, especially again in the cities that I mentioned, Lisbon and Porto, locals are just being priced out of the city and are having trouble living there. The rents are simply too high when you earn a minimum wage of €760. It's very difficult. I have a second job so I can afford a car. I need that to get from home to work. I work 13 hours a day for that. For Maria, she fears it will be too late for her and her husband. What I fear now is that my next home will likely be the cemetery. That obviously, you know, is tied to

housing, but then eventually bleeds over into everything else simply because you have wealthy or wealthier foreigners interacting with the market. So, you know, restaurants are now more expensive. Basic goods are more expensive. So people are just being priced out of the cities. And it's creating a really dramatic situation where there are regular protests on the streets. And, you know, we're talking about tens of thousands of people taking to the streets to demand the government take action. But so far, that action just hasn't happened. It's interesting. I didn't know about the foreign citizenship thing, but I should have thought about the tourist thing, because it feels like in the last several years, you're totally right. Like, Portugal is like the

place to go. It's like the new Iceland, at least for people in Canada. I have stayed in Airbnbs in Porto, Lisbon and the Algarve. So I feel badly actually now that we're talking about this. I know that you've interviewed people who are struggling to find housing in these kind of environments, not just in Portugal, right? And what have they told you? I mean, what you basically have is a very desperate situation. In terms of the cities where this is the worst, Dublin definitely stands out. There during my reporting, I spoke with

a man who talked about, you know, showing up to see a flat and having 30 other people waiting in line to see it. And it certainly is a situation that tilts the market in favor of the landlord and they can make really outrageous demands, not only in terms of the rental prices that they're asking for, but even telling people, if you want to see the flag, you're going to have to pay up front. You're going to have to leave a cash deposit to even be considered. And it does really make the environment very toxic in that sense. So I know we're going to get into some more granularity about the causes of this crisis throughout the conversation. But broadly, I know there's one big, pretty straightforward reason that a lot of experts point to. And what is it? Government stop building houses.

That is the headline. That's the be all end all of this. That is the headline. That's the be-all end-all of this. That's the tweet. Basically, since the 1980s, public administrations across Europe just stopped building houses. And it really is a shift from what had historically happened in Europe, especially in the post-war period. This had been considered something that was part of the government's responsibility. And it was a public good, you know, akin to healthcare or social security. Governments invested in these massive housing schemes. And by the 1980s, there was first a philosophical shift that I would say, which is, you know, exemplified by Margaret Thatcher

in the UK, where it was this idea of homes should be in private hands. In the 70s, almost half the nation were council tenants. Then came Margaret Thatcher's monumental change, giving tenants the right to buy their homes at big discounts. A lot of countries followed that example that we know very well from the UK, which is that a lot of public estates were sold. People were allowed to buy them. And on one side, that can be very positive for the people who have lived there for decades. It gives them that sense of ownership. But ultimately, that is real estate stock that's being taken out of circulation.

real estate stock that's being taken out of circulation. And ultimately, part of the situation that we have now is that housing has very much become a tradable monetary good more than a public resource. Right. More than a place for people to live. Yeah. Absolutely. It's a source of income for many, many people. And that certainly has changed the dynamic. But it also does mean that because this stopped being a public policy issue, government stopped building. So we really do have an issue of housing stock. There just there really interesting example of this very beautiful public housing project in Rome that was built around this municipal slaughterhouse, right, that you talk about. And tell me about what that project was initially and then what ended up happening to it in the 90s. So this is this absolutely gorgeous neighborhood in Rome that you guys should all visit if you ever go over to Italy to italy it's called this statue and it's uh it's built around this uh this artificial hill which is actually it's not a proper hill it's a dumping ground for ancient roman amphorae that

they used to carry oil with and they just started stacking them up and over centuries this mountain formed uh and in the shadow of the mountain you have the municipal slaughterhouse that was built there at the turn of the last century. And then this kind of model housing estate that was built for the slaughterhouse workers. And these public housing buildings were built with the most advanced humanistic principles of the period. just really gorgeous, you know, Mediterranean looking buildings with these beautiful tiles. They each have their garden courtyards and they're all built to basically let air flow through and to really give the working class, you know, quality of life. So this housing project served the people who worked in that slaughterhouse through most of the last century the slaughterhouse finally ended up closing in the 1970s and in the 90s the government gave uh the people who lived there the right to buy their flats and what you ended up seeing was this situation where they were able to buy their properties and then they immediately sold them off and they sold them off for a fortune to you know uh kind of upper middle class bourgeois families who, more than families, couples, who, you know, saw this gorgeous architecture from the 1910s and 1920s and decided to move in because it was chic and fashionable and it's still very close to central Rome. And so the neighborhood has just been very aggressively gentrified as a result of that.

And what you see now is a neighborhood that's basically stopping a neighborhood. You still have a few of the old mom and pop shops lingering, but overall it's become more populated with kind of gastro bistros and stuff like that. And the historic residents have moved on. So it is a really interesting trend that you see across Europe that when it comes to housing, you will have many cities make a lot of serious public investment. But then ultimately, if they end up allowing that property to be privatized, all of that public money that's been spent on these buildings ends up just ending up in private hands, which is quite sad when you think about it. Hi, it's Ramit Sethi here. Gem, brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix.

I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income. That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. This historical trajectory of governments just deciding that they want to kind of get out of the housing game, it's just really interesting to see how similar it's been here in Canada. So I was looking at some graphs made by a policy analyst here named Brian Clifford

that looked at affordable housing funded by the federal government. And it's really similarly quite high through the 60s and 70s. And then you see it taper off a bit in the 80s under conservative prime minister Brian Mulroney, who is, you know, very much aligned with Thatcherism. But then it just absolutely falls off a cliff in the 90s under liberal prime minister Jean Chrétien. You know, beyond kind of moving more into the private markets like what other reasons might there be that governments deprioritized housing i i was seeing um eu housing ministers essentially stopped meeting for almost a decade and some countries like the Netherlands went years without

even having a housing minister at all. And so what other reasons might there be? I mean, look, to put it frankly, from a political point of view, from the point of view of a politician, housing policy is terrible. Like it's just an absolute stinker because building houses is very expensive. It takes time. And ultimately, the people who most appreciate it are the people living in those houses, but not necessarily society at large. So when you look at it from that perspective, you can understand why local and national governments were so keen to just take themselves out of the equation and say the private sector can take care of this. You know, think of it from the perspective of a mayor, think of it from the perspective of a prime minister. You may put a lot of effort into

building a housing estate and pour in, you know, millions and millions and millions of euros. And it's possible that housing estate will not be finished before the next elections. So people will not vote for you based on that. And if you lose the election, your opponent will take credit for it when it opens. So it's understood that a lot of governments just say, you know, if I'm going to build something, I'd rather build a hospital and know that it's going to open and everyone can use that hospital because people will be very happy about it and they will vote for me. And that's why I think it's important to note that the most successful housing policies are the ones that end up having broad buy-in. If it is perceived as

something that only benefits low-income residents, you generally don't get the wider public to support it and to back it. I think one example of that broad buy-in that you're talking about is Vienna, Austria. Am I right? Okay, and this goes back to the 1920s. Tell me what happened in Vienna because that city is really kind of bucking the trend that we're talking about here, right? Totally.

So Vienna's the gold standard, but it should always be noted because people talk about Vienna all the time that Vienna's case is extremely particular and it's very difficult to replicate. So, you know, basically jump with me in a time machine and go back to the end of World War I, the Austro-Hungarian Empire collapses, Austria no longer has an emperor, it's a republic, and Vienna ends up being ruled by this group of really progressive bourgeois socialists. So they were all, you know,

doctors and lawyers and so forth. But they were really, really committed with the working man and this idea that, you know, we're all equals. And so they set about buying up property in post-war Vienna, which obviously is, you know, almost worthless. And they do it with fake names so that no one actually figures out that it's the city that's buying it up. And so by the end of it, the city has just amassed this massive amount of land, which is now public. And that land has never been sold off. And they use that land now for public housing estates, which they already started building in the 20s um and again because it was this very idealistic government they established in the beginning that the housing estates should be at the standards that would be

expected from the middle class they wanted these buildings to be the sort of buildings that they would want to live in you know as as proper lawyers and and uh and doctors in in viennese society so when you go and you you these estates, like the Karl Marx Hof is the most famous one. They're just stunning. They're these gorgeous art deco buildings and they have, you know, statues and little detailing and the apartments are beautiful. And on top of that, because they were built before, you know, air conditioning was a thing. They're all designed to really make the best use of the environment. So they're actually remarkably sustainable properties. And you have these all over Vienna. And of course, initially, this was all very unpopular because it did cost a lot. Taxes were sky high in 1920s

Vienna. But in the long term, they've become a part of the city's identity in part because gradually the threshold for qualifying for one of these flats became greater. And so today it's something like 70 percent of the population of Vienna qualifies for public housing. So what you have, this is this extremely broad buy in where even, you know, the upper middle class is super in favor of this one because now it's considered just the pride of the city, but also because their kids can qualify to live in these flats. And, you know, we're talking about like really nice apartments for, you know, 600 euros in the center of Vienna, which in any other European capital would just be unthinkable. You're really selling Vienna to me right now. It's wonderful. And if you like architecture, I highly recommend it. They're so cute. They're gorgeous. And it's exactly what we want from

when we talk about sustainable architecture now. Those buildings already had it. They mastered it in the 1920s. They're just these beautiful buildings all built around very green courtyards. And they all have a lot of communal spaces for people to hang out. They all have a lot of shade, a lot of trees. They're gorgeous. But like you mentioned, just to be clear, Vienna is the exception. One thing I wanted to ask you about is that this anger around lack of housing and sky-high rents and sky-high purchase prices. Lock down doors! Lock down doors! What do we want? Right to reason! What do we want?

Now! It's really fueling the popularity of far-right parties across Europe. Yeah. And how is the housing crisis helping them? So listen, I've spent the past six months looking at the rise of the far-right in Europe and on top of that speaking with people who have voted for far-right parties in Spain and in Portugal and in the Netherlands. And it's a really interesting phenomenon because when you speak to these people, most of them are not what we would think a far-right voter would be. The folks that I spoke to, none of them really expressed any particularly xenophobic or racist points of view.

These are people who are fed up. They feel like they have been left out of the system and they feel like conventional parties have done nothing for them. And so I think a lot of their votes are protest votes. And then a lot of them are votes out of desperation where these far right parties pop up and they say, you know, we're going to solve your problem and these people vote for them. So the way in which the far right has most played with this is by preying upon a very, very silly premise that somehow, you know, immigrants are no longer taking their jobs, they're taking your houses. your houses. It's very silly because when you look at how one qualifies for public or even social housing in Europe, the first rule in any of these countries is to be a legal resident, unless you're an asylum seeker, in which case there are specific homes for them, but you have to be a legal resident. And the idea that people are arriving in Europe and jumping off a boat and then immediately

getting a flat in central Barcelona is laughable. It's just it doesn't make any sense. But people really are looking for any excuse to explain why it is that they've been left out of the system. It should be noted that the far right parties don't ever provide a solution to this. So there are no far right parties, to my knowledge, that are saying we're going to build a bunch of homes. Their arguments to get people to back them are more based on finding a scapegoat. But it's always poor foreigners. None of these parties ever target, you know, the people who are getting golden visas or, you know, the wealthy weekenders who are staying in the Airbnbs. They really just focus on this idea that somehow, you know, some poor desperate person from Algeria or, you know, from Syria has somehow got on a boat,

crossed the Mediterranean, and then managed to get this really great flat in, you know, set in the middle of Rotterdam. I'm curious, are the more mainstream parties trying to do anything about it because i i asked them this in part because um here it's reached such a crisis level that uh you know all all major parties are trying to put forward some some real plans here to build more houses but what's happening in europe not really we see a lot of lip service to it because I think parties are starting to realize that there's anger, but very few plans. So at the European level, for example, we just had the debate of the people who are competing to be the next president of the European Commission, which is the legislative body, basically the legislative arm of the European Union. And there were very few mentions of the housing crisis and the proposals were very kind of like loosey goosey. Uh, there were not really any, any clear plans at the national level. You have some rare exceptions. So, uh, for example, Spain does stand out for using the COVID recovery money to build homes. Um, and that's, and that's happening. And they're also doing a lot of energy-efficient renovations.

It's the biggest wave of renovations in Europe. So that's quite good because it does mean that a lot of buildings that were previously uncomfortable to live in or that directly were unlivable are now being raised up to a level where they can actually be put to use as residences. But then you have the opposite. Again, if we go back to Portugal, they just got a center-right government. And that government's position is that the private sector knows best, and that if homes are going to be built, then private industry will do it. So the best that can be done is just like, let's focus on the red tape,

holding them back. And that's their whole policy. Talk to me more about this idea that this should be the role of the private sector. Because we've just talked about how governments essentially abdicated their role and opened it up to the private sector and it didn't work right uh like why we here here in canada we hear a lot about red tape and the importance like the importance of cutting that red tape um What are your thoughts on that as a strategy for tackling this kind of crisis? Are there historic examples to point to of where that worked or didn't work? It's a bit of a mixed bag. Look, Europe is the birthplace of red tape. And in some countries,

it's part of the national culture to get, you know, everything copied four times and then stamped in different offices. Certainly, we would want to get rid of that. And there are efforts and even this most recent legislative term at the EU, one of their policies has always been to reduce the amount of bureaucracy attached to each policy. reduce the amount of bureaucracy attached to each policy. That said, I personally am very hesitant whenever they mention something like this, because a lot of times when they're talking about reducing red tape, what they're also talking about is reducing oversight. And one of the problems that we've seen when we've left the housing sector up to the private developers and when we haven't really regulated them is you end up with a lot of shoddily built homes built on land where nothing should be built. And when you build, for example, on terrain that isn't particularly stable and then you have a building collapse or when you use shoddy material and then you have you know these massive fires where dozens of people die the other danger is just you're going to end up with buildings that just aren't very good to live in um so one problem that we've seen across europe

is that a lot of buildings that were built in the 70s and 80s uh for example the the windows will all be facing away from the sun and when when we talk about energy efficiency of buildings, which is a huge issue in the climate crisis and is key to reducing the amount of power that we need really worked in the private sector, it's not that the private sector has stopped building houses. It's just that they're building houses for a certain type of people. And I can't really get mad at them for that. Like, you know, we live in a capitalist society and these people want to make money. And I think that's very fair. very fair. Yeah. I mean, here we see a lot of luxury homes and then, you know, a place like Toronto, a lot of very, very small apartments that are also, you know, considered luxury, but not appropriate for families or, you know. Yeah. If you're a wealthy European,

you have no problem finding a home. Yeah. That's where the biggest profit margins are. It's like a non-issue. Yeah. Look, it used to be that the problem was if you were low income, you can't find a home. Now it's even like middle class families can't find a home. That's the issue with this housing crisis is now it's no longer just a problem of people who are quote unquote poor. It's everybody's problem. And certainly I think in Europe, it's just become a generational dilemma. It's just become a generational dilemma. It's like if you are under the age of 40, you're probably not going to be able to own a house or you're going to spend years and years of your life.

I mean, the numbers for the capitals are absolutely bananas. To buy a 75 square meter flat right now in Prague, it would take you an estimated 25.3 years of your yearly salary just going to pay for that flat. Yeah. So it really is one of those things where like, in what world can you ask someone to dedicate a quarter, a quarter century to paying off an apartment? It's just, it's nuts. There's so many people listening to you here in Canada right now. I mean, like, I feel you. I feel you so hard. Thank you for this. This is great.

And it was really nice to talk to you about this, even though it's like super depressing. So thank you. I know. I know, I know. And it's my pleasure. And hopefully, you know, I think this is a global dilemma. And I think that it's a problem that's affecting everyone. Hopefully, leaders, wherever they are, will start, you know, just focusing on tackling the issue. I know it's unpopular, but it really, it needs to become a policy of the state where it's not a party issue, where all the parties are working together. So that way, you know,

if one government starts a housing project and the other one takes credit for it, it's totally fine. And it's okay because everyone will keep building. The problem is when it's only one guy doing it and they think another guy's going to benefit, that's when party politics get into it. And that can't be it.

This is good for everyone. All right. Thank you so much. Thank you. All right. That is all for today. I'm Jamie Poisson. Thanks so much for listening. Talk to you tomorrow.