World Economy

EC Predicts Euroland Housing Costs to Rise Sharply

Insufficient housing supply remains a challenge.Insufficient housing supply remains a challenge.

House prices and rents will continue to rise as the economy continues to expand rapidly in the next two years boosted by house building, the European Commission has predicted.

Its new forecasts project that gross domestic product will grow rapidly, by 4.8% this year, and then 3.9% and 3.1% in 2018 and 2019, Reuters reported.

Shorn of the accounting distortions caused by multinationals involving contract manufacturing and intellectual property transfers, the underlying economy driven by consumer spending and construction will power ahead, by an average of 4% to 2019, the commission projects.

Without providing specific forecasts, the commission signaled that housing costs would likely rise sharply. “Insufficient housing supply remains a challenge and is expected to show up in house prices and rents,” it said in the autumn forecasts.

“Investment in construction is projected to contribute substantially to growth in domestic demand, with strong momentum in residential property investment in 2016 expected to continue in the medium term, supported by government policies,” the commission said.

A number of forecasters such as the Economic and Social Research Institute have warned about the potential for the huge increase in housing construction to destabilize the economy over the coming years. The ESRI has said, however, that the economy was not at present overheating.

The specter of Brexit looms large over the commission’s forecasts. It warns that uncertainty about the eventual deal between the UK and the EU and “potential changes to the international taxation environment and US tax and trade policies” could weigh on government revenues.

The commission forecasts Irish prices as measured by its harmonized index will rise only slightly over the coming years. Prices will rise 0.8% next year and 1.2% in 2019, it predicts.

Jobs growth will continue at a fast pace, helping push the average annual rate of unemployment to 5.5% next year and to 5.3% in 2019. The commission said growth in the eurozone will expand 2.2% this year, up from 1.8% in 2016. In May, the commission forecast 2017 growth at 1.7%.

“The European economy has performed significantly better than expected this year, propelled by resilient private consumption, stronger growth around the world, and falling unemployment,” the commission said.

“Investment is also picking up amid favorable financing conditions and considerably brightened economic sentiment as uncertainty has faded,” it said. Growth in 2018 is to slow to 2.1% and to 1.9% in 2019.

Add new comment

Read our comment policy before posting your viewpoints