The affordability of housing in Lithuania has been declining, reaching the levels last seen in 2010 in the wake of the financial crisis.
“The affordability curve has started to bend downwards. [...] Wage growth, which is a counterbalance, has recently reached more than 10 percent, but it has not compensated for this,” said Mindaugas Statulevičius, head of the Lithuanian Real Estate Development Association (LNTPA).
Speaking on Tuesday at the forum “Housing affordability: solutions and measures”, which was organised by the LNTPA, he said that “the number of new construction permits has [also] been decreasing”.
According to Statulevičius, the affordability of housing is also undermined by some legislation. For example, the Land Law, which came into force in March 2022, may increase housing costs “by up to 10 percent”, he said.
To improve housing affordability, the LNTPA has proposed updating Lithuania’s housing strategy and appointing a government-level official to curate housing policy.
The association also called on the authorities to create municipal housing funds, as well as for the decisions affecting housing affordability and price growth to be coordinated in advance with developers.
In addition, the LNTPA said priority should be given to housing for young people (under 45) and families, by offering preferential loans with a state guarantee and a lower VAT rate.
Jokūbas Markevičius, director of the Financial Stability Department of the Bank of Lithuania, also argued that housing affordability has declined.
In 2020, a person earning an average salary could buy a 163.3 square metre home with a loan, while now it is 117.6 square metres.
One of the reasons for the declining affordability, according to the economist, is that interest rates have risen, making it more expensive to borrow money.
The good news is that mortgage margins have been declining for the last two years: from around 2.38 percent in 2020 to 1.89 percent now.
“So now is a good time to try to refinance your mortgage to save a few thousand euros over the lifetime of the loan,” said Markevičius.
Although housing affordability in Lithuania deteriorated during the pandemic, the situation in Lithuania has improved in 2022 when looking at the ratio between house prices and salaries.
Speaking at the event, Environment Minister Simonas Gentvilas said a part of the population still lives in very poor-quality homes.
“In Lithuania, half of the population lives in energy poverty,” he said. “This means that they spend more than 30 percent of their income on transport, heating, and electricity. This is a signal that we are living in dilapidated housing in Lithuania and that part of the population is trapped.”
According to Gentvilas, around 16 percent of people in Lithuania have housing loans and can buy newer housing. However, those with lower incomes and those living in poor-quality housing are left behind.
The minister also questioned whether the Lithuanian society should have a homeownership rate of around 90 percent, or whether it should go the way of Switzerland, where only around 20 percent of people own a home.
“In the area of housing affordability, we need to talk not about technological standards but about how to come up with a mechanism so that 80 percent of the population who cannot afford to take out mortgages can move to new housing. Whether it is the rental market, municipal housing, or other schemes,” said Gentvilas.
“Therefore, the fundamental principle is that we need to move from owning our own home to the rental market, and to a more secure tenant status,” the minister added.
Newsletter
Every Friday morning.
