The pandemic will accentuate inequality when it comes to accessing housing and affect the most vulnerable groups, such as young people, reveals a recent Moody's report.
The economic crisis that has been unleashed by the COVID-19 pandemic will have a lasting effect on the real estate market, with a general fall in house prices expected to be seen across Europe as early as 2021, Portugal included. However, this downward trend will not necessarily translate into an increase in transactions when it comes to buying, selling or renting property; in fact, the contrary. The lasting effects of the coronavirus pandemic are expected to make access to housing more difficult, accentuating inequalities and affecting the most vulnerable groups, namely the youngest members of the population and low-wage workers, according to the financial rating agency Moody's.
Predicting market behaviour in Portugal and beyond in a context of instability and recession such as the present is a difficult task, and there are many variables that can cause changes in estimates. Several entities have already started in a bid to discover the evolution of the real estate sector and the cost of housing, because it is a critical issue for the economy, the financial system and society. Moody's predictions for Europe, including data for Portugal, has been published in the report: "COVID-19 driven housing trends will exacerbate wealth inequalities among young and low-income populations in Europe".
The US-based financial ratings agency expects housing prices to remain stable in what remains of 2020, largely because of stimulus policies approved by governments, but admits widespread declines as early as 2021 because of COVID-19. The report states that, "prices in the housing market in Europe are expected to remain stable in 2020 and then fall in most countries as a result of the crisis and the severe economic recession caused by the pandemic," while the rating company, quoted by national and international press, estimates that property prices will fall by 2% next year.
Southern European countries, including Portugal, will be particularly affected because their economies are more dependent on tourism, one of the sectors most severely hit by the pandemic crisis. Moody's says that the future will depend, in this case, on the recovery time of the sector, with the risk that the available supply could lead to many houses and flats that are currently used as local accommodation in Portugal being transferred to the traditional rental market, creating potential hotspots of "oversupply". This is a situation which contrasts with the context before the arrival of the coronavirus in Portugal, where demand was higher than the product available on the market.
More social housing and tenant protection
For the financial rating agency, COVID-19 will precipitate several fundamental changes in the European property market. It argues that the fall in prices will not compensate for or improve conditions when it comes to access to housing because household incomes are also being hit by the pandemic, especially for younger workers and those on lower wages. To cope with this scenario of increased inaccessibility, there should be greater needs for social housing and increased protection for tenants.
On the other hand, there are clear changes taking place in the residential segment as a result of changes in population preferences, with the demand for housing skyrocketing in suburban areas, due to confinement and the widespread growth of teleworking. "As people work more from home, demand for housing in urban centres will drop significantly - consumers will want larger homes where they can work more comfortably, further away from those urban centres," Moody's predicts.
The rating agency also points out that loss of income and unemployment are likely to increase in the current context of economic recession, and the company therefore expects greater government intervention in the creation of social housing and rent regulation to protect tenants.