European Systemic Risk Board analyses property markets and crises in the EU


In order to counteract risks linked to the real estate markets in the EU, a combination of different measures is likely to work best. This is one of the conclusions drawn in the European Systemic Risk Board’s (ESRB’s) two reports regarding EU countries’ real estate markets, covering housing and commercial real estate, which are being published today.

"The real estate sector is important for financial stability. History has taught us that real estate crises often lead to serious and protracted consequences for the economy. The ESRB's reports are welcome contributions to better understanding the interaction between the real estate sector and financial stability, which is an important topic for us in Sweden. The Riksbank has been warning of an unbalanced development in housing prices and household indebtedness for a long time; in our Financial Stability, for example," says Stefan Ingves.


The ESRB's reports analyse the structural differences between the property markets in different EU countries, as well as crises on the property markets in the EU since the 1990s. The reports draw several important conclusions:


  • In terms of the housing markets, higher loan-to-value ratios, favourable tax treatment for owners and high levels of debt in the banking sector have led to deeper crises.

  • In terms of the commercial real estate markets, crises have occurred following periods of rising prices and increased lending with low credit quality. These crises have also resulted in considerable credit losses.

There is currently a range of so-called macroprudential policy measures designed to reduce vulnerabilities linked to the real estate sector. Macroprudential policy measures focus on stability in the financial system as a whole rather than on individual financial institutions. Examples of such measures are to limit the size of loans households are able to take out in relation to the value of the property (loan-to-value caps) or in relation to income (debt-to-income caps). The analysis in the reports shows that a combination of different measures may be more effective in terms of reducing vulnerabilities in the real estate sector than one single measure.


Finally, the reports also emphasise the need for identifying and monitoring vulnerabilities on the real estate market. An important conclusion is that the use of statistical tools, high-quality comparable data and harmonised definitions within the EU should be further developed.

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