IMF calls for vigilance on housing

European director warns of risks to countries’ financial stability

The International Monetary Fund (IMF) director for Europe has advised the authorities of European countries with housing problems, such as Portugal, to “be vigilant” about risks to financial stability by proposing supply-side solutions.

“House prices have increased quite a lot in several countries over the last decade, and that happened because of low interest rates over a relatively long period and then, in several countries, we had another boost during the pandemic because people moved to remote working,” Alfred Kammer said in an interview with European news agencies, including Lusa, in Stockholm.

Confronted by Lusa with the current housing problems in Portugal, he said supervisors had to watch out for “the risks to financial stability”.

“The supervisors have to be vigilant and carry out stress tests,” he said, adding “it is not just a problem on the demand side”.

“There has been in Europe, in many countries, a supply-side problem, and that has to be addressed, regardless of what we are seeing on the house price front”.

According to Kammer, this scenario in the housing market “has been very bad for growth because when you look at young people, they cannot move to urban centres because it is too expensive”.

“That is a wider issue outside of the current corrections we are seeing, which many European governments effectively have to address”.

In Portugal, António Costa’s government has adopted several measures presented as a form of reponse to the housing crisis.

The proposed package of measures aims to increase the supply of properties, simplify licensing procedures, increase the number of homes on the rental market, combat speculation and protect families, says Lusa – albeit very few sectors believe that it will.

On the wider media front, the IMF’s warnings were being interpreted more starkly.

US channel CNBC cited from the fund’s latest regional economic outlook, referring to  “disorderly” house price corrections in Europe, at a time when the region is struggling to bring down inflation.

“In its latest regional economic outlook for Europe, the IMF said that a downward correction is already underway in some European housing markets, but this decline could accelerate as central banks increase interest rates further.

“Disorderly corrections in real estate markets could occur even if broader financial distress is avoided. A housing market correction is already underway in some European countries, for instance, in the Czech Republic, Denmark, as well as in Sweden where house prices declined more than 6% in 2022.

“House price declines could accelerate if markets reprice inflation risks and financial conditions tighten more than expected. These price declines would have adverse effects on household and bank balance sheets”.

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