Nery Alaev writes about risk in the residential market.
The European Systemic Risk Board (ESRB) has taken the steps to warn eight EU nations, including the departing UK, that their housing markets have ‘medium-term vulnerabilities’ relating to their respective housing markets, according to reporting by Bloomberg.
In a sobering follow-up to my article last week on diversity in the European residential markets, I’ve decided to investigate and conclude.
The nations warned were Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands, Sweden and the UK. The ESRB issued the warning noting that highly indebted households are more vulnerable to wider economic shocks – these shocks may come thanks to Britain’s decision to leave the EU and the shock election of Donald Trump to the US presidency.
The ESRB’s report on the at-risk nations further details the debt problem, stating:
“[The situation can] lead to significant risks to domestic financial stability and serious negative consequences for the real economy, as well as potentially leading to negative spillovers to other countries.
Vulnerabilities in residential real estate may manifest themselves through direct effects — through losses of capital or funding among lenders — and indirect effects in terms of foregone economic output.”
It’s clear from this that home is where the economic heart is – history has proven this, simply observe the Great Recession, which was sparked by a mortgage crisis in the US.
What can be done
The named countries have (mostly, as of yet Belgium has yet to respond) responded to the report in kind, with UK Chancellor of the Exchequer Philip Hammond stating that the UK had “learned the lessons of the financial crisis” and the country has embedded macroprudential regulation into its financial regulatory architecture in a letter responding to the ESRB.
Hammond’s response suggests that there can be checks and balances implemented to monitor such uncertainties – will they make a difference though?
Nery Alaev is the current Director of ESN Investments GmbH, which engages in acquisition and development of commercial and residential property in Germany and Austria.