Financial, Fiscal and Monetary Forces Shaping Europe’s Housing Systems (original) (raw)

Böhmer, Felix, Fernandez, Rodrigo, Stephens, Mark ORCID: https://orcid.org/0000-0002-8068-7329 and Aalbers, Manuel B.(2025) Financial, Fiscal and Monetary Forces Shaping Europe’s Housing Systems. Documentation. EqualHouse.

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Publisher's URL: https://equalhouse.eu/media/D4.1_version1.1.pdf

Abstract

This report of the Horizon Europe project ‘From Housing Inequality to Sustainable, Inclusive and Affordable Housing Solutions’ (EqualHouse) offers a comparative analysis of how European housing systems have evolved over the past two decades, focusing on the interaction of fiscal, financial and monetary policies. It introduces a revised typology—the Varieties of Residential Capitalism Plus (VoRC+)—that captures the long-run trajectories of mortgage–housing relations across 29 European countries. By analyzing changes in mortgage debt, homeownership and housing outcomes over four periods since 2002, VoRC+ provides a dynamic framework for understanding why housing systems diverge despite shared exposure to global financial markets and EU-wide monetary conditions. VoRC+ identifies five distinct developmental trajectories grouped into two meta-clusters: more financialized and less financialized housing systems. These trajectories reflect differences in mortgage penetration, credit-cycle volatility, state involvement in mortgage markets, and exposure to global finance. Countries with deeply financialized systems exhibit stronger price pressures, higher leverage, greater tenure inequalities and heightened vulnerability to monetary tightening. Less financialized systems maintain larger shares of outright owners, lower volatility and more moderate price-to-income ratios. These patterns demonstrate that financialization is not a uniform process but a variegated one, shaped by national institutions and long-term path dependencies. The report shows that monetary policy, although central to housing dynamics, remains insufficiently integrated into housing policy debates. Independent central banks influence housing profoundly through interest-rate transmission and the valuation of housing collateral, yet their mandates exclude affordability and distributional concerns. The recent cycle of monetary tightening has exposed the uneven vulnerabilities embedded in different housing systems, with variablerate mortgage countries experiencing the sharpest impacts. Because monetary policy acts uniformly across the Eurozone but interacts with structurally diverse housing systems, it contributes to divergence rather than convergence. Fiscal policy—often treated as the primary lever in housing debates—is shown to be structurally important but not determinative. Mortgage interest relief, capital gains exemptions, transaction taxes and property tax design collectively shape long-term incentives and wealth accumulation patterns. Yet fiscal tools operate within, and are constrained by, broader financial and monetary environments. Crucially, recurrent property taxes remain under-utilized despite being among the most effective tools for reducing inequality and stabilizing housing markets. Financial regulation emerges as the most consistently influential policy arena shaping housing trajectories. Borrower-based measures, capital requirements, mortgage funding structures and rules governing securitization all interact to distribute risks between households, lenders and states. The expansion of covered bond markets, institutional investment and market-based real estate finance has embedded housing more deeply into financial circuits, reinforcing the dynamics mapped by VoRC+. Finally, the report highlights the growing importance of the European Union. While EU integration has historically promoted financial-market development, recent political shifts—including the creation of an EU Commissioner for Housing—signal a potential rebalancing of priorities. Any future EU housing strategy will need to confront the structural entanglement of housing with finance and recognize the multi-level governance pressures that shape national trajectories. Overall, the report argues that housing systems are co-produced by fiscal, financial and monetary institutions. Understanding their interaction is essential for designing effective, equitable housing policy in an era of deep financialization.

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