House prices in the EU increased by 5.5% last year, a rise almost as big in scale as the 6.2% collapse in GDP that the bloc’s pandemic-battered economy suffered. Prices had been rising fast in Europe in the years before the pandemic but the health crisis has brought its own unique confluence of accelerants. Huge government stimulus packages have helped keep borrowing costs at historic lows while prospective buyers’ private savings have swelled amid stay-at-home orders. On top of that, the pandemic has prompted both a major cultural shift towards remote working and a newfound appreciation among millions for the value of one’s own home. Demand for houses has soared, exceeding a sluggish supply. Something else has been booming in Europe’s property market though: the volume of institutional investment, particularly in the form of international capital flows from major corporations, hedge funds and other financial market actors. Institutional investment into Europe’s residential market hit a new record in 2020, accounting for nearly 30% of total acquisition activity. That represents a huge jump from a rate of 10% in 2015.
The flow of money into European real estate is nothing new, but the trend has clearly been accelerating. In Germany, foreign investment into commercial real estate quadrupled between 2010 and 2017. In some European countries, there have been tensions over rising levels of institutional investment in the housing sector, particularly as both rents and house prices rise. In Ireland, a massive 78% of the more than €5 billion ($6 billion) pumped into the commercial and residential property market between 2017 and 2019 came from overseas investors, much of it from large financial enterprises in the US. Government tax breaks and incentives instituted in the wake of the country’s 2009-11 economic crisis have attracted multibillion-dollar hedge funds and private equity funds as well as vulture funds, which specialize in buying up distressed loans. Things appear to have reached a tipping point however. Earlier this month, a US real estate investment company called Round Hill Capital bought all 112 properties in a new housing development just outside Dublin. The deal was seen as exemplifying the problem in the Irish housing market, where first-time buyers are forced to compete for ever fewer, ever more expensive houses while rents rise unabated. Housing, like labor, is not something that can be bought and sold on the open market with the highest and the lowest price.