Housing market and households wealth

By Antoine Lalliard, Julien Le Roux, Marie Delorme and William Honvo

This post proposes a measure of property purchasing power by calculating the floor area in m² that an individual with an average income could buy with a housing loan (excluding deposits) in some of the largest euro area countries. After declining sharply in the 2000s due to rising house prices (with the notable exception of Germany), affordable floor area has increased since the 2008 crisis, mainly thanks to lower interest rates.

Chart 1: Floor area affordable on credit in m² by country
Chart 1: Floor area affordable on credit in m² by country Sources: Authors’ calculations; Banque de France, OECD, ECB, HouseLev.

By Edouard Jousselin with Simon Ray

In 2017, the French real estate market continued its recovery. It was fueled by households’ borrowing capacity: household income increased and lending conditions remained favourable. This situation can be explained by low interest rates and long loan terms. After rising by 20% between 2014 and 2016, households’ borrowing capacity stabilised in 2017.

Chart 1: the real estate market recovery continued in 2017 - Year-on-year % change Sources: Insee-Notaires; Ministry of the Environment, Energy and the Sea

The French real estate market has improved, in particular as a result of the very favourable lending conditions: the latter have increased households’ borrowing capacity. This capacity has grown by nearly 20% since 2014. This is chiefly thanks to lower interest rates followed by an increase in the duration of the loans, both related to an exceptionally accommodative monetary policy. A summary indicator helps measure this improved borrowing capacity.