1) There are several reasons for this trend of high house prices on the European continent. First, the European economy is improving and consumer confidence is increasing. In February 2017, the Consumer Confidence Index (CCI) in Belgium, France, Germany, the Netherlands, Portugal, Spain, Sweden and the United Kingdom reached a value which was higher than 100. As a result, the increasing purchasing power and decreasing unemployment provides European consumers with more confidence to enter the housing market, either to buy or to rent a house. For example, the average monthly housing rent in Italy reached its highest level in January 2017, with a value of approximately 9.24 euros per square meter. Real estate transactions in the Netherlands are expected to increase with approximately five percent compared to the previous year. The house price to rent ratio in Germany, calculated by dividing nominal house prices by rent prices, amounted to 127.3 in the second quarter of 2016.
Second, the monetary policy of the European Central Bank (ECB) allows for favorable lending conditions. Due to the ECB's artificially low interest rates, mortgage loans in Europe also have low interest rates and become more attractive to buy for consumers as lending has become cheaper. This increases the demand for housing and, consequently, prices will increase. This can be seen in the United Kingdom, for example, where the value of approvals issued for remortgaging loans was higher in 2017 than in 2015.
Third, the supply of houses struggles to keep pace with the demand. The index for building permits issued in France for the construction of residential real estate decreased by 108.6 points in 2001 and by 81.6 in 2015, whilst the total number of building permits in Belgium shows the same development, but the rate increased again in 2016 when compared to 2015. In 2015, Russia reached the highest number of completed residential properties per 1,000 citizens. In some major cities in Europe, the demand for (temporary) housing is even bigger due to the presence of Airbnb.
2) Political uncertainty could threaten the rise of European house prices. The United Kingdom leaving the EU in 2019 and the threat of increased protectionism in the United States, for example, could increase fears about lower economic growth, with a knock-on effect on the housing market. At the time of the Brexit referendum, approximately 25 percent of Millenials in the United Kingdom stated they believed that Brexit would have no impact on their ability to buy a home, with 52 percent of property developers in Ireland believing Brexit would have no effect on future residential construction. Only time will tell if these predictions hold true.