Over the past two years, real estate prices in Lithuania have been rising faster than wages, which reduces the affordability of housing and may cause social problems, warns central bank chief Gediminas Simkus.
“Housing is not just a piece of property, it is first and foremost a basic human need. It is the place where we live, where we raise our children, it gives a sense of security and a sense of being needed in society. Housing can be a factor in deciding to emigrate or to stay in Lithuania,” Simkus noted at a conference organised by the Bank of Lithuania.
Due to the extremely fast growth of real estate prices, fewer people are able to buy property, he stressed.
“In the last few years, housing prices have been growing very fast. And last year, for the first time since the 2008 financial crisis, house price growth exceeded the rate of wage growth. This trend continues this year. This means one thing: the affordability of housing is clearly decreasing. And this has been happening for two years in a row,” the governor of the Bank of Lithuania said.
Real estate prices in Lithuania went up by about 20% in 2021.
In October, compared to October last year, housing in Lithuania’s major cities was 22.5% more expensive, according to data by Ober-Haus.
The fastest growth was reported in Vilnius – by 25.5%. In Kaunas, the figure stood at 19.6%, Klaipeda – 18.5%, Siauliai – 16.9% and Panevezys – 17.1%.
Simkus noted that the government had tools at its disposal to make it easier for young families to buy a home, but not all of them were used properly. One of them is the financial incentive, adopted by the previous government, offering young families subsidies to buy their first home outside the main cities.
“The intention is certainly welcome. However, could this support be more targeted and effective? In our eyes, it certainly could,” according to Simkus.
According to him, although the programme’s stated goal was to boost regional development, the subsidy was being used to purchase homes as close as possible to Lithuania’s main cities.
“The question is whether such a high concentration of people near the main cities does not contribute to the imbalances in the real estate markets,” Simkus said.
Another way to rebalance the real estate market is to introduce a general property tax.
“We see it as an instrument that contributes to a more sustainable development of the housing market in the long term and to the equalisation of fluctuations in the property market. A properly calibrated property tax would reduce the incentives to buy property for investment purposes,” Simkus said.
Increasing housing supply is another possible solution, he noted: “Housing supply is not keeping pace with increased demand, which is significantly fuelling the growth of housing and real estate prices in general. A balance must therefore be struck. The requirements for housing supply and quality for development need to be assessed objectively, based on a cost-benefit analysis.” (LRT/Business World Magazine)