The problem of high rents and housing prices in general for young people, whether students or workers, is clearly not just an issue in Milan, but involves the whole of Europe. With inflation and rising interest rates hindering the purchase of houses, while incomes rarely rise at the same rate, the problem for European cities is to stem the brain drain by creating the housing conditions for young people to find affordable housing in large centres. A study by Savills explores options for creating social housing in Europe.
The need for social housing in Europe
The pressures on housing affordability are acute and affect many citizens, especially young people, students, essential workers and their families. Ageing populations and an increase in single-parent families have intensified competition for a limited supply of affordable housing in the city. Both purchase and rental values have increased, with demand for rental housing exacerbated by recent increases in mortgage rates.
Tenants find themselves forced to look for solutions further afield, to stay longer in their parents' home, to move to cheaper cities or to share a flat with other people.
This pressure has refocused attention on the need providently affordable social housing, usually through some form of public sector support. In Spain and other EU countries, for example, post-Covid-19 recovery plans are used to subsidise affordable housing.
High rents, a problem even for businesses
High inflation also has clear implications for businesses, especially smaller ones and start-ups, which play a significant role in global economic growth. As operating costs rise, it becomes more difficult for them to afford the commercial space they seek in their desired locations, which may limit their ability to grow. The most valuable asset of these companies is their staff, who face a severe shortage of affordable housing close to the workplace. This could pose a challenge for recruiting and retaining talent. The cost of renting a one-bedroom flat in the city centre represents 55% of the average net salary in 14 global cities, varying from 37% in Chicago to 79% in Hong Kong.
Inflation and commercial property prices
Competition for high-quality office space is increasing, driving up rents. Demand continues to grow as companies look for energy-efficient, flexible, creatively designed units in well-connected locations in order to attract the best talent. Between 2019 and 2022, prime office rents increased by an average of 4.9 percent in 23 global markets.
This upward trend is hitting small and medium-sized enterprises hard, many of which have been forced to move to more remote districts and less attractive buildings.
How to create spaces for young professionals
To tackle the problem of high rents, which threatens to drive young talent away from urban centres, Savills imagines some ready-made solutions:
Increasing coworking spaces
One possible solution is the rise of so-called commercial coworking spaces, which offer all-inclusive packages without binding long-term contracts. Given the start-up and maintenance costs of an office, these offers can be easier and more cost-effective over time.
To compare the cost of a coworking option versus the actual net cost of a conventional high-level office, Savills' research examined how the cost varies for a 10-person company in 16 key global markets. The study found that on average a coworking space is 40 per cent cheaper, although there are considerable variations between locations.
Public and private investments for industrial and university hubs
If co-working solutions prove too costly, public sector funds are used alongside private investments in the creation of start-up centres, such as the Factory Berlin project and the Barcelona Activa incubation spaces. These initiatives offer low-cost rentals and shared resources between similarly sized companies in convenient locations. They also foster collaboration between communities, both locally and within industry sectors.
The redevelopment of old commercial buildings
Other ways to increase the availability of affordable housing in city centres include the redevelopment of old commercial buildings into new housing, such as the Les Grand Voisins initiative in the former Saint Vincent de Paul hospital in Paris. Another initiative is to regenerate disadvantaged neighbourhoods through a combination of affordable and market housing, together with commercial properties.
In the UK and Europe, real estate funds focused on ESG(Environmental, Social, and Governance) and with a defined maturity, such as those managed by Man Group and Civitas, among others, are bringing private capital to support publicly funded social housing projects. Investors accept a lower financial return than they would get from pure commercial funds.
It is clear that there is an urgent need to re-imagine living and working in the city centres of many large metropolises, and to make it more accessible in a 21st century context. The most successful projects are likely to be those that also focus on delivering wider social and environmental benefits.