Diversification potentials in European housing markets

The different economic, financial and, most importantly, institutional and structural factors on the European housing markets currently make it challenging to develop a pan-European residential investment strategy. The structural differences constitute one of the reasons why the performance of residential assets varies strongly. While factors such as interest rates, government bond yields and demographic demand play an important role in the common understanding of housing markets, other factors such as rent regulation, building quality and tenure security are obstacles that fundamentally affect the performance of residential assets as well as the inflow of national and foreign capital into residential investments.

Because the degree of regulation in housing markets is difficult to measure, one can only qualitatively determine whether the degree of governmental intervention in the private-rented sector has narrowed or widened over time. Based on a qualitative assessment of factors such as initial rent determination and increases, lease length, selling opportunities, getting property back during the lease (tenant eviction) as well as legal enforcements, regulation in European housing markets has changed structurally during the past three decades.

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