Faster rise in housing prices can wipe out gains from interest rate cuts
Housing prices continued to soar in 2020 H2 across the majority of Russian regions, adversely affecting the affordability of residential property. These findings are given in the fourth issue of the analytical note Housing Construction.
The faster growth of prices was driven by three key factors.
First, the demand for housing increased significantly, largely due to a higher affordability of mortgage loans amid the easing of the Bank of Russia’s monetary policy in 2020 and the implementation of a range of preferential mortgage lending programmes (first and foremost, the 6.5% Programme). Moreover, as interest rates on household deposits lowered and the economic uncertainty persisted, residential property became more attractive as a store of value.
Second, developers’ costs trended upwards, which was mostly caused by higher prices for construction materials and temporary staff shortages. The latter resulted from the measures restricting the inflow of labour migrants amid to the coronavirus pandemic.
Third, the potential to expand the supply of housing remained limited, partly because of higher costs and the continuing adjustment of companies in the industry to the new conditions of doing business. As compared to 2019, there was a reduction in both the commissioning of apartment buildings and real estate under construction.
In the near future, the situation in housing construction will depend on the pace of economic recovery, the amount and type of government support for the industry, and its potential to ensure an adequate supply of housing.