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    ESRB Report Assesses Vulnerabilities in Residential Real Estate Sector

    February 11, 2022

    The European Systemic Risk Board (ESRB) published a report on the systematic, forward-looking assessment of vulnerabilities in the residential real estate sector in the European Economic Area (EEA). Following this assessment, ESRB published and issued warnings to the competent ministers of Bulgaria, Croatia, Hungary, Liechtenstein, and Slovakia, with newly identified vulnerabilities that have not been addressed sufficiently. ESRB also published recommendations to the competent ministers of Austria and Germany, the two countries that had already received warnings in 2016 and 2019, respectively, and whose vulnerabilities have not been addressed sufficiently. The sub-recommendations within each recommendation have an implementation timeline, ranging from June 30, 2023 to June 30, 2025. After these recommendations were issued, the authorities in Austria and Germany announced new measures to address vulnerabilities in the residential real estate sector.

    The assessment report covered the residential real estate sectors of all European Union member states, also including Iceland, Liechtenstein, and Norway. The report analyzed the main trends in various real estate indicators as well as the macro-prudential policy actions that countries have taken to mitigate the resulting financial stability risks. The outcome of the analysis showed that:

    • The vulnerabilities grew in most countries that received ESRB recommendations or warnings in 2019, similar to most of the other European Economic Area economies.
    • Despite having introduced sufficient measures, the key vulnerabilities are of a medium-term nature and, depending on the country, relate to rapid house price growth and possible overvaluation of residential real estate, the level and dynamics of household indebtedness, the growth of housing credit, and signs of a loosening of lending standards.
    • Beyond macro-prudential policy considerations, broad reforms in housing and other public policy areas are required to remediate the mismatch between the supply of and demand for housing in certain countries.
    • Financial stability risks related to residential real estate have continued to increase in the context of the macroeconomic risks associated with the COVID-19 pandemic as well as the continuation of strong housing market dynamics and household indebtedness.

    Regarding the remaining European Union member states, ESRB has either not identified a build-up of any material vulnerabilities related to the residential real sector or such vulnerabilities have been identified but the current policy stance has been assessed as sufficient in addressing them. ESRB also published a compliance report on the countries that received ESRB recommendations in 2019 concerning medium-term vulnerabilities in their residential real estate sectors. The report reviews the policy responses aimed at mitigating the vulnerabilities in Belgium, Denmark, Finland, Luxembourg, the Netherlands, and Sweden. The compliance report concludes that only Luxembourg was assessed as “fully compliant” while Belgium, Denmark, and Sweden were assessed as “largely compliant,” with Finland and the Netherlands having been assessed as “partially compliant.”


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    Keywords: Europe, EU, Germany, Austria, Slovakia, Lending, Banking, Systemic Risk, Residential Real Estate, Financial Stability, Macro-prudential Policy, RRE, Credit Risk, ESRB

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