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22 June, 2024
 
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Cyprus housing crisis deepens amid interest rate scandal

Economist Haris Polycarpou highlights government's inadequate response to lending profits and homeownership challenges

Opinion

Opinion

By Haris Polycarpou*

With current interest rates, the prospect of repaying a mortgage spans nearly fifty years for an average family, turning homeownership into an elusive dream.

This isn't the first discussion about rising interest rates in Cyprus; however, recent data from the European Banking Authority reveals a scandalous trend. Unlike other Eurozone countries, Cypriot banks significantly increased lending rates while barely adjusting deposit rates, pocketing substantial profits directly from the public in 2023.

While questions about the government's response arise, the reality is disheartening. The government applauds bank profits while leaving society vulnerable. Beyond debates on interest rates, ECB policies, and bank profits, a critical aspect jeopardizes the living standards of society—the cost of borrowing for housing.

In the current landscape, an average family, with worker incomes near or below €1,500, struggles to secure a mortgage due to repayment capacity. With current interest rates, it would take almost half a century to repay the mortgage, rendering homeownership an impractical dream. Renting, on the other hand, becomes a financial strain, with rents requiring a significant portion of one or both salaries for most couples.

In response, the Christodoulides government proposes an 'integrated' strategy, yet it falls short on multiple fronts.

Firstly, it fails to address the core problem—funding, especially for middle and low-income groups.

Secondly, incentives, while well-intentioned, are misdirected toward large developments that may not prioritize affordable housing.

Thirdly, the concept of 'affordable housing' remains disconnected from societal needs and realities, relying on market-defined affordability.

Fourthly, the absence of a coordinating body, a single housing authority, undermines the effectiveness of the strategy.

The government's purported interest in solving the housing problem is questioned, as communication efforts lack substantial solutions. Recommendations for real change include supporting the Housing Finance Corporation to provide funding, establishing a single housing authority, incentivizing the private sector for genuinely affordable housing, and implementing social policies for housing acquisition.

As the housing crisis intensifies, the question looms: Is such an economy truly prosperous?

*Mr. Haris Polykarpou, an economist and head of the Economy Sector of AKEL, raises crucial concerns about the state of housing in Cyprus.

TAGS
Cyprus  |  inflation  |  economy

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