Everything around us exudes a sense of precision. Costs are on the rise, from the basic materials used in production to the final products we consume. Inflation in the economy and relentless increases in interest rates are wielded as weapons against it. Optimists cautiously eye the future, while pessimists find themselves dwelling in fear, especially when factoring in the geopolitical turmoil happening around us.
And let's not be mistaken; when costs surge and incomes remain stable in nominal terms but shrink in real value, our ability to meet basic needs and obligations diminishes. This, in turn, hinders us from maintaining the standard of living we enjoyed not long ago.
However, month after month, for quite some time now - even years - despite the recurring crises and the numerous logical economic analyses, the real estate market consistently defies all predictions.
So, why is this happening?
In our quest to understand this apparent "anomaly," we are reminded of a story recounted by the philosopher Isaiah Berlin back in 1953: that of the Hedgehog and the Fox. In this tale, the cunning Fox continuously devises creative strategies to attack and consume the Hedgehog, but it invariably fails. The reason? The Hedgehog possesses a single, effective weapon - its spiky armor. The Fox's tactics are thwarted by these sharp thorns.
Who is the Hedgehog in the property market, seemingly enabling it to weather these crises?
The answer, although somewhat surprising, lies in the low supply of housing units.
You might say, "But there's so much construction going on everywhere; how can there be a low supply?"
Firstly, the notion that "so much is being built everywhere" is quite generalized. Yes, construction is booming, but we're also witnessing a constant uptick in new sales documents. This means that people are buying - and not just a few. In fact, the number of units available for sale is considerably less than the ones under construction. We tend to assume that what is built remains unsold, but that's not the case.
Secondly, rising construction costs and borrowing expenses affect businesses operating in the real estate development sector. They may want to increase production, given the high demand, but due to limited financial resources and continuous challenges, their expansion remains slow. This puts further pressure on property prices.
Thirdly, many individuals are reluctant to sell, reducing the supply and exerting upward pressure on prices. The average Cypriot homeowner doesn't readily change residences, especially in these times of more stringent borrowing conditions.
Fourth, the government's efforts to implement policies for affordable housing have fallen short. Most programs focus on increasing construction rates or offering installment subsidies, but fail to address the issue of mismanagement of valuable space, leading to older people living in oversized, mostly empty houses. Encouraging them to downsize could alleviate the housing shortage.
Lastly, concerns about prices rising to unsustainable levels are not entirely justified. We've faced worse economic periods, and the market has always demonstrated resilience.
These factors, among others, defy conventional economic analysis and keep the real estate market at levels that continue to surprise us. So, whenever you see a hedgehog, remember the analogy of the low housing stock, and if you're in search of a home and can't find it, think of those resilient hedgehogs. You can play the role of the fox if you wish, but the market's thorns will always be there.
[This article was translated from its Greek original]