Residential investment: cash cows or question marks?

Residential property is a unique real estate investment, as it represents the largest asset class in most European countries fluctuating between the 3 and 8 per cent of the gross domestic product (GDP). Many research papers have shown that residential investment is a leading indicator of GDP, while the non-residential investment is not. Housing investment, despite being a small share of total output, plays a huge role in the business cycle, as housing (and its prices) is an indicator of recessions and booms in the market.

Houses are the most important assets in households’ portfolio: more than half European population lives in owner-occupied houses or apartments, with a peak of ownership recorded in Romania (around 96 per cent of the population) and the lower percentage in Germany (around 52 per cent). Only in Switzerland, the share of tenants is higher (56 per cent) than the share of people who lives in owner-occupied dwellings. Residential property is intrinsically linked with wealth.