Housing affordability changes in Baltic capitals: on the effect of housing boom and negative housing equity on housing affordability

Kristian Kahre and Ene Kolbre

ERES from European Real Estate Society (ERES)

Abstract: After the early 2000s housing boom Baltic countries« capitals witnessed strong downturns in residential housing market in 2007/2008, with apartment prices contracting between 2007 and 2009: 45.5% in Tallinn, 59.6% in Riga, and 39.9% in Vilnius. We analyze the changes in income, repayment and purchase affordability. The income affordability in terms of price-to-income ratio decreased based on three city average more than 55% just in short timeframe of 2004-2007; it improved significantly after the contraction in prices in 2009. The housing affordability index (HAI) shows that by the end of 2013 the repayment and purchase affordability was in comparison to the peak of the boom in 2007 approximately two times higher in Tallinn, three times higher in Vilnius, and four times higher in Riga. We also show the extent of the problem of negative housing equity and how it can affect housing market.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2015-07-01
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