In both agricultural and housing policy, the state should be open to continuous reform and modernization
If climate change and its dramatic consequences in our region, especially last summer, are responsible for food, the perennial housing policies that treat the issue as investment and not as a right. The figures that came to light last week showed that inflation continues to persist in these two most basic products and that even if we soon return to "normal" rates of price growth, the damage to Cypriot households will be already irreparable.
There were two news items that stood out from the statistics for Cyprus last week: The dramatic increase in the prices of agricultural products and the continued increase in house prices. Cyprus, and six other Mediterranean EU countries, saw agricultural prices rise: Greece (+22%), Cyprus (+11%), Portugal (8%), Spain and Malta (both +5% ) and Italy (+1%), according to Eurostat data. Conversely, the largest decrease was recorded by countries highly specialized in cereals and/or milk, i.e. Bulgaria (-28%), Hungary (-26%), Lithuania and Latvia (both -24%) and Slovakia (-20 %). The increases are not unrelated to the high temperatures that reduced olive oil production but also to the major disasters from the fires in Thrace and the floods in the Thessalian Plain. Cyprus was spared the major disasters, however the high temperatures and its close connection with the Greek market also affected the prices in Cyprus.
The news was not good for housing either as house prices in Cyprus continued to rise in the third quarter of the year by 7.4%, according to data provided this time by the Central Bank (CBC). The issue is even more pronounced for apartment prices, as there the increase reached 11.5%, making apartments less affordable. The CBC in its commentary identifies the investment reasons behind the increases, as it attributes the increases to increased demand coming from both domestic buyers (including for rental purposes (buy-to-let)) and foreign buyers mainly in framework of the "Strategy for Attracting Companies to Activate and/or Expand their Activities in Cyprus" (headquartering policy) and other investments.
However, despite the increased demand, the CBC reports that the number of residential buildings for which building permits were approved recorded a decrease in the period January-August 2023 compared to the corresponding period in 2022. It explains that the continuation of this trend appears to be related and with the ongoing increased cost of construction as well as borrowing. According to CBC data, the granting of new loans for the purchase of housing recorded a significant decrease of 20% on an annual basis in 2023. Specifically, for the period January – September 2023, new loans amounted to 746.2 million in compared to €932.4 million in the corresponding period of 2022, and despite the increase in real estate prices. In other words, not only did the banks lend less, but probably less real estate was bought with them and/or the purchases concerned more and more "privileged" people. According to data from the Central Bank, the average interest rate for loans related to the housing market in Cyprus increased in November 2023 to 5.39%, from 4.91% the previous month, while in the eurozone the corresponding interest rate is 4.05% .
With these data, households in Cyprus enter uncharted waters in 2024 despite forecasts for an acceleration of economic growth to 2.9%. A growth that, if it comes, despite the deterioration of geopolitical conditions which are in themselves inflationary, will hardly succeed in making up for the purchasing power that continues to be lost due to the increase in the prices of items that are basic needs. It is for this reason that in both agricultural policy and housing policy the state should be open to continuous reform and modernization. Legislators and the executive branch should dare changes in legislation that will push real estate into the market but also protect agricultural land from other activities and environmental destruction. This, if we want to drop the costs that threaten to suffocate both the economic potential of households in the first stage and democracy and the country itself in the second stage.