The euro area’s property investment sector, which contracted sharply after its post-pandemic peak, now shows tentative signs of stabilisation, according to a new focus piece in the European Central Bank’s Economic Bulletin. Recently authored by ECB economist Johannes Gareis, the report concludes that while investment appears to have bottomed out in late 2024, a strong and lasting rebound has yet to materialise.
After a sustained rise from mid-2015 through early 2022 — briefly interrupted by the initial COVID-19 shock — residential investment entered a prolonged decline starting in the first quarter of 2022.
It reached its lowest point in the final quarter of 2024.
A modest uptick occurred in early 2025, but momentum quickly faded. In the third quarter of 2025, housing investment edged down 0.2% from the previous period and remained roughly 7% below its early-2022 high.
Performance varied widely across member states: Germany and France recorded steep falls, whereas Italy and Spain posted gains, the latter partly buoyed by temporary fiscal incentives in Italy that triggered a sharp one-off surge in early 2023.
To understand these patterns, ECB staff applied a structural Bayesian vector autoregression model.
The framework decomposes housing investment into economically interpretable shocks, incorporating broader macroeconomic conditions, housing-specific factors, house prices, and financing costs.
Key drivers include aggregate demand and supply dynamics, shifts in households’ appetite for property, disruptions in construction activity, and changes in borrowing rates.
The model reveals that pandemic-era strength stemmed largely from elevated housing-specific demand. Remote-working trends prompted many households to seek larger or better-equipped homes, temporarily lifting investment.
Once restrictions lifted, this preference normalised, generating negative housing-demand shocks that weighed on activity throughout 2022.
From 2023 onward, broader headwinds intensified: weak aggregate demand linked to the energy-price surge and geopolitical uncertainty after Russia’s invasion of Ukraine, combined with negative housing-supply shocks that raised building costs and pushed up property prices.
Higher interest rates, the lagged consequence of the ECB’s 2022–23 tightening cycle to combat inflation, amplified the downturn.
These pressures peaked around mid-2024. More recently, the picture has brightened modestly.
The drag from elevated borrowing costs has begun to ease as monetary policy has loosened.
Positive housing- / property-specific demand shocks have resurfaced, mirrored by a swift recovery in house prices since the first quarter of 2024 — well ahead of any sustained pick-up in actual construction.
Nevertheless, aggregate demand remains subdued, reflecting ongoing geopolitical and trade tensions as well as subdued consumer confidence.
Looking ahead, the ECB anticipates a more durable recovery. Strengthening housing demand typically precedes supply responses because of lengthy planning and construction lags.
Supporting evidence includes recovering mortgage lending, rising housing transactions, and improving sentiment indicators.
Surveys from the ECB’s Consumer Expectations Survey and the European Commission show more households viewing property as a sound investment, with rising intentions to buy, build, or renovate homes.
In summary, euro area housing/property investment has navigated a turbulent period shaped by pandemic shifts, energy shocks, monetary tightening, and supply constraints.
While the worst appears over, full normalization will depend on sustained economic growth and continued policy support.
The sector’s revival could provide a welcome boost to overall activity in the quarters ahead, though cross-country divergences are likely to persist.