In Vilnius and Klaipėda, the best housing affordability rate since 1999

Over the past 15 years, housing prices and people’s income have been changing rapidly in Lithuania, while the possibilities to purchase real estate have been different in different periods. Real borrowing opportunities for housing appeared in 2001 giving a tremendous boost to the whole market. Improving loan accessibility gave people the opportunity to own property. However, it is difficult to compare people’s possibilities to acquire housing in the long term, especially since the conditions have been changing rapidly: within a relatively short time, the maximum term for loans has increased from 10 to 40 years; interest on loans within a relatively short period can change 2-3 times; requirements for own funds have also changed, etc.

Therefore, in order to evaluate the real possibilities of people (rather than the affordability based on borrowed funds) to purchase their desired property simply and comprehensively and the condition of the housing market, a few fundamental indicators can be used: real disposable income and the price of property at a given time. The housing price to income ratio has changed considerably in Lithuania.

Looking at the past 15-year history of the major Lithuanian cities (which reflects the history of Lithuania), it can be seen that the worst apartment price to salary ratio was between 2006 and 2007, when apartment prices reached record heights. At that time, an inhabitant of Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys could purchase 2.9 sqm to 5.1 sqm in a medium-class apartment for his average (net) annual salary. For example, a standard resident of Vilnius could afford to buy the smallest number of square metres in 2006. At that time, the average price of a square metre of an apartment EUR 1,539, while the average net monthly salary was about EUR 377. So a standard resident of Vilnius could buy 2.9 sqm in a medium-class apartment for his average (net) annual salary.

In Klaipėda the same indicator was recorded in 2007. That year, a standard resident of Kaunas could buy 3.4 sqm for his annual salary, while residents of Šiauliai and Panevėžys – 5.1 sqm and 5.0 sqm respectively. The analysis of the period between 1999 and 2003 shows that the apartment price to salary ratio was the best in 2001–2003, when, due to the Russian and Lithuanian economic crisis, prices were at their lowest and could not recover after the difficulties that Lithuania had faced. In 2002, a resident of Kaunas could buy 7.8 sqm and a resident of Panevėžys – 17.6 sqm for his average (net) annual salary. Meanwhile, the apartment price to salary ratio in Šiauliai in 2003 was the best – a resident of Šiauliai could buy 15.3 sqm for his average (net) annual salary. Vilnius and Klaipėda in that period stood out by their higher apartment prices, so the average annual salary of the population of these cities was equal to about 5–6 sqm in a medium-class apartment.

Since 2007-2008, apartment prices in the major Lithuanian cities fell on average by almost 40%, while the nominal average salary over the past 6 years, depending on the region, increased by 25–30%. Therefore, statistically, urban residents are now able to purchase 2 times more space than during the housing property price peak that occurred between 2007 and 2008. Having evaluated housing prices over the past nine months of 2013 and salaries in specific cities in Q1 and Q2 2013, the ratio under discussion is distributed as follows: Vilnius – 5.8 sqm (the lowest ratio was in 2006 – 2.9 sqm), Kaunas – 6.3 sqm (2007 – 3.4 sqm), Klaipėda – 6.7 sqm (2007 – 2.9 sqm), Šiauliai – 9.8 sqm (2007 – 5.1 sqm) and Panevėžys – 10.9 sqm (2007 – 5.1 sqm). Vilnius and Kaunas indicators should be noted as they are currently the highest in the past 15 years.

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Over the past 15 years, housing prices and people’s income have been changing rapidly in Lithuania, while the possibilities to purchase real estate have been different in different periods. Real borrowing opportunities for housing appeared in 2001 giving a tremendous boost to the whole market. Improving loan accessibility gave people the opportunity to own property. However, it is difficult to compare people’s possibilities to acquire housing in the long term, especially since the conditions have been changing rapidly: within a relatively short time, the maximum term for loans has increased from 10 to 40 years; interest on loans within a relatively short period can change 2-3 times; requirements for own funds have also changed, etc.

Therefore, in order to evaluate the real possibilities of people (rather than the affordability based on borrowed funds) to purchase their desired property simply and comprehensively and the condition of the housing market, a few fundamental indicators can be used: real disposable income and the price of property at a given time. The housing price to income ratio has changed considerably in Lithuania.

Looking at the past 15-year history of the major Lithuanian cities (which reflects the history of Lithuania), it can be seen that the worst apartment price to salary ratio was between 2006 and 2007, when apartment prices reached record heights. At that time, an inhabitant of Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys could purchase 2.9 sqm to 5.1 sqm in a medium-class apartment for his average (net) annual salary. For example, a standard resident of Vilnius could afford to buy the smallest number of square metres in 2006. At that time, the average price of a square metre of an apartment EUR 1,539, while the average net monthly salary was about EUR 377. So a standard resident of Vilnius could buy 2.9 sqm in a medium-class apartment for his average (net) annual salary.

In Klaipėda the same indicator was recorded in 2007. That year, a standard resident of Kaunas could buy 3.4 sqm for his annual salary, while residents of Šiauliai and Panevėžys – 5.1 sqm and 5.0 sqm respectively. The analysis of the period between 1999 and 2003 shows that the apartment price to salary ratio was the best in 2001–2003, when, due to the Russian and Lithuanian economic crisis, prices were at their lowest and could not recover after the difficulties that Lithuania had faced. In 2002, a resident of Kaunas could buy 7.8 sqm and a resident of Panevėžys – 17.6 sqm for his average (net) annual salary. Meanwhile, the apartment price to salary ratio in Šiauliai in 2003 was the best – a resident of Šiauliai could buy 15.3 sqm for his average (net) annual salary. Vilnius and Klaipėda in that period stood out by their higher apartment prices, so the average annual salary of the population of these cities was equal to about 5–6 sqm in a medium-class apartment.

Since 2007-2008, apartment prices in the major Lithuanian cities fell on average by almost 40%, while the nominal average salary over the past 6 years, depending on the region, increased by 25–30%. Therefore, statistically, urban residents are now able to purchase 2 times more space than during the housing property price peak that occurred between 2007 and 2008. Having evaluated housing prices over the past nine months of 2013 and salaries in specific cities in Q1 and Q2 2013, the ratio under discussion is distributed as follows: Vilnius – 5.8 sqm (the lowest ratio was in 2006 – 2.9 sqm), Kaunas – 6.3 sqm (2007 – 3.4 sqm), Klaipėda – 6.7 sqm (2007 – 2.9 sqm), Šiauliai – 9.8 sqm (2007 – 5.1 sqm) and Panevėžys – 10.9 sqm (2007 – 5.1 sqm). Vilnius and Kaunas indicators should be noted as they are currently the highest in the past 15 years.

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