ECB Rates Fuel House Price Inequality

The European Central Bank (ECB) implemented negative interest rates from June 2014 to boost inflation and combat deflationary pressures. However, this move had an unintended consequence: it fueled house price inequality.

During the 2014-2019 period, the ECB's policy rate was lowered to -0.50% in September 2019. Despite these efforts, inflation remained low at 0.89%, driven by stable food and Non-Energy Industrial Goods (NEIG) prices. House prices, on the other hand, increased more rapidly than wages.

The cumulative spread between house price and wage growth was 9.5% in the EU and EA averages during this period. This disparity worsened during the Covid-19 pandemic, with a 22% average spread between house price and wage growth.

Studies suggest that higher house prices benefit the bottom 50% of the population only if they own property. However, data from the Household Finance and Consumption Survey shows that net wealth inequality remained stable in the euro area during this period.