Lagarde Blames Housing Crisis on Supply-Demand Gap

ECB President Christine Lagarde recently addressed the European Parliament's Economic and Monetary Affairs Committee, attributing Europe's housing crisis to a gap between housing supply and demand rather than higher interest rates. She acknowledged that higher mortgage costs do make borrowing more expensive but dismissed this as the main cause of the crisis.

Lagarde pointed out that there is a severe shortage of homes in countries such as Spain, where estimates put the shortage at around 700,000 to 755,000 units. The ECB raised its three key interest rates by 25 basis points on September 10, with the deposit rate reaching 2.50% and the refinancing and marginal lending rates rising to 2.65% and 2.90%, respectively.

While acknowledging that higher rates can raise mortgage costs for households, Lagarde emphasized that interest rates alone cannot solve the supply problem. She highlighted the need for construction to catch up with demand and noted that financial conditions are already tighter due to longer-term interest rate increases.