As reported by Bloomberg, over Christmas, Athina Drakopoulou made the difficult decision to shut down the arts and crafts shop she had run for 13 years in Koukaki, a gentrified neighborhood near the Acropolis. Her landlords were doubling the rent, and Drakopoulou found herself unable to compete with the investors flocking to trendy coffee shops and Airbnbs.
The situation underscores a significant shift that would have been unthinkable even a decade ago. Greece’s economy has experienced a remarkable recovery since 2010, when the Greek debt crisis began. Last year, the country’s economic growth surpassed that of its European peers, and it was granted investment-grade status by rating companies. However, this rebound has been accompanied by a housing crisis in the biggest cities and popular island destinations, where rents surged by more than 40% between 2018 and 2022. In Athens specifically, rents skyrocketed by 23% in the past year alone.
With affordable housing becoming increasingly scarce, politicians in Greece have been exploring ways to alleviate pressure on the housing market. One focus has been Greece’s “golden visa” program, initiated in 2014, which offers residency to foreigners who invest a minimum of €250,000 in property in the country—a relatively affordable option compared to similar programs in countries like Spain and the Netherlands, according to Bloomberg.
In recent years, however, Greece’s government has been tightening the requirements for participation in the program. Last August, it raised the minimum investment threshold for golden visas to €500,000 in popular areas, including Thessaloniki, certain parts of Athens, and the sought-after island destinations of Mykonos and Santorini.
Now, further changes are underway. According to new regulations announced on Thursday, investors will be required to invest a minimum of €800,000 ($873,280) in the aforementioned areas, as well as on islands with populations exceeding 3,100 inhabitants. These adjustments are set to take effect on March 31. Additionally, the threshold for the golden visa program will increase from €250,000 to €400,000 for properties located in the rest of the country. Furthermore, all investors must purchase properties with a minimum surface area of 120 square meters (1,291.7 square feet), which cannot be used for short-term rentals.
As highlighted by Bloomberg, while the government asserts that the revised plan aims to deter foreign investors from purchasing properties in coveted areas, critics argue that the changes are unlikely to have a significant impact on housing costs.
Athina Drakopoulou, who recently closed her arts and crafts shop due to soaring rents, dismisses the notion that the golden visa program is driving up prices. Instead, she attributes the housing crisis to factors such as the proliferation of short-term rentals and what she describes as the “Greek mentality.” According to Drakopoulou, Greeks are inclined towards quick profits, seizing any available opportunity.
As Bloomberg reports, analysts widely attribute the housing crisis in Greece to a fundamental issue: a severe lack of supply. The aftermath of the financial crisis resulted in nearly a decade-long pause in new construction, exacerbating the situation. Despite the country’s relatively stable population, the available housing stock has dwindled significantly over the years.
Platforms like Airbnb have contributed to the problem by diverting long-term housing units into the more lucrative short-term rental market. Additionally, some property owners, dissatisfied with existing tax incentives, have opted to keep their homes vacant rather than listing them for sale.
According to estimates by Piraeus Bank, approximately 200,000 additional housing units are needed nationwide to adequately meet demand.
According to Bloomberg, Stratos Paradias, the head of the Hellenic Property Federation, emphasizes the necessity of government intervention to address the housing crisis effectively. He suggests incentivizing homeowners to offer long-term rentals by granting them tax exemptions for vacant properties, provided they are rented out for the next three years. Paradias also proposes extending this incentive to short-term rentals, a significant portion of which could be converted into long-term leases.
However, Ilias Lekkos, Chief Economist of Economic Research & Investment Strategy at Piraeus Bank, believes that while golden visas play a role in the housing market, they are not the primary driver of the crisis. Lekkos notes that only around 18,000 individuals have participated in the program since its inception, with minimal impact on housing availability. Instead, he emphasizes the urgent need for incentives to encourage the construction of new housing units to address the underlying supply-demand imbalance.
As per Bloomberg, Greece’s government is implementing measures to address the housing crisis amidst ongoing political debates. Starting this year, property owners who rent out at least three properties short-term are required to establish a business and pay a tax rate of 13%, equivalent to that of hotels. Additionally, as of February, the government will subsidize 40% of renovation costs, or up to €10,000, for apartments intended for long-term rental. However, with Airbnb rentals averaging €100 per night in a country where the minimum wage amounts to €780 per month, convincing owners to participate in the initiative may pose challenges.
As reported by Bloomberg, some analysts anticipate that the relentless surge in housing prices may soon encounter a limit. In a January report, Piraeus Bank highlighted that the overheated market had driven residential real estate prices to unsustainable levels, noting “obvious signs of fatigue” emerging. Analysts suggested that this could herald the onset of the “next phase of the cycle,” characterized by higher prices coupled with a decline in property transactions.
A case in point is Koukaki in Athens, which has traversed the entire trajectory of Greece’s housing boom. Once a haven for small businesses attracted by affordable rents, Koukaki evolved into a trendy spot for young, artistic Greeks before transforming into its current state: a neighborhood frequented by short-term visitors, its vitality fluctuating with the seasons.
Drakopoulou reminisced, stating, “The first of us to set up shop in Koukaki practically set up the neighborhood.” Her establishment, Tintinnabulum, stood as a landmark and tourist magnet for years, coexisting with her studio in a neoclassical edifice.
“It was a place brimming with young people embarking on entrepreneurial ventures to navigate through the financial crisis,” she recalled. However, this era came to an end as ten-year leases expired, and rents began their ascent.
Then came the final blow: “Airbnb arrived,” she lamented, marking the exodus of everyone from the neighborhood. (Source: Bloomberg)
