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Unless you’ve been living under a rock, you’ve seen that Russia has invaded Ukraine. In part because of the more than two million Ukrainians who have been forced to evacuate since the beginning of the conflict, we’re seeing a dramatic shift in European real estate. Let’s take a deeper dive into how this market is being both helped and hurt — as well as used as an engine for social good — amidst the first major international combat scenario of the decade.
Populations are skyrocketing in surrounding countries
Before the invasion, Ukraine’s population was just north of 40 million. As of March 31, just over four million have fled the country (approximately 10% of the citizenry in a one-month span), and this figure is certain to rise before the end of the conflict. This represents the most dramatic population shift in Europe since WWII. The three countries receiving the largest number of refugees are:
1. Slovakia, with a population of 2.1 million, which has taken in 140,000 Ukrainians (representing an almost 7% increase in population).
2. Poland, with a population of 37 million, which has taken in 1.2 million refugees (a 3% increase).
3. Hungary, with an existing population of 9.7 million, which has taken in 193,000 (a 2% increase).
This creates an immense strain on both the long- and short-term housing markets within these nations. With thousands of buildings already destroyed and no end in sight, there’s no telling how many of these families will not be able to return to Ukraine.
Regrettably, increased demand and limited supply will also mean rapidly rising housing costs. In Bratislava, the capital of Slovakia, the average price of a house had already risen more than 10% over the course of 2021 alone. While lucrative for landlords, we could see a 17% price increase there by this year’s end, and that’s bad news for already cash-strapped refugees. Fortunately, though, financial aid is pouring in from the west and the EU has moved to grant Ukrainian citizens EU citizenship for the next three years so they can safely stabilize their families.
Tech companies as a vehicle for social good
A novel form of digital-age aid emerged in March when thousands of people booked Airbnbs in Ukraine, but with no intention of staying in them. More than 60,000 nights were booked on March 2nd and 3rd alone, and these donations have amounted to tens of millions of dollars in financial assistance that goes straight to Ukrainian households, and that figure is certain to rise. These bookings have come from everyone from average citizens to corporate CEOs like Yoni Hagos of Merry Jane.
This elegantly demonstrates the important role capitalist innovations can play when people think outside of the box and use technological tools with empathy. Airbnb, for its part, has waived fees on all of these bookings for the duration of the conflict. While this may be as much a press play for the company as it is the right thing to do, it still means considerable help for those on the receiving end.
This unique financial aid scenario helps emphasize two additional things: The many and varied ways that home ownership can be leveraged to generate income in times of both certainty and instability, and that landlords should allow tenants to sub-lease. In the last decade, Airbnb, Vrbo and other platforms have dramatically shifted the rental market, and landlords have pushed back by creating leases that prevent tenants from engaging in short-term sub-leases. In my opinion, Ukrainian landlords who have forbidden tenants from listing an extra room or entire dwelling in this way have committed a crime against their people.
Global supply chain issues and inflation will both slow rebuilding and make it more expensive
With housing costs having already jumped nearly 10% in Europe in 2020 alone (according to Statista), the continuing pandemic-related supply chain bottleneck will see the replacement of destroyed buildings take significantly longer and cost far more — amidst an already strained global economy. That said, there will almost certainly be a nearly decade-long construction boom for any European nation surrounding Ukraine, and possibly an even longer one in Ukraine itself.
This will likely be an engine for post-war job growth in Ukraine, and even during the war for those surrounding countries with high refugee counts. There will be a boom in multi-family housing builds as well as in tiny home construction (as buildable square footage in Europe is limited compared to the American market). Hopefully, the abundance of jobs created as a result will be a ray of sunshine for the European economy, both during and after this tumultuous time.
The bottom line is that any event that impacts people will impact the real estate market. Everyone needs a roof over their head, and this doesn’t change just because a conflict is raging. Supply and demand can swing dramatically in no time at all, and governments and private entities alike are forced to adapt to new circumstances. Hopefully, the general goodness of humanity will prevail and the public and private sectors will work together to create innovative and cost-effective solutions to what’s shaping up to be the most significant and complex shift in the European real estate market in seventy years.