The Hamletic dilemma remains the same in the real estate world: is it better to buy a house or rent it? Of course, there is no one-size-fits-all answer, but some numbers can provide essential information and explain some trends behind Italians’ decisions.
Houses for rent: stock plummets
According to data released by idealista’s study office, the supply of rental homes has contracted once again for the fifth consecutive quarter, registering in the last three months of 2022 a collapse of 36 percent compared to the same period in 2021. This is a significant reduction, although less than in the previous quarter when supply fell by 43.5 percent.
Be careful, however: this is not a collapse in rents but in supply. This means that supply is being absorbed by robust demand. Or, put another way, that supply is lacking.
What does this all mean? “In the real estate world, renting and buying is an almost forced choice,” replied Vincenzo De Tommaso, head of idealista’s study office, who pointed out that “there is absolutely no flight from renting. It is the opposite. Since the period of the greatest covid alert, there has been a solid recovery in demand for rental housing, with supply registering the 5th consecutive decline in recent quarters.”
What are the causes? “On the one hand, the demand for rental housing goods has become very dynamic in the last two years due to the phenomena of flexibility or greater precariousness in the world of work. On the other hand, there is an inadequate supply, with landlords who – also, in conjunction with the increase in expenses and faced with the difficulties of many users not being able to pay the monthly rent. This is due to wages or labor contracts that do not provide sufficient guarantees – prefer to keep the vacant houses or allocate them to the short rent market (short rent), a fast-growing segment that allows not having problems of defaulting tenants and obtaining a return double to the classic 4+4,” added De Tommaso.
Home alarm: Italians almost forced toward the purchase
So what to do in this situation? “We are almost forced to buy houses,” summed up De Tommaso, who then highlighted another aspect that should not be overlooked: rental prices that are not competitive with mortgages.
“The rental market is driven by 10-11 large cities in which 50-60% of supply is concentrated. In these cities (see Milan), the price of renting is likely to be even higher than that of the mortgage payment, so one is almost obliged to proceed with the purchase of the house,” added the head of idealista’s study office.
“The choice between buying and renting is, therefore, a complex choice,” as Fabiana Megliola, Tecnocasa group study office manager said and who also confirms that the entire real estate market has increased. If, on the one hand, there has been, in fact, an increase in house purchase prices in 2022 (+1.8 percent according to their latest data), “the situation would not seem to be the best for buying a house, since we are seeing high prices and rates,” Megliola explains, “on the other hand, rents have also grown. Nationwide, the latest data shows an increase in rents of 2.1 percent for one-room apartments, 2.4 percent for two-room apartments, and 2.2 percent for three-room apartments.”
How much does it cost to buy a house in Milan, Naples, and Rome? What about renting?
“From our simulations, to buy a 65 sq. m. one-bedroom apartment, with a 25-year mortgage covering 80 percent of the property’s value, in Milan you would pay an installment close to 1,200 euros per month, in Naples 670 euros and Rome 830 euros. In the same cities and for the same type of housing, however, if one were to opt for renting, the rent would be 960 euros per month in Milan, 600 euros per month in Naples, and 750 euros per month in Rome, respectively,” replied Tecnocasa’s study office manager.
The comparison sees a higher installment in the case of buying and selling, but not by much: with a slightly more significant effort, one could therefore assume to buy a home if the conditions for doing so exist. “Here we get into another important aspect because the buyer must put in the necessary liquidity to pay the costs of buying the property and those associated with taking out the mortgage and must possess at least the capital necessary to cover 20 percent of the value of the property. Of course, there must then be the necessary income requirements to access credit, but if you have the right papers to buy, it would be better to take the plunge because, in the end, you would find yourself the owner of a property with little extra effort,” Megliola added.
Unfortunately, the rental market in Italy should be more equal when it should not be. “Renting could be a big lever of social dynamism: young people could have homes that are functional for the different moments of their lives; seniors could divest large houses that are no longer suitable for their needs, as their children have perhaps moved to other homes, and rent smaller ones; or, again, separated or divorced parents could find different housing solutions. So what is lacking in Italy is the flexibility element,” De Tommaso explained.
The knots and contradictions of Italian society come to a head
“In Italy, we have huge imbalances, we are moving toward a society that has more and more singles, or returning singles, but we are forcing people somehow to be in a couple to buy (or rent) a house because a single person a house cannot even afford it, at the current salaries,” the head of idealista’s study office then commented.
The forecast for the housing market in 2023
“The forecast for the year that has just begun is for a decline in buying and selling, precisely in light of rising rates, the reduced possibility of taking out a mortgage, and a further increase in prices. On the rental side, we also believe that rents may still rise due to rising demand, fueled by those who cannot buy, and the lower supply also brought about by the return of short rentals,” Megliola commented.
The trend of rents in various Italian cities in 2022 (data on 2021)
According to idealista’s data, 76 out of 107 Italian capitals recorded a reduction in stock, with peaks of 81 percent in Turin and Ferrara. Above-average supply contractions of 36% in 19 other realities, including major rental markets such as Verona (-67%), Florence, and Rome (66%) in primis. Venice marks a 57 percent contraction, Milan a 49 percent contraction, Genoa a 41 percent contraction, and Naples has 40 percent fewer homes for rent than a year earlier. Declines in the other 55 centers range from 36 percent in Lucca to 2 percent in Crotone, with 20 percent reductions in supply for half of these.
Despite widespread declines in the available product, 27 cities are offering more homes for rent than a year ago. Increases in the stock exceeded 10% in 15 capitals, from 55% in Sondrio to 12% in Terni, while eight other capitals saw growth ranging from 9% in Modena and Cremona to 5% in Vicenza. The most significant increase occurred in Nuoro, with a 120% increase, followed by Pesaro, 79%, Trento (76%), and Trieste (60%).
Finally, the stock remained stable in 4 cities-Agrigento, Barletta, Carbonia, and Syracuse.
