Low and temporary subsidies could jump-start private market solutions in those areas. Enabling many individuals to buy a home is sound, since individually-owned homes are a major driver of individual wealth accumulation. Moreover, higher homeownership rates can encourage growth.

The past few years have been characterised by a dramatic decrease in mortgage rates across Europe. In the Eurozone, average interest rates for fi xed-rate mortgages of more than ten years dropped from over five percent in 2008, to less than two percent in the fi rst half of 2018. The
reasons for this development are well-known. First, there is the European Central Bank’s expansionary monetary policy. In order to mitigate the effects of the fi nancial crisis and the sovereign debt crisis, the ECB has pursued a very loose monetary policy, including unorthodox measures such as quantitative easing and the purchase of sovereign bonds. Second, demographic changes are dampening the development of interest rates. In all OECD countries, the population is ageing. What is more, retirement ages have not been fully aligned with increased life expectancy, thus lengthening the period of pension payments. Consequently, households need to save more in order to supplement their pension. Third, investments are stagnating. There are many reasons for this but it is presumed that the shrinking workforce is a main driver since fewer workers tend to result in less need for capital. Furthermore, digitisation demands better-educated workers but fewer capital investments, especially since industry 4.0 focuses on network and machine communication rather than on huge capital investments. Decreasing public investment over time is another contributing factor. Thus, the real interest rate is decreasing as a result of less or stagnating investments and increased savings.While ECB policy is expected to change in the coming years, the demographic factor will endure and gain importance, thereby limiting future increases in mortgage rates.