## 1. Greece Housing Affordability Paradoxes

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---

### Overview and policy context
- Greece faces mounting and multifaceted housing affordability challenges despite seemingly favorable structural conditions.
- Affordability pressures reflect strong and increasingly concentrated demand (including from foreigners), structural supply rigidities, and supply-demand mismatches.
- Affordability is compounded by high recurring costs, especially utility bills, due to old and energy inefficient stock and limited energy upgrades.
- Policy priorities highlighted:
  - Mobilize underutilized housing stock by combining renovation programs with disincentives to vacancy.
  - Address bottlenecks such as fragmented co-ownership, stranded assets related to legacy distressed debt, and unresolved construction compliance issues.
  - Assess effectiveness of restrictions on short-term rentals (STRs) and reduce the risk premium associated with long-term rental (LTR) while improving price discovery.
  - Expand social and affordable housing via public-private partnerships, reduce regulatory uncertainty, and streamline zoning and building permit regulations.
  - Facilitate labor and capital reallocation in the construction sector and strengthen workforce training to raise productivity and contain construction costs.

### How severe are housing affordability challenges? (Section B)
- Historical and recent price dynamics:
  - House prices increased cumulatively by about 85 percent against 47 percent for disposable income per capita since the post-crisis trough.
  - Most of the price increase occurred after the pandemic (+61 percent since 2020Q4).
  - Overvaluation is estimated at around 10 percent.
  - Geographic heterogeneity: asking prices are significantly higher in Attica, Thessaloniki and touristic hubs.
- Homeownership and mortgage affordability:
  - More than 60 percent of Greek households are outright owners (i.e., with no mortgages).
  - Assuming a debt service-to-income (DSTI) ratio of 30 percent and a loan-to-value (LTV) ratio of 70 percent (respectively 80 percent), the median household would fall about 7 percent (respectively 17 percent) short of the income needed to qualify for a mortgage in 2024.
  - Assuming a saving rate of 10 percent per year, it would take roughly 24 years (respectively 14 years) to accumulate the required downpayment.
  - Access to mortgage credit is further constrained by the crisis legacy leading to conservative bank lending standards.
- Rent dynamics:
  - The rent component of the Harmonized Index of the Consumer Price (HICP) remains below pre-crisis levels but rent inflation accelerated post-pandemic, culminating at 10 percent in 2025.
  - Market-based indicators show stronger dynamics for asking rents per square meter, with faster increases for new leases and stronger pressures in metropolitan areas (Athens, Thessaloniki).
- Housing cost burden and vulnerabilities:
  - Median housing cost (including mortgages) exceeded a third of disposable income in 2025.
  - Approximately two out of five households are overburdened (i.e., they spend more than 40 percent of disposable income on housing-related expenditure).
  - An additional 20 percent of households spend 30-40 percent of disposable income on housing costs.
  - High housing costs are associated with a large share of households in arrears on their housing payments (41.8 percent according to EU-SILC survey) and reporting difficulty to warm and cool their properties.
  - Social consequences include delayed household formation (young people staying longer with parents), smaller dwellings, high overcrowding rates (particularly for renters), and potential negative effects on fertility and labor mobility.

### Why is the housing cost burden so high? A micro perspective (Section C)
- Income capacity as fundamental driver:
  - Tenure is a key determinant of overburden, but its effect is highly conditional on income.
  - Predicted probabilities from pooled EU-SILC (2021–25) regressions:
    - Low-income households (bottom 40 percent) face markedly higher risks across all tenures.
    - Predicted probability for low-income mortgagors (renters) exceeds 90 percent, compared to about one-third for higher-income households.
    - Low-income renters face four times larger probability of being overburdened than higher-income renters.
    - Even outright owners show sharply higher probability of overburden if low-income.
  - Other household characteristics increasing overburden risk:
    - Single-person and single-parent households.
    - Lower education and weaker labor market attachment.
    - Regional effects: renters in Attica and Central Macedonia (Thessaloniki) have higher probabilities of being overburdened.
- Compositional and preference changes:
  - Joint income-wealth distribution shifted over 2011-21 toward more households holding illiquid housing assets but with limited current income (asset-rich income-poor).
  - Rise in single-person and single-parent households (12 percentage points since 2011) increases per-household housing consumption and reduces economies of scale.
  - These compositional effects mechanically raise aggregate housing cost burden even without price increases.
- Recurring costs and energy inefficiency:
  - Greek dwellings are old and less energy efficient; only 7.4 percent achieve an energy class of B or higher.
  - Greek dwellings consume roughly 65 percent more energy per square meter than Portuguese properties (where investment in energy upgrades has been 2.5 times higher).
  - Despite reductions in the unified property tax (ENFIA), recurring property taxes remain relatively high and can add to homeowner costs; recent exemptions target some low-income households.

### What drives housing market imbalances despite ample stock? — Rising and concentrated demand (start of Section D)
- Apparent paradoxes in supply versus use:
  - Greece has one of the highest dwelling stock per capita with declining population but 35 percent of properties not used as primary residence, of which one third (12-13 percent of total stock) is vacant.
- Demand drivers for house purchase since 2017:
  - External demand:
    - Foreign investors, including the Greek diaspora, were attracted by relatively low valuations and expectations of capital gains after the post-crisis correction.
    - Policy support and incentives: Golden Visa program, tax incentives for pensioners, lower ENFIA tax since 2022 reduced user cost of housing.
    - “Announcement effects” from changes in Golden Visa eligibility thresholds may have caused opportunistic investment behavior and temporarily accelerated demand before moderating.
  - Domestic demand:
    - Resident demand has been shallow and dominated by high-income households financing acquisitions mainly with cash.
    - Since 2023, demand has shifted toward first-time buyers, buoyed by government subsidized loan programs (MyHome I and MyHome II).

### Demand concentration, underutilized stock, and listing indicators
- Demographic and urban concentration:
  - Population has declined in the last 15 years, while the number of households has continued to rise, driven by smaller household size and changing living arrangements, including a rise in single-person households.
  - Shift in household composition, together with affordability challenges, increased demand for smaller houses.
  - Post-crisis urbanization concentrated demand in metropolitan areas—particularly Attica where population density is 20 times higher than the rest of the country.
- Underutilized and inefficiently allocated stock:
  - 35 percent of the housing stock is not used for primary residence; one third of that is vacant (12-13 percent of total stock).
  - More than half of unoccupied units were built before 1980.
  - Constraints to bringing vacant units to market: liquidity and financing constraints, high renovation costs, fragmented co-ownership structures, and high cost of remedying regulatory and legal irregularities.
  - Some housing units are held by the public sector, banks, and credit servicers and remain outside the market.
  - Time-on-market: around 8 months for sale and 6 months for rent, indicating supply-demand mismatches and search and matching frictions.
  - Alpha Bank survey (2025) finds differences in location, size, and price segments are key impediments for prospective homebuyers.
- Key listing and price indicators:
  - 55 percent of listed properties for sale in 2025 exceed EUR200K and one third are above EUR280K.
  - Median listing rent is around EUR575 per month; in Attica the median listing is about EUR785 per month.
  - About one third of listings for sale are large properties exceeding 120m2.
  - On the rental side, in Attica and Thessaloniki the share of small dwellings (lower than 60 m2) hovers around 30 percent compared to 55 percent other regions.

### Competition from Short-Term Rental (STR)
- STR growth and share:
  - INSETE database shows a 240 percent increase in STR listings over 2017-2024 from less than 100K to more than 230K.
  - STR listings represent about 3.5 percent of the housing stock, 10 percent of the unoccupied stock (including holiday and secondary homes) and 29 percent of vacant properties.
  - Distribution concentrated in some touristic Islands, central Athens and Piraeus.
- Empirical findings:
  - Higher intensity of home sharing is associated with higher prices, especially in areas where the owner occupancy rate is low.
  - Similar but smaller effects for rents, suggesting STRs have reduced availability of long-term rental (LTR) units in specific high-demand areas.
  - Note: part of STR listings may be rooms and not entire properties; active listings differ and appear to be smaller.

### Increasingly constrained new supply and construction sector challenges
- Construction activity and capacity:
  - In 2024, building permits exceeded 41,000 units—close to their 2010 level—which will feed the market likely in 2026.
  - Capacity constraints: labor shortages, an aging workforce, and declining participation of younger workers.
- Structural sector challenges:
  - Labor productivity remains below EU levels; sector highly fragmented with over 96 percent of firms classified as micro-enterprises.
  - Low investment historically; capital formation insufficient to offset depreciation.
  - Financing constraints persist: higher borrowing costs and persistent SME financing gaps relative to the euro area.

### What has been done (policy measures to date)
- Government package:
  - More than 40 measures with a budget exceeding €6.5 billion aimed at easing price pressures, expanding supply, and improving access to affordable and quality housing.
- Governance reforms:
  - Interministerial coordination framework and development of a National Housing Strategy.
- Demand-side measures:
  - Subsidized mortgage schemes for first-time buyers (My Home I & II), rent refunds, targeted housing allowances for students, low-income households, and uninsured elderly, reductions in ENFIA, and suspension of VAT on new construction.
  - Golden Visa program tightened with higher investment thresholds and usage restrictions.
- Supply-side measures:
  - Mobilizing idle housing stock, incentivizing reallocation to LTR, upgrading ageing dwellings, expanding social housing.
  - Renovation programs: “Upgrade My Home,” “Save 2025,” and “Renovate–Rent”.
  - Construction of social housing and student dormitories; use of public land and vacant military camps through social exchange schemes retaining a share of housing units in public ownership at below-market rents.
- STR mitigation:
  - Geographically targeted restrictions on STR and tax relief for long-term leasing.

### Policy recommendations — targeted actions to address mismatches
- Advice 1: Mobilizing vacant properties
  - Expanded and well-targeted renovation support, conditioned on energy efficiency upgrades, to address liquidity constraints and reduce recurring costs.
  - Fiscal disincentives for vacancy (e.g., vacancy taxes or surcharges) targeted geographically to tight markets; graduated rates increasing with duration of vacancy; clear and limited exemptions; robust property registries and enforcement mechanisms, complemented with utility usage data.
  - Tackle fragmented co-ownership and legal gridlock: end forced co-ownership, allow one heir to take full ownership with compensation, simplify transfer procedures, enable majority-based decision-making among co-owners, provide targeted incentives to consolidate ownership, and accelerate judicial processes and dispute resolution.
- Advice 2: Enhancing the attractiveness of long-term leases (LTR)
  - Tax incentives for switching from STR/vacancy to LTR; reduce information asymmetry for landlords (tenant registry); enforce regulation and data transparency for STR.
  - Reduce minimum rental contract duration (currently three years), faster dispute resolution processes, and rent guarantee schemes to shield low-income renters.
  - Systematically assess effectiveness and cost-benefits of STR restrictions; implement geographically targeted measures mindful that two thirds of vacant properties are secondary/holiday homes used part of the year.
- Advice 3: Increasing elasticity of new supply and containing construction cost growth
  - Facilitate reallocation toward more productive firms, enable exit/restructuring of nonviable (“zombie”) firms, reduce barriers to firm growth and consolidation.
  - Strengthen access to financing for small and medium-sized developers.
  - Promote innovation and capital deepening (e.g., digital tools, modular construction methods) to raise efficiency and lower unit costs.
  - Improve competition and reduce distortions that fragment the sector.
- Advice 4: Addressing labor shortages in construction
  - Targeted training and reskilling programs aligned with sector needs.
  - Incentives to attract younger workers and improve labor mobility.
  - Facilitate reallocation of labor toward construction from lower-productivity sectors.
  - Improve working conditions and formalization to increase labor supply and productivity.
- Advice 5: Improving spatial planning and regulatory certainty
  - Optimize spatial planning, particularly in high-demand areas, and integrate with regional development strategies.
  - Improve completeness and accessibility of land and cadastral registries to facilitate transactions and development.
- Advice 6: Boosting affordable and social housing and recalibrating demand measures
  - Reinforce planned rehabilitation of publicly-owned properties with private sector partnership to develop social rental housing.
  - New building regulation to give developers incentives to allocate part of new construction to social and affordable housing; ensure efficient allocation to those most in need.
  - Extend student dormitories and complement with measures to promote co-living given prevalence of large properties.
  - Recalibrate demand-side support to avoid price capitalization and regressive effects: refine eligibility criteria and means-testing; assess impact of VAT exemption on new construction and consider phasing out or reorienting toward renovation if benefits accrue mainly to richer households or real estate companies.
  - Indexing rent refund on monthly payment would enhance transparency but increase future fiscal cost.

### Conclusions (main takeaways)
- Housing affordability is at the center of a self-reinforcing loop between households’ vulnerability, aging housing stock, and societal/demographic dynamics changes.
- Greece faces a housing allocation problem rather than a standard housing shortage; structural challenges impede efficient use of the existing stock.
- Spatial distribution, segmented demand, and market inefficiencies exacerbate supply-demand mismatch.
- Government measures go in the right direction but need further consolidation, greater focus on affordable supply, and a mix between sticks and carrots to mobilize the existing stock and reduce mismatches.
- Alleviating capacity constraints in the construction sector and boosting productivity is key to unlock supply and contain the increase in construction costs.
- Ongoing digitalization and centralization of information on properties will help better identify problems and design adequate policies.
- Housing policies should exploit synergies with labor, financial, energy, and regional policies.

*Source: 1grcea2026002 - 1. Greece Housing Affordability Paradoxes (April 30, 2026).*

### 1. Greece Housing Affordability Paradoxes _____________________________________________ 4

### 1. Greece Housing Affordability Paradoxes

### Overview and policy context
- Greece faces mounting and multifaceted housing affordability challenges despite seemingly favorable structural conditions.
- Affordability pressures reflect strong and increasingly concentrated demand (including from foreigners), structural supply rigidities, and supply-demand mismatches.
- Affordability is compounded by high recurring costs, especially utility bills, due to old and energy inefficient stock and limited energy upgrades.
- Policy priorities highlighted:
  - Mobilize underutilized housing stock by combining renovation programs with disincentives to vacancy.
  - Address bottlenecks such as fragmented co-ownership, stranded assets related to legacy distressed debt, and unresolved construction compliance issues.
  - Assess effectiveness of restrictions on short-term rentals (STRs) and reduce the risk premium associated with long-term rental (LTR) while improving price discovery.
  - Expand social and affordable housing via public-private partnerships, reduce regulatory uncertainty, and streamline zoning and building permit regulations.
  - Facilitate labor and capital reallocation in the construction sector and strengthen workforce training to raise productivity and contain construction costs.

### How severe are housing affordability challenges? (Section B)
- Historical and recent price dynamics:
  - House prices increased cumulatively by about 85 percent against 47 percent for disposable income per capita since the post-crisis trough.
  - Most of the price increase occurred after the pandemic (+61 percent since 2020Q4).
  - Overvaluation is estimated at around 10 percent.
  - Geographic heterogeneity: asking prices are significantly higher in Attica, Thessaloniki and touristic hubs.
- Homeownership and mortgage affordability:
  - More than 60 percent of Greek households are outright owners (i.e., with no mortgages).
  - Assuming a debt service-to-income (DSTI) ratio of 30 percent and a loan-to-value (LTV) ratio of 70 percent (respectively 80 percent), the median household would fall about 7 percent (respectively 17 percent) short of the income needed to qualify for a mortgage in 2024.
  - Assuming a saving rate of 10 percent per year, it would take roughly 24 years (respectively 14 years) to accumulate the required downpayment.
  - Access to mortgage credit is further constrained by the crisis legacy leading to conservative bank lending standards.
- Rent dynamics:
  - The rent component of the Harmonized Index of the Consumer Price (HICP) remains below pre-crisis levels but rent inflation accelerated post-pandemic, culminating at 10 percent in 2025.
  - Market-based indicators show stronger dynamics for asking rents per square meter, with faster increases for new leases and stronger pressures in metropolitan areas (Athens, Thessaloniki).
- Housing cost burden and vulnerabilities:
  - Median housing cost (including mortgages) exceeded a third of disposable income in 2025.
  - Approximately two out of five households are overburdened (i.e., they spend more than 40 percent of disposable income on housing-related expenditure).
  - An additional 20 percent of households spend 30-40 percent of disposable income on housing costs.
  - High housing costs are associated with a large share of households in arrears on their housing payments (41.8 percent according to EU-SILC survey) and reporting difficulty to warm and cool their properties.
  - Social consequences include delayed household formation (young people staying longer with parents), smaller dwellings, high overcrowding rates (particularly for renters), and potential negative effects on fertility and labor mobility.

### Why is the housing cost burden so high? A micro perspective (Section C)
- Income capacity as fundamental driver:
  - Tenure is a key determinant of overburden, but its effect is highly conditional on income.
  - Predicted probabilities from pooled EU-SILC (2021–25) regressions:
    - Low-income households (bottom 40 percent) face markedly higher risks across all tenures.
    - Predicted probability for low-income mortgagors (renters) exceeds 90 percent, compared to about one-third for higher-income households.
    - Low-income renters face four times larger probability of being overburdened than higher-income renters.
    - Even outright owners show sharply higher probability of overburden if low-income.
  - Other household characteristics increasing overburden risk:
    - Single-person and single-parent households.
    - Lower education and weaker labor market attachment.
    - Regional effects: renters in Attica and Central Macedonia (Thessaloniki) have higher probabilities of being overburdened.
- Compositional and preference changes:
  - Joint income-wealth distribution shifted over 2011-21 toward more households holding illiquid housing assets but with limited current income (asset-rich income-poor).
  - Rise in single-person and single-parent households (12 percentage points since 2011) increases per-household housing consumption and reduces economies of scale.
  - These compositional effects mechanically raise aggregate housing cost burden even without price increases.
- Recurring costs and energy inefficiency:
  - Greek dwellings are old and less energy efficient; only 7.4 percent achieve an energy class of B or higher.
  - Greek dwellings consume roughly 65 percent more energy per square meter than Portuguese properties (where investment in energy upgrades has been 2.5 times higher).
  - Despite reductions in the unified property tax (ENFIA), recurring property taxes remain relatively high and can add to homeowner costs; recent exemptions target some low-income households.

### What drives housing market imbalances despite ample stock? — Rising and concentrated demand (start of Section D)
- Apparent paradoxes in supply versus use:
  - Greece has one of the highest dwelling stock per capita with declining population but 35 percent of properties not used as primary residence, of which one third (12-13 percent of total stock) is vacant.
- Demand drivers for house purchase since 2017:
  - External demand:
    - Foreign investors, including the Greek diaspora, were attracted by relatively low valuations and expectations of capital gains after the post-crisis correction.
    - Policy support and incentives: Golden Visa program, tax incentives for pensioners, lower ENFIA tax since 2022 reduced user cost of housing.
    - “Announcement effects” from changes in Golden Visa eligibility thresholds may have caused opportunistic investment behavior and temporarily accelerated demand before moderating.
  - Domestic demand:
    - Resident demand has been shallow and dominated by high-income households financing acquisitions mainly with cash.
    - Since 2023, demand has shifted toward first-time buyers, buoyed by government subsidized loan programs (MyHome I and MyHome II).

*Source: 1grcea2026002 - 1. Greece Housing Affordability Paradoxes (April 30, 2026).*

### 14.      Demand for housing has also become increasingly concentrated in some sub-markets.

### 14.      Demand for housing has also become increasingly concentrated in some sub-markets.

### Overview and key demand-side drivers
- Population has declined in the last 15 years, while the number of households has continued to rise, driven by smaller household size and changing living arrangements, including a rise in single-person households.
- Shift in household composition, together with affordability challenges, increased demand for smaller houses.
- Post-crisis urbanization has intensified economic activity and population flows concentrating in metropolitan areas—particularly Attica where population density is 20 times higher than the rest of the country—amplifying local demand pressures.

### Explanation 2: Underutilized and inefficiently allocated housing stock
- Greece has one of the highest number of dwellings per capita in the EU and 35 percent of this stock is not used for primary residence, of which one third is vacant (12-13 percent of total stock)—the rest is used as holiday or secondary homes.
- A significant share of vacant dwellings is old, energy-inefficient, and possibly not readily habitable—more than half of unoccupied units were built before 1980.
- Constraints to bringing vacant units to market: liquidity and financing constraints, high renovation costs, fragmented co-ownership structures (Alpha Bank, 2026), and high cost of remedying regulatory and legal irregularities.
- A non trivial number of housing units remain outside the market, including properties held by the public sector, banks, and credit servicers.
- Market evidence: supply of properties for sale and rent has increased considerably in recent years, but time-on-market is relatively high, around 8 and 6 months respectively, pointing to supply-demand mismatches and search and matching frictions.
- Alpha Bank survey (2025) finds differences in location, size, and price segments are key impediments for prospective homebuyers.

Key listing and price indicators (preserve exact figures)
- 55 percent of listed properties for sale in 2025 exceed EUR200K and one third are above EUR280K.
- Median listing rent is around EUR575 per month; in Attica the median listing is about EUR785 per month.
- About one third of listings for sale are large properties exceeding 120m2.
- On the rental side, in Attica and Thessaloniki the share of small dwellings (lower than 60 m2) hovers around 30 percent compared to 55 percent other regions.

### Explanation 3: Competition from Short-Term Rental (STR)
- INSETE database on short-term rental listings shows a 240 percent increase over 2017-2024 from less than 100K to more than 230K.
- STR listings represent about 3.5 percent of the housing stock, 10 percent of the unoccupied stock (including holiday and secondary homes) and 29 percent of vacant properties.
- Distribution of STR listings is uneven across regions, concentrated in some touristic Islands, central Athens and Piraeus.
- Empirical finding: higher intensity of home sharing is associated with higher prices, especially in areas where the owner occupancy rate is low; similar results for rents but with smaller impact, suggesting STRs have reduced availability of long-term rental (LTR) units in specific high-demand areas.
- Note: part of STR listings may be rooms and not entire properties; active listings differ and appear to be smaller.

### Explanation 4: Increasingly constrained new supply
- Residential construction activity has recovered gradually; in 2024, building permits exceeded 41,000 units—close to their 2010 level—which will feed the market likely in 2026.
- Capacity constraints are increasingly binding due to labor shortages, an aging workforce, and declining participation of younger workers.
- Structural challenges: labor productivity remains below EU levels; sector highly fragmented with over 96 percent of firms classified as micro-enterprises; share of workers employed by micro firms is much higher in Greece.
- Low investment has weighed on productivity; capital formation historically insufficient to offset depreciation.
- Financing constraints persist: higher borrowing costs and persistent SME financing gaps relative to the euro area (IOBE, 2025).

### What has been done (policy measures to date)
- Government adopted a comprehensive housing package comprising more than 40 measures with a budget exceeding €6.5 billion, aimed at easing price pressures, expanding supply, and improving access to affordable and quality housing.
- Governance reforms: interministerial coordination framework and development of a National Housing Strategy to strengthen policy coherence, monitoring, and implementation.
- Demand-side measures: subsidized mortgage schemes for first-time buyers (My Home I & II), rent refunds, targeted housing allowances for students, low-income households, and uninsured elderly, reductions in ENFIA, and suspension of VAT on new construction. Golden Visa program tightened with higher investment thresholds and usage restrictions.
- Supply-side measures: mobilizing idle housing stock, incentivizing reallocation to LTR, upgrading ageing dwellings, expanding social housing. Key initiatives: renovation programs (“Upgrade My Home,” “Save 2025,” and “Renovate–Rent”), construction of social housing and student dormitories, and use of public land and vacant military camps through social exchange schemes retaining a share of housing units in public ownership at below-market rents.
- Actions to mitigate STR distortions: geographically targeted restrictions on STR and tax relief for long-term leasing.

### What should/could be done (policy advice)
Advice 1: Mobilizing vacant properties
- Expanded and well-targeted renovation support, conditioned on energy efficiency upgrades, to address liquidity constraints and reduce recurring costs.
- Fiscal disincentives for vacancy (e.g., vacancy taxes or surcharges) targeted geographically to tight markets; graduated rates increasing with duration of vacancy; clear and limited exemptions (e.g., renovation in progress, legal disputes); robust property registries and enforcement mechanisms, complemented with utility usage data.
- Tackle fragmented co-ownership and legal gridlock: ongoing inheritance law reform (end forced co-ownership, allow one heir to take full ownership with compensation, simplify transfer procedures) is critical; strengthen impact by enabling majority-based decision-making among co-owners, targeted incentives to consolidate ownership (e.g., tax relief for buyouts or pooling arrangements), and accelerating judicial processes and dispute resolution.

Advice 2: Enhancing the attractiveness of long-term leases (LTR)
- Target landlord preferences for STR by addressing margins: tax incentives for switching from STR/vacancy to LTR; reduce information asymmetry for landlords (tenant registry); enforce regulation and data transparency for STR.
- Complementary measures: reduce minimum rental contract duration (currently three years), faster dispute resolution processes, and rent guarantee schemes to shield low-income renters.
- Systematically assess effectiveness and cost-benefits of STR restrictions; note two thirds of vacant properties are secondary/holiday homes used part of the year, so LTR and STR are not perfect substitutes; geographically targeted restrictions could shift activity to nearby neighborhoods.

Advice 3: Increasing elasticity of new supply and containing construction cost growth
- Facilitate reallocation toward more productive firms, enable exit/restructuring of nonviable (“zombie”) firms, reduce barriers to firm growth and consolidation.
- Strengthen access to financing for small and medium-sized developers.
- Promote innovation and capital deepening (e.g., digital tools, modular construction methods) to raise efficiency and lower unit costs.
- Improve competition and reduce distortions that fragment the sector.

Advice 4: Addressing labor shortages in construction
- Targeted training and reskilling programs aligned with sector needs.
- Incentives to attract younger workers and improve labor mobility.
- Facilitate reallocation of labor toward construction from lower-productivity sectors.
- Improve working conditions and formalization to increase labor supply and productivity.

Advice 5: Improving spatial planning and regulatory certainty
- Optimize spatial planning, particularly in high-demand areas, and integrate with regional development strategies.
- Improve completeness and accessibility of land and cadastral registries to facilitate transactions and development.

Advice 6: Boosting affordable and social housing and recalibrating demand measures
- Reinforce planned rehabilitation of publicly-owned properties with private sector partnership to develop social rental housing.
- New building regulation that gives developers incentives to allocate part of new construction to social and affordable housing; efficient allocation to those most in need is key.
- Extend student dormitories and complement with measures to promote co-living given prevalence of large properties.
- Recalibrate demand-side support to avoid price capitalization and regressive effects: refine eligibility criteria and means-testing; assess impact of VAT exemption on new construction and consider phasing out or reorienting toward renovation if benefits accrue mainly to richer households or real estate companies.
- Indexing rent refund on monthly payment would enhance transparency but increase future fiscal cost.

### Conclusions (main takeaways)
- Housing affordability is at the center of a self-reinforcing loop between households’ vulnerability, aging housing stock, and societal/demographic dynamics changes.
- Greece faces a housing allocation problem rather than a standard housing shortage; structural challenges impede efficient use of the existing stock.
- Spatial distribution, segmented demand, and market inefficiencies exacerbate supply-demand mismatch.
- Government measures go in the right direction but need further consolidation, greater focus on affordable supply, and a mix between sticks and carrots to mobilize the existing stock and reduce mismatches.
- Alleviating capacity constraints in the construction sector and boosting productivity is key to unlock supply and contain the increase in construction costs.
- Ongoing digitalization and centralization of information on properties will help better identify problems and design adequate policies.
- Housing policies should exploit synergies with labor, financial, energy, and regional policies.

*Source: IMF chapter excerpt on housing in Greece (content unit 1grcea2026002).*

### 1.      Greece’s current account (CA) deficit has widened in recent years, reversing much of

### 1grcea2026002 - 1.      Greece’s current account (CA) deficit has widened in recent years, reversing much of

### Key findings on recent CA dynamics
- Greece’s CA deficit has widened after the pandemic, reversing much of the post-crisis adjustment.
- The deterioration initially reflected the collapse of tourism, followed by higher energy prices and rising interest rates after Russia’s war in Ukraine; although these pressures partly eased, the CA deficit remains elevated.
- Greece records the second largest CA deficit in the euro area and the largest negative net international investment position (NIIP).
- The CA deficit was 6.8 percent of GDP, driven by a service surplus of 8.0 percent of GDP being more than offset by a large goods deficit of 13.7 percent of GDP.
- The trade balance has averaged a deficit of 5.7 percent of GDP since 2000.
- Exports-to-GDP ratio reached about 40 percent of GDP in 2025, compared with the euro area average of 49 percent.

### Shifting sectoral saving–investment (SI) balances
- Pre-crisis deficits were largely public sector driven (negative general government net saving).
- Substantial fiscal consolidation shifted the general government SI balance into surplus (aside from temporary pandemic-related support).
- The recent CA deficit is driven primarily by the private sector’s SI imbalance:
  - Non-financial corporations’ (NFCs’) SI balance turned negative.
  - Households’ saving remained subdued.
- Despite elevated public external debt, debt service costs remain contained because a large share of external debt consists of official loans with low interest rates and ultra-long maturities.

### Private saving, investment, and drivers
- Private gross saving remains insufficient to finance rising investment.
- NFC investment increased, reflecting:
  - Implementation of NGEU projects,
  - Pent-up investment after years of underinvestment,
  - Growing needs related to ICT and energy security.
- Household saving remains low (aside from a temporary post-pandemic increase) despite strong economic growth.
- Real wage growth has been limited, consistent with weak labor productivity growth.
- High living costs for housing, energy, and food, and fiscal consolidation (lower net social benefits and higher tax burdens) have weighed on household disposable income.
- NFCs’ gross value-added creation has stagnated due to low productivity growth and high intermediate input costs.
- Policy objective: ensure the current investment cycle translates into sustained gains in value-added production to support higher corporate surpluses and household incomes—key elements of durable saving.

### Persistent domestic production gaps and export structure
- Greece generates substantial net services exports (mainly tourism and shipping) but remains heavily reliant on goods imports across consumption, intermediate, and capital goods—underscoring a limited domestic production base.
- Despite expansion in renewable energy (solar and wind), the energy balance remains in deficit.
- Goods exports are concentrated in:
  - Refined petroleum products (capitalizing on geographic position),
  - Food, beverages, and agricultural products,
  - Emerging dynamic sectors: pharmaceuticals, cosmetic products, medical devices.
- Export concentration limits contribution to net exports:
  - Domestic value-added multiplier of exports is relatively low—about €1 of exports generates only about €0.43 in domestic value added or GDP.
  - Many large sectors (refined petroleum, metals, food products) remain locked into lower value-added activities.
  - Some higher-technology sectors (pharmaceuticals; electronic and optical equipment) have rapid export growth but limited contribution to domestic value added so far.
- Figures/benchmarks:
  - Domestic value-added multiplier: about 0.43 (implying €1 of exports → €0.43 domestic value added).
  - Figure annotations report averages: "Average: 55 percent" and "Average: 0.35" for sectoral indicators.

### Competitiveness and productivity
- The unit labor cost (ULC)-based real effective exchange rate (REER) depreciated by more than 30 percent from its peak in 2011Q3, driven largely by wage adjustments enabled by labor market reforms and internal devaluation during the adjustment period.
- Despite gains in cost competitiveness, underlying productivity improvements have been sluggish:
  - The large post-crisis depreciation of the ULC-based REER was mainly driven by real wage compression, while labor productivity contributed little and sometimes exerted upward pressure on ULCs before a recent partial improvement.
  - Real wage adjustment was dampened by slow price adjustment and persistent product-market frictions, high non-wage costs, regulatory and administrative burdens, and energy costs.
  - CPI-based REER adjustments were much more contained than ULC-based adjustments.

### Cyclical implications of structural challenges and simulations
- Structural weaknesses (subdued private saving, limited domestic value-added activities, sluggish productivity growth) have amplified the recent CA widening.
- Low household saving implies hand-to-mouth consumption: income gains translate quickly into consumption rather than saving.
- Stagnant NFC value-added combined with rising investment has produced a negative private SI balance.
- Insufficient domestic production capacity and weak productivity have constrained the economy’s ability to meet rising domestic demand and increased imports.
- The disparity between a goods trade deficit and a services trade surplus heightens CA sensitivity to relative price movements (commodity prices) and a highly negative NIIP amplifies exposure to interest rate movements via higher primary income payments.

- Parsimonious simulation assumptions and parameters:
  - Domestic demand import multipliers (from input–output tables): around 0.3 for consumption and 0.4 for investment, reflecting limited domestic capacity to produce capital and intermediate goods.
  - Exports measured net of import content using an estimated import multiplier of about 0.4.
  - Fuel price impact estimated from the level of the fuel trade balance in 2019 and observed/projected fuel price changes informed by the WEO.
  - Interest rate impact estimated focusing on TARGET liabilities: outstanding stock assumed constant and impact computed using the 3-month euro area interest rate.
  - Nominal GDP growth/projections used to express CA balance as a share of GDP.
  - Approach complements the IMF External Balance Assessment (EBA) by accounting for distinct spillovers of consumption, investment, and exports through Greece-specific input–output linkages and interest rate dynamics.

- Simulation results (summary):
  - The recent CA widening largely reflects strong domestic demand—especially investment with high import content—alongside elevated global fuel prices and interest rates.
  - Rising investment and consumption have been the main drivers of CA deterioration; exports’ net contribution is modest once their import content is taken into account.
  - Investment has had a disproportionately large impact relative to its growth share due to high import intensity.
  - The effects of higher fuel prices and interest rates have been modest as these pressures eased since the onset of the war in Ukraine.
  - Estimates are subject to uncertainty due to reliance on static input–output relationships and absence of dynamic responses.

- Outlook conditional on reforms:
  - Domestic demand growth is projected to have peaked in 2025 and moderate thereafter, while investment is expected to remain robust, reflecting persistent investment gaps.
  - Absent structural reforms to raise domestic value-added capacity and productivity, these trends are likely to continue weighing on the CA balance.

### Policy implications (from analysis)
- Raise domestic value-added capacity and productivity so that the ongoing investment cycle translates into domestic value added, higher corporate surpluses, and increased household incomes to build durable saving.
- Address product-market frictions, high non-wage costs, regulatory and administrative burdens, and energy costs to support price adjustment and productivity gains.
- Strengthen domestic production of capital and intermediate goods to reduce import intensity of investment and consumption.
- Encourage diversification toward higher value-added export sectors where possible, to increase the domestic value-added multiplier of exports.

*Prepared by Tomohide Mineyama; Summer (Yutian) Cai provided research assistance. The author thanks George Hondroyiannis, Stelios Panagiotou, and workshop participants at the Bank of Greece for discussions, comments, and suggestions.*

### 14.      This section analyzes the relationship between structural impediments and firms’

### 1grcea2026002 - 14.      This section analyzes the relationship between structural impediments and firms’

### Key findings on structural impediments and firm performance
- Analysis uses firm-level data from the World Bank Enterprise Surveys for EU countries to link perceived business obstacles to firm performance (sales growth and export participation).  
- Four key constraints examined: (i) regulatory and administrative burdens, (ii) competition from the informal sector, (iii) limited access to skilled labor, and (iv) financing constraints.  
- Greek firms report substantially more severe constraints than EU peers, with several indicators exceeding the 90th percentile of the EU distribution (Figure 10).  
- Structural impediments are strongly associated with weaker firm performance after controlling for firm characteristics and country-by-year fixed effects.  
- Export participation is particularly hindered by regulatory and administrative burdens and competition from the informal sector, consistent with firm-selection mechanisms in heterogeneous-firm trade models (à la Melitz).  
- Effects are particularly pronounced for young firms; significant differences are not found across firm size, implying young firms’ growth potential is especially constrained and their small size prevents scale merits to overcome regulatory burdens.

### Counterfactual simulations and quantified impacts
- Counterfactual scenario: reforms that close 50 percent of the gap between Greece and the EU frontier (defined as the top decile performer for each indicator).  
- Under this scenario:  
  - Real sales growth would increase by about 1.8 percentage points.  
  - The probability of exporting would rise by 7.3 percentage points.  
  - For young firms, gains are larger: sales growth up by 2.7 percentage points and probability of exporting up by 8.8 percentage points.  
  - Improved access to finance accounts for the largest share of the sales growth effect (around 0.6 percentage points) for the full sample.  
  - Remaining gains are broadly comparable across skilled labor availability, reduced informality, and lower regulatory and administrative burdens.  
  - Increased export participation is driven mainly by improvements in regulatory and administrative conditions.

### Policy recommendations (priorities and complementarities)
- Strengthen external position by enhancing international competitiveness and expanding domestic supply capacity to increase firms’ ability to generate domestic value added and ensure growth translates into higher domestic income.  
- Structural reforms should prioritize removing barriers to firm growth and export participation, focusing on:  
  - Streamlining administrative procedures, lowering compliance costs, and improving regulatory quality to reduce fixed costs and support firm scaling, particularly among young and productive firms.  
  - Continued efforts to address informality—supported by digitalization and tax compliance efforts—to level the playing field and raise productivity.  
  - Policies to alleviate skill shortages through education, training, and lifelong learning to facilitate transition toward higher value-added activities.  
  - Improving access to finance, especially for high-return investment including digital investment, to translate ongoing investment into sustained gains in domestic value added.  
- Prudent fiscal policy should complement structural reforms by maintaining a prudent fiscal stance to contain excessive domestic demand pressures that could deteriorate the SI balance, and by reallocating expenditure toward growth-enhancing priorities—such as public investment and critical social spending—to support private sector investment and household disposable income.  
- EU-level reforms to support Greece’s domestic reforms:  
  - Completing the EU single market to set a level playing field and reduce trade barriers, enabling Greek firms to scale beyond relatively small domestic markets.  
  - Advancing the Savings and Investments Union to lower financing costs and mobilize risk capital for innovators.  
  - Greater labor mobility to mitigate demographic pressures and support skill upgrading.  
  - Integrating the energy market to enhance energy security, reduce energy price and volatility, and lower production costs and the energy trade deficit.  
- A credible reform agenda combined with prudent macroeconomic policies would enhance Greece’s attractiveness for foreign direct investment and other stable capital flows, reducing vulnerabilities to external shocks and supporting a more balanced and sustainable growth model over time.

### Data, empirical approach, and scope
- Primary microdata: World Bank Enterprise Survey (WBES).  
- Sample focus: manufacturing firms in EU countries over the period 2008–2023; start year chosen for question consistency.  
- Resulting sample comprises approximately 10,000 firms, including observations from Greece’s survey waves in 2018 and 2023.  
- Perceived obstacles constructed as binary indicators equal to one if firms report an obstacle as “major” or “severe.” Regulatory and administrative burden indicator is the average of reported obstacles related to tax administration, customs and trade regulations, courts, labor regulation, and political instability.  
- Performance measures: sales growth (averaged over the previous two years) and export participation (binary indicator).  
- Empirical specification: POPYIELD_{ic t} = β X_{ic t} + γ Z_{ic t} + FE_{i×t} + ε_{ic t}, where FE_{i×t} are country-year fixed effects. Firm-level controls include log TFP, foreign ownership indicator, log employment, firm age, and firm age squared. Standard errors clustered at the country-year level. Analysis conducted for full sample and subsample of young firms (age below the median of 32 years). Full regression results are reported in Annex II and Table A2 in Annex II.

### Additional methodological notes
- Perception-based indicators may be subject to measurement error but reflect binding, de facto constraints on firms’ activity.  
- Full regression results indicate most indicators remain statistically significant when included jointly, suggesting each captures a distinct constraint.  
- Figure 10 and related charts show impacts on sales growth and likelihood of exports with 90 percent confidence intervals and country comparisons (EU median, EU interquantile range, Greece averages for 2018 and 2023) for selected indicators.

_Italic: Source — Excerpt from IMF chapter analyzing firm-level evidence on structural impediments and firm performance (World Bank Enterprise Survey data, 2008–2023; Greece survey waves 2018 and 2023). _

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1grcea2026002.pdf_