Golden visas attracted wealthy Americans to Southern Europe. Then their housing crisis followed.

Generous visa programs in Southern Europe have boosted economies and attracted huge real estate investments. Now some countries are walking them back.

• Southern European economies have had remarkable recoveries since the financial crisis over a decade ago.
• But a surge in real estate investment, partly due to "golden visas", has led to skyrocketing housing costs.
• Northern Europe is also facing a housing crunch, despite very different economic conditions.

Southern European economies — from Greece to Portugal — have made remarkable recoveries since the European financial crisis just over a decade ago. Tourism is booming, investors and major businesses have moved in, and lots of foreigners are relocating to the region to take advantage of new jobs and a cheaper cost of living.

But one side effect of this growth is skyrocketing housing costs. Home prices and rents have soared in cities like Lisbon and Athens, while beach towns from Spain to the Greek islands are dominated by pricey short-term rentals.

This is in part the doing of so-called "golden visas," hugely popular residency visas for foreign investors. In countries like Greece, Spain, and Portugal, most visa applicants qualify by buying residential property.

Americans make up a big portion of the foreigners flooding into Southern Europe. They're gobbling up some of the most expensive real estate in Spain. They spent more per square meter on homes in Spain than any other nationality besides Danes, The New York Times reported last year. And they purchased more Portuguese golden visas than any other nationality in 2022. Some are escaping increasingly unaffordable housing markets in the US. But they're now contributing to housing affordability issues across the Atlantic.

A surge in real estate investment has pushed home values way up, gentrifying in-demand cities, displacing longtime residents, and preventing young people from moving out of their parents' homes. Despite their booming economies, average southern Europeans still have relatively low wages and just can't compete with foreign investors, homebuyers, tourists, and remote workers.

Portugal, which has had one of the most popular and lucrative golden visas, rolled out its policy in 2012, fast-tracking visas for well-heeled foreigners, including those who transferred at least one million euros to a Portuguese bank account, purchased at least 500,000 euros in real estate, created at least 10 jobs, or donated at least 250,000 euros to certain cultural or artistic initiatives. The visa holders can travel freely in more than two dozen EU countries and are eligible for family reunification.

The visas have had a huge impact on Portuguese real estate and housing costs, João Pereira dos Santos, a researcher at the School of Economics and Finance at Queen Mary University of London, told Business Insider. The vast majority of visa holders have used a real estate purchase as their way in.

"They buy houses, so they do not invest and create jobs. And we know part of this housing is immediately put in the long-term and in the short-term rental markets," Pereira dos Santos said. "So these people that apply for the visa, they do not come to live in Portugal."

Portuguese home prices rose 19% just between 2021 and 2022. The whole market — from cheaper rentals to luxury houses — has been affected, Pereira dos Santos said. "The problem was so salient that it even appreciated houses that were deals between Portuguese buyers and sellers," he said.

Golden visas aren't all to blame. At the same time, Portugal, like the rest of sunny Southern Europe, has seen a huge surge in tourists. Many emerged from pandemic lockdowns with the travel bug — and cash to spend. Last year was "the best year in the history of tourism in Portugal," the country's Secretary of State for Tourism, Trade and Services, Nuno Fazenda, told Bloomberg. The pandemic also ushered in a wave of remote workers and retirees looking for a high quality of life in relatively affordable European countries. New digital nomad visas for foreign remote workers have also juiced demand for housing.

But as Portugal has experienced a worsening housing affordability crisis, Portuguese public opinion on golden visas has soured. Pereira dos Santos and his colleagues conducted a nationally representative survey in Portugal that found that a majority of respondents were in favor of ending the golden visa program even if it harmed the Portuguese economy to do so. Last year, the country changed the terms of its golden visa program to exclude real estate investment.

Other southern European countries are following suit, similarly pointing to skyrocketing real estate prices. Last month, Spain announced the end of its golden visa program, which was almost entirely dependent on foreign real estate investment.

Due to these measures, some of the most in-demand places in Southern Europe will likely see slower housing price growth going forward. But because these economies are still doing so well overall, real estate prices will generally continue to tick up, Holger Schmieding, the chief economist at Berenberg Bank in London, told Business Insider.

"These economies are better places to invest and create jobs for domestic and for foreign investors into the economies as a whole," Schmieding said. "With better employment prospects people feel confident to buy a house or build a house. The real estate market is largely a reflection of the economy being on a more solid footing."

Northern Europe faces its own crunch

The economies of Southern Europe are doing much better than the traditional powerhouses of northern Europe. Portugal and Spain grew more than three times as fast as Germany did in the first quarter of this year. But northern Europe is struggling with a housing crunch of its own.

The Netherlands has one of the most severe housing crises on the continent. Home prices have doubled, on average, over the last decade and now a newly-constructed home costs 16 times the average Dutch salary. Limits on building permits, a shortage of building materials and construction workers, and limited land have all contributed to the country's housing shortage.

Germany has seen a significant home price correction as it faced relatively high interest rates, an energy crisis, and new regulations requiring that homeowners switch from oil and gas heating systems to heat pumps that rely on renewable energy. That combination has helped dampen demand for homes and construction.

German housing prices are expected to start rebounding as the home heating policy becomes better understood, the European Central Bank signals it will soon cut interest rates, and wages rise faster than prices. "The German market for house prices is close to bottoming out, and the same probably holds for building permits and residential construction," Schmieding said.

France similarly saw housing costs steadily climb in recent years, but, like Germany, has seen its prices come down amid high interest rates. Schmieding also expects home prices and rents to tick back up later this year in France as long as interest rates come down.

The country is still facing housing affordability issues — a situation one prominent charity recently called "a social bomb"  — with rising homelessness and a growing waitlist for social housing. The Paris Olympic games this summer are only intensifying housing demand in the capital, including for short-term rentals, which has reduced the number of rental apartments on the market.

Despite very different economic conditions, all kinds of European countries are facing the same dilemma that's plaguing the US: a shortage of affordable homes.