Economy 16 October 2024, 3:19pm

Home renovation with retirement savings will cost a pretty penny for Hungarians

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Supporting the housing market is understandably important to the Hungarian government: the multiplier effect of subsidies on economic growth is positive. In fact, they are not so bad for the budget balance, owing to the extra tax revenues. They will apparently use everything but the kitchen sink to achieve the ambitious economic growth targets. Even if it means sacrificing one of the remaining pillars of self-sufficiency for short-term growth objectives.

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But beware: artificially inflating demand in a market where capacity is already scarce most often leads to price increases. Especially if most people will spend the money they have saved for their retirement on renovation instead of buying a home.

Let's look at some recent examples. For instance, what impact have the Family Housing Allowance (CSOK, from 2015), the Baby Loan (from 2019) and the home renovation allowance (from 2021) had on the cost of renovating your home? To do this, we looked more closely at the 'Repair and maintenance of the dwelling' element of the inflation basket.

The first graph shows that the year-on-year change in this item has diverged particularly rapidly from 2017-2018 from the average increase in the price of services:

This has resulted in a six-fold increase in the cost of home repairs in just over 20 years, while the cost of services has generally increased by three times. Calculated from 2015, the cost of services has increased by 48%, while the cost of home repair/maintenance has increased by 146%:

It is also clear that, compared with other periods of economic growth, the average annual difference between dwelling improvement and services inflation is striking in the last period under review:

According to the government, the relaxation of rules on the use of pension fund savings will allow HUF 300 billion to flow from pension accounts into the housing market, which is not a huge amount from a macroeconomic point of view, especially if it is divided between different targets. But it is not negligible either.

For comparison, they have disbursed HUF 2,000 billion of the baby loan since its launch, while the home renovation programme 2021-2022 provided HUF 600 billion in support to households.

We don't know how much money people will withdraw money from their retirement savings, i.e. pension funds, nor how much of it will be used to repay loans, buy or renovate homes. But we do know one thing:

you will probably have to wait longer for the craftsmen again, and their work will not be cheap.