The shortage of 39,000 homes, pressure from demand, and rising construction costs
One of the main questions arising from the housing crisis is when prices will fall. This applies to both the market for owner-occupied homes and the investment market. From time to time, news headlines feature government announcements, new housing plans, and efforts to speed up the permitting process. However, prices in the real estate market show no signs of falling, putting pressure on households.
The question, therefore, is not only how more homes will be built, but mainly when and under what conditions an increase in supply could lead to a real decline in sales prices and rents.
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
The findings of the European Commission, the positions of the Real Estate Development Association, the statements by the Ministry of the Interior, and the assessments by architect Dr. Andreas Papallas highlight different aspects of the same problem.
The shortfall
The true scale of the problem is reflected in the report “Housing Annex 2026 – Cyprus,” published in June by the European Commission as part of its annual assessment of the Cypriot economy.
According to the report, nominal housing prices in Cyprus rose by approximately 28% between 2020 and 2025, a rate in line with the European average of 27%. Despite the recovery in construction activity, the estimated supply shortfall still stands at approximately 39,000 homes, according to a study by the European Commission’s Joint Research Center.
The pressures, however, are not evenly distributed. In coastal areas with high levels of tourism and business activity, such as Limassol, Paphos, and Larnaca, the report records price levels 39% higher than the national average.
Particularly interesting is the distinction between buyers and renters. While the ratio of housing prices to income has improved over the past decade, mainly due to rising incomes, the affordability of renting has deteriorated. Nationwide, rent accounted for an average of 22% of household income in 2025; however, in areas such as Limassol, the burden is significantly greater.
More housing, not just more permits
The Real Estate Development Association is focusing on a substantial increase in supply, which expresses strong concern about the difficulties faced by an increasing number of citizens in their efforts to secure affordable housing.
At a working breakfast, the Association argued that at the heart of the problem lies an insufficient supply of housing units, particularly in areas where demand remains high. Consequently, addressing the housing crisis requires more homes that are actually completed and made available for sale or rent.
The issuance of a building permit does not automatically mean that a home will be delivered. Between the granting of a permit and the completion of a project lie the processes of financing, construction, and bringing the property to market.
At the same time, an increase in supply does not in itself guarantee lower prices. If new developments consist mainly of luxury homes or investment properties, they may not meet the needs of households seeking more affordable options. The geographic distribution, size, and final price of the new units are therefore of crucial importance.
Architect Dr. Andreas Papallas shares these reservations, noting that “I believe it is an oversimplification to argue that increasing supply and speeding up the permitting process can, on their own, solve the housing problem.”
As he explains, the construction of new homes does not necessarily align with actual housing needs, especially when a significant portion of the market is driven by investment demand. “The goal is not simply to build more homes, but to build the right homes, in the right areas, and to meet the actual needs of the population.”
What’s Changing in the Permitting Process
Meanwhile, the government is attempting to reduce the bureaucracy that is slowing down the entire process. The Council of Ministers approved a proposal from the Ministry of the Interior to amend the regulations governing the calculation of permit issuance fees.
Interior Minister Konstantinos Ioannou explained that “With this amendment, we are replacing the existing complex calculation system with a simplified, clear, and more effective framework that better aligns with modern application review procedures.”
The changes include, among other things, the elimination of the geographical division into three fee categories, the simplification of the methodology for calculating fees, and the elimination of certain tiered and additional fees.
According to the data presented by the Minister, more than 3,000 permits for single-family and two-family homes have already been issued within 40 business days, and more than 1,500 permits for apartment buildings with up to 20 units have been issued within 80 business days through expedited procedures.
The new regulations, however, must also be approved by Parliament. Simplifying the permitting process is a significant step, but its impact on prices will depend on whether the completion of new housing is accelerated and the cost of development is reduced.
For Dr. Papallas, the problem with permitting does not necessarily concern only the duration of the process, but mainly the uncertainty regarding the completion time and the final outcome, due to a complex and often ambiguous regulatory framework.
Costs and the shortage
Another factor hindering a decline in prices is the cost of building new homes. The prices of building materials, energy costs, and geopolitical developments affect development budgets, with part of these costs being passed on to the final sale price.
The Real Estate Development Association also highlights the shortage of labor in the construction sector, which limits the ability to carry out multiple projects simultaneously.
This concern is confirmed by the European report. In October 2025, 41.4% of employers in the Cypriot construction sector expected that a shortage of workers would limit their production activity, compared to 27.5% in the European Union.
Furthermore, productivity in the Cypriot construction sector remains relatively low, with real gross value added per employee amounting to approximately 67% of the European level. Therefore, an increase in construction activity requires not only faster permitting but also sufficient labor, investment, and greater productivity.
Housing Permits
The construction of new housing is not the only way to increase supply. More effective utilization of the existing housing stock is proving to be an equally important factor.
The European Commission notes that approximately 70% of Cyprus’s population lives in homes considered larger than their households’ needs, a rate more than double the European average of 33%. This does not mean that these are vacant homes, but it highlights issues regarding the distribution and utilization of the housing stock.
At the same time, registered short-term rentals nearly doubled between 2023 and 2026. The report lists more than 9,000 registered properties, with nearly 40,000 beds, noting that this activity limits the availability of housing for long-term rental, particularly in tourist areas.
This is the context for the government’s “Renovate – Rent” program, which aims to bring vacant homes back onto the market at affordable rents.
However, the effectiveness of such interventions depends on the number of participating owners, the properties that are ultimately made available, and the areas in which they are located.
Dr. Papallas estimates that activating the unused housing stock could yield results more quickly than building new homes. He also suggests considering measures such as taxing idle land and vacant homes, as well as requiring the provision of affordable housing in large-scale developments, in combination with additional urban planning incentives.
“We need to move beyond the exclusive logic of incentives,” he emphasizes, noting that the government must be willing to bear the political cost of such decisions.
Furthermore, he considers it necessary to reexamine the urban development model, particularly in light of the revision of Local Plans. As he explains, the continuous expansion of cities increases infrastructure costs as well as households’ daily expenses, due to longer distances and dependence on cars, without necessarily ensuring more affordable housing.
A Gap in Social Housing
Beyond private developments, the European Commission’s report highlights another problem in Cyprus: the lack of social housing available for rent at affordable prices.
Specifically, the percentage of social rental housing in Cyprus is estimated to be close to zero, compared to 8% in the European Union. The Commission also notes that the available national data on social and affordable housing remain incomplete.
The government has promoted new housing plans and urban planning incentives, while the European report notes an expectation of more than 1,900 new housing units—of which nearly 200 will be affordable—as part of these initiatives. It also mentions the announcement of the construction of 500 affordable housing units, with a total budget of 70 million euros.
The critical issue, however, is the scale and timeline for implementing these plans. The announced housing units cannot be considered available until they are completed, and the issue of affordable housing cannot be addressed solely through home purchase subsidies.
Dr. Papallas also emphasizes the need to develop social housing, arguing that this is a system that is essentially absent in Cyprus.
“I also consider the shift from selling affordable homes to providing affordable rental housing to be important,” he says, explaining that the sale of an affordable home benefits a specific household, whereas a rental home, with appropriate management mechanisms, can remain affordable and serve a succession of families.
What is the role of foreign buyers?
Different perspectives are also noted regarding the issue of foreign demand.
The Real Estate Development Association argues that the housing problem cannot be attributed to foreign buyers, emphasizing that any assessment must be based on comprehensive data and not exclusively on the buyers’ nationality.
For its part, the European Commission notes that rising demand from non-permanent residents is driving upward pressure on prices. It links this demand, among other things, to policies aimed at attracting foreign businesses and workers, as well as to regional geopolitical developments.
The impact of foreign markets cannot, therefore, be ruled out or treated as the sole explanation. A distinction must be made between investment markets, the primary residence market, and the housing needs of those who settle in Cyprus for work.
Ultimately, when will prices fall?
The available data do not allow for a reliable prediction of when a widespread decline in prices will occur. In fact, the European Commission estimates that strong demand, combined with a steady increase in supply, is likely to maintain mild upward pressure on prices in the near future.
Curbing price increases, achieving a real reduction in prices, and improving affordability are three distinct outcomes. Even without a reduction in nominal prices, housing can gradually become more affordable as long as incomes rise faster than the costs of buying and renting.
To achieve a meaningful reduction in housing costs, a combination of measures is needed, such as building more affordable housing where it is needed, keeping construction costs in check, utilizing vacant properties, supporting long-term rentals, and expanding social housing.
To this end, Dr. Papallas proposes the creation of a substantive Housing Observatory, which will document actual needs, monitor affordability, and evaluate the effectiveness of the measures being implemented.
In short, the goal is not simply to build more properties, but to create more housing at prices that citizens can afford.
