Extreme renting: Estonia start-up boom fuels EU’s biggest cost rises
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At the height of its tech boom, Estonia — birthplace of Bolt and Skype — was home to so many start-ups that it acquired the nickname “unicorn land”, referring to companies valued at more than $1bn.
But after almost two decades of a prospering start-up sector, locals and expats who have flocked to Tallinn say a reasonably priced home to rent is as hard to find as the mythical creature. Rents in the tiny Baltic nation have more than trebled since 2010, in the EU’s biggest price rise over that period, according to Eurostat.
Liis Vainu, 32, a design operations manager at a tech firm, said her own Tallinn rent has risen threefold since 2013. Her monthly net housing costs currently total €900 — still modest compared with Europe’s larger capital cities, but higher than her entire monthly salary 10 years ago. Today, Vainu spends about 30 per cent of her income on rent.
“The change has been pretty drastic,” she said. “How do people live, that have less and earn less?”
Estonia’s rental boom has sprung up not only from its digital ecosystem but from its post-cold war history. After 1991, when it regained independence from the Soviet Union, its population came to relish the opportunity to buy property. The state encouraged this, offering additional support to homebuyers such as tax relief and extra guarantees on mortgages.
That period had a striking outcome: only 18 per cent of people in Estonia rent their homes, with the rest owning their property or living in a home owned by another member of their household, according to official statistics. That contrasts sharply with lower rates of home ownership in western Europe, but is a pattern shared by other former Communist nations, such as Romania, Hungary and Poland.
“Estonians believe in real estate much more than in investing in the stock market,” said estate agent Erko Vaks, of Re/Max Central, a Tallinn-based agency. “When interest rates were low, people bought many apartments.”
But Anneli Kährik, professor of urban studies at the University of Tartu, said the policy support for home ownership, with very low levels of social housing, “makes the housing market especially volatile to economic cycles”, with house prices and rents shooting up during boom periods like that of recent years.
In Estonia’s largest cities the rental market is dominated not by younger adults, as in many other European countries, but by tech workers predominantly relocating from abroad, drawn in by jobs and a welcoming tax regime. In the decade to 2021, the country’s population grew by more than 15 per cent thanks to tech worker arrivals.
Estonia’s self-declared “e-democracy”, which among other things makes job titles and starting salaries publicly available online, encouraged landlords to push up rents, said Melik Demirel, a Tallinn resident of five years originally from Turkey who works at an ecommerce data firm. “Local landlords smelled the relocation money of newcomer top tech specialists,” Demirel added.
Estate agent Liisa Kurm of 1Partner Kinnisvara focuses on Tallinn’s central and most popular districts. About 70 per cent of the tenants she works with are tech professionals, mainly from China, India and Turkey, she said. “Locals usually do not rent in the most popular areas, as rental prices in these neighbourhoods are too expensive,” she added.
Rising interest rates in the wake of the Covid-19 pandemic have pushed up rents still further. Yet not everyone renting in Estonia is a well-paid tech professional.
According to Eurostat, more than one in four tenants report being overburdened by housing costs, defined as spending more than 40 per cent of one’s income on rent — with Estonia having one of the highest rates among EU countries. Young people from low-income families that have never bought properties are vulnerable to rocketing rents, as are students and those relocating to Tallinn and Tartu from rural areas.
The share of young people in rented housing in Tallinn has increased sharply over the past decade, while home ownership rates have declined, according to new academic research published in the journal Frontiers in Sustainable Cities on Wednesday.
Last year in Tartu, the country’s second-largest city, all student accommodation units were snapped up in 80 seconds on the university’s digital housing portal, according to the Federation of Estonian Student Unions.
Katariina Järve from the federation said the monthly rent for an apartment close to Tartu’s university library had shot up. Where €250 was considered “fairly high about three years ago . . . now it’s about €400”, she said. Housing and living costs are leaving students “in despair”, she added, with consequences for their mental health.
Teele Kanarbik, a 22-year-old student at the University of Tartu, said taking up side-jobs was becoming “mandatory . . . because otherwise students would not be able to cope and studies are left behind”.
Estonia’s construction sector has responded to the strong demand: in 2022 the country built 16 times more new homes per capita than the UK, with 6,521 new homes completed in the country of 1.3mn people, according to the national Register of Construction Works.
Yet experts still predict that home ownership will become less accessible in the country, leading to an expanding rented sector.
Extreme renting
This is the fourth part of a series on Europe’s rental crisis:
Part 1: How rising rates turned the screws on tenants across Europe
Part 2: Santorini’s teachers forced to rough it in Airbnb haven
Part 3: Limits on rents leave Berlin’s new tenants vying for homes
Part 5: London’s bidding war escalates as rising rates hit buy-to-let
Part 6 (Bonus): Amsterdam’s two-tier system pits tenants against landlords
Kährik of Tartu university said Estonia’s high rents and house price rally were already worsening wealth divides. “The wealth and the ‘city homeowner’ status of parents determines the success of children’s housing [journey] to a large extent,” she added.
The rate of rental price growth has begun to decrease since January, but no declines in rental costs are forecast — and over the past year a new group has added to demand: Ukrainian refugees.
Estonia has welcomed more than 48,500 Ukrainians, according to the UN refugee agency. This is a figure dwarfed in absolute terms by the numbers that fled to larger nations such as Poland and Germany after Vladimir Putin’s full-scale invasion of Ukraine, but per capita — with about 41 Ukrainians for every 1,000 Estonians — it is the joint highest rate in the OECD alongside the Czech Republic.
These refugees have become another group squeezing into the country’s rental market — and this time without generous salaries.
“Money for rent but also to cover expensive living costs in Estonia is certainly a big challenge for people coming from Ukraine,” said Veronika Saareväli of the Estonian Refugee Council, an aid group. Some Ukrainians were forced to share homes between two families, she added.
“When people first started arriving last year, it was easier to find accommodation for them. At the moment there is far less housing available, around 80 per cent less than a year ago.”
Data visualisation by Martin Stabe and Patrick Mathurin
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