Housing remains cheapest in Latvia among Baltic states as Lithuania faces overheating risks

Luminor Bank chief economist Pēteris Strautiņš says Latvia's housing market is developing in a balanced manner, with rising household lending and construction activity while homes remain affordable for residents. Household lending growth has stabilized this year at just above 10%, driven mostly by mortgage loans.

After the global financial crisis, Latvian households spent years saving more than they borrowed. Strautiņš explains that savings and new lending flows are now gradually equalizing, and although the loan portfolio is growing rapidly in percentage terms, it is still expanding from a relatively low base.

Price gap with Lithuania

In Riga, the average price for new housing transactions exceeds 2,500 euros per square meter, while the secondary market averages 1,360 euros. By comparison, in Vilnius the secondary market averages around 3,400 euros per square meter, and new developments around 4,080 euros. Although prices in Latvia continue rising, they remain the lowest in the Baltics.

Growth beyond Riga

Strautiņš notes that housing development is increasingly happening outside Riga. Commercial, non-subsidized apartment construction for sale has begun in Liepāja and Valmiera, while in Kuldīga and Smiltene companies are building housing for their own employees without state support. He argues this shows that housing investment follows local economic development — new projects emerge in cities with jobs, exporting companies and rising incomes, rather than depending on distance from Riga.

Warning on Lithuania

Strautiņš points to a different situation in Lithuania, where rising overheating risks accompany rapid inflation, growing consumption and rising home prices. Additional spending is fueled by funds withdrawn from second-pillar pensions, with a significant share of this demand already translating into price growth rather than sustainable economic expansion. He notes that housing prices in Lithuania are increasingly disconnected from residents' income levels, and warns against decisions that would further stimulate demand, since European Central Bank interest rate increases could help curb excessive activity in the real estate market.