How the Housing Boom Will Divert Productivity in Albania?

The rise in housing prices in Albania is producing a double effect. On the one hand, it increases the wealth of households and businesses with more real estate, giving them easier access to credit. On the other hand, it is creating a “collateral channel” that directs capital to where there is more real estate, not necessarily where the highest productivity is generated.

Looking ahead, this mechanism risks slowing down the modernization of the Albanian economy by locking growth into low-productivity sectors such as construction and local services.

At a time when housing prices in Albania are reaching historic rates, the essential question arises:

Is this development fueling the long-term productivity of the economy, or is it creating an illusion of sustainable growth?

The answer, based on the most recent data, points toward the second scenario.

Where are we today? Facts from Albania’s housing and credit market

According to the Bank of Albania, in the second half of 2024:

• Housing prices rose by +23.6% compared to the previous period and +44.5% year-on-year. In Tirana alone, the increase reached 56%.
• The average time to sell dropped to 9.3 months (only 7.1 months in Tirana), signaling an increasingly liquid market.
• Around 18% of purchases came from non-residents, a factor exerting additional pressure on prices.
• About 50% of transactions are financed by loans, most with an LTV ratio ≤60%, reflecting a cautious banking system but one heavily concentrated in real estate.

Meanwhile, household lending rose by 15% year-on-year, with 67.4% of household debt now consisting of mortgage loans. Interest rates in lek fell to 3.7%, further stimulating demand. Business loans grew by 16.6%, but mainly toward large enterprises in construction, trade, and tourism, while SMEs and innovative sectors remained in the shadows.

The economic message is clear:
Real estate has become the main engine of lending and, consequently, of resource allocation in the economy.

With rising housing prices, firms and individuals who own substantial real estate assets gain easier access to credit. But if these entities are not among the most productive, the financial system ends up channeling resources toward less efficient activities.

This is clearly visible in the Albanian economy.

Credit is flowing into construction, trade, and tourism—sectors with quick financial returns but limited long-term productivity.

Innovative SMEs and manufacturing sectors face much more limited access, leaving a major potential for sustainable growth untapped.

Thus, while rising housing prices may create a sense of wealth and spur investment in certain segments, in reality, they are generating a misallocation of resources.

Real estate has become not only the driver of prices but also the cornerstone of lending.

From housing prices to productivity

In Albania, housing price growth has been extraordinary, at +44.5% in just one year (2024), and up to +56% in Tirana[1].

This means that an apartment costing €100,000 last year now sells for over €150,000. Banks see a more valuable collateral, making them willing to lend more to those who already own property.

In fact, approximately 50% of housing transactions in 2024 were financed by loans, most with LTV ≤60%, reflecting cautious but still heavily real-estate-oriented practices.

Developers, real estate companies, businesses holding land, hotels, or shopping centers—these are asset-heavy players, backed by strong collateral and able to obtain financing at favorable interest rates. Even though these sectors often show lower productivity (more labor-intensive than innovation-driven), they secure continuous liquidity.

By contrast, tech start-ups, knowledge-based service companies, and export-oriented businesses with light capital lack the “bricks and mortar” collateral to offer as guarantees.

As a result, their access to credit remains limited.

This phenomenon is also documented by the Bank of Albania. Business loans in 2024 increased by 16.6%, but the overwhelming majority went to large construction, trade, and tourism enterprises, while SMEs and the innovation sector were left in the background.

At first glance, the injection of capital into the economy appears positive.

Lending grows, construction thrives, and demand for services rises. But the underlying mechanism shows a long-term risk.

Resources shift away from high-productivity sectors (technology, exports, innovative industry) toward the “asset economy.”

Instead of generating sustainable growth and higher productivity, capital gets locked into a self-reinforcing cycle of real estate.

On a national level, this explains why Albania continues to have much lower labor productivity than the EU average and why progress toward economic diversification remains slow.

Albania is no exception, but has its own traits

Albania remains an economy where the housing market is highly sensitive to monetary movements. The interest rate cuts during 2024 quickly translated into cheaper loans for individuals and businesses. This immediately boosted mortgage demand, while according to the Bank of Albania, lending conditions eased significantly for large enterprises but not for SMEs.

The result is a financial system that grows through “big collateral,” while small and medium businesses continue to face structural barriers.

The real estate market is not uniform.

Tirana and the coast (Vlora, Saranda, Durrës) are the epicenters of growth, where prices have risen above the national average.

Unsold inventories have dropped significantly.

The average selling time has shortened, showing strong demand.

According to market reports, 72% of transactions close below the initial asking price, meaning negotiations have intensified, but this has not stopped real price growth.

This geographic concentration deepens regional disparities, with Tirana and the coast thriving while inland cities like Elbasan, Korça, or Shkodra face much slower growth and a lack of fresh investment.

The role of non-residents

Another distinct feature for Albania is the high presence of non-resident buyers. In 2024–2025, around 18% of the market was dominated by buyers from the EU, mainly Italians, Germans, Austrians, and Poles, who see Albania as a low-cost destination for coastal real estate.

This influx has pushed up prices, especially in tourist areas.

However, its impact on the productive capacity of the domestic economy is limited. Most of these investments are “storage of value,” not investments that generate a sustainable economic chain.

Practically, Albania is witnessing a “touristification of the housing market,” where purchases for second homes or passive investment drive up prices for locals, excluding young people and new families from the market.

Consequences?

Let’s look at some examples:

• An SME in Elbasan seeks financing to expand furniture production for export. The bank requires property collateral in Tirana or on the coast, which it does not own. The loan remains unattainable.
• An apartment in Vlora is purchased by an Italian citizen as a holiday home. The cost rises, local market prices climb, but for the Albanian economy this brings no productivity growth.
• A developer in Tirana benefits from cheap credit after interest rate cuts, starts new projects, and expands his portfolio.

Like many developing economies, Albania follows the universal logic of the link between housing prices and credit. But its specific traits—high sensitivity to monetary policy, geographic concentration of the market, and strong non-resident presence—make the risks even more pronounced.

The exception to the developed-world logic is that Albania risks losing the balance in its economy, which remains tightly bound to real estate but has weak impact on productivity and long-term development.

The real risk: not financial collapse, but long-term misallocation

Unlike economies that faced housing bubbles and banking bankruptcies, Albania’s banking system today is solid, well-capitalized, and liquid, and according to the Bank of Albania shows no alarming signals for financial stability.

But the problem is less dramatic, less visible, and perhaps more dangerous: the silent misallocation of capital in our economy. This means that credit and investments are not flowing where productivity grows, but where there are bricks and concrete.

Construction and real estate firms benefit from rising prices and guaranteed collateral.

Innovative, tech-based, or export-oriented firms are left without financing because they lack the assets banks demand.

The macroeconomic outcome is an economy that “produces” more housing, but not more knowledge, not more value-added products, nor exportable services.

In the short term, this mechanism creates for businesses and individuals the illusion of prosperity.

GDP grows, cities expand, the labor market livens up.

But in the long term, growth becomes faster only in volume, not smarter in quality.

Thus, the risk is not an immediate financial collapse, but a long-term structural deviation.

Albania is anchoring its future in real estate rather than investing in human capital, innovation, and exports.

The policy moral at this moment should be: “do not let collateral become a development strategy.”

At its core, Albania needs more ideas than walls, more innovation than concrete.

If we measure economic development only in square meters, in real estate, and in collateral, we risk building an economy that appears to grow but rests on weak foundations.

Monetary and macroprudential policies are essential to safeguard banking stability and manage cyclical real estate risks.

But they are not enough.

A broader, more inclusive approach is needed: industrial and financial policies that create space for financing ideas, technologies, and export sectors—not just those who own land and buildings.

The key challenge is to ensure that capital follows productivity, not just collateral.

In conclusion, our analysis shows that Albania does not risk a classic financial crisis but rather a “distorted growth,” where capital follows bricks and concrete instead of innovation.

If financial bridges are not built for “asset-light” businesses, progress will be measured by apartment prices, not productivity.

Sources:

• Bank of Albania, Trends in Lending, pace of household/business credit, interest rates, mortgage share in the portfolio, orientation toward large enterprises and sectors, January 2025. Data up to December 2024.
• Bank of Albania, Survey on the Real Estate Market Performance, H2 2024, Price index growth, time-to-sale, share of transactions with loans, LTV, role of non-residents, rental dynamics. Official BoA page for the Financial Stability Report, framework, periodicity, and systemic risk focus.

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[1] BoA, Financial Stability Report, 2025