Recent opinion surveys indicate that the affordability crisis is the most pressing concern for Cyprus households. Indeed, many state their inability to cope with daily cost-of-living pressures and doubt that they will be able to maintain their current standard of living once they stop working. And many younger people say that they are increasingly unable to afford decent accommodation in the face of surging housing costs.  

Moreover, with prices and costs accelerating since February 2026 owing largely to the impact of the war with Iran, the affordability crisis in Cyprus and most other countries has intensified. 

But policy makers need to know which groups of the population are being hit hardest by higher prices and housing costs to devise remedial measures and reforms. Indeed, what is the situation for Cyprus on levels of income, net wealth and regular expenses for the different categories of the household population? 

Base data 

Importantly, the ECB’s recent Household Finance and Consumption Survey (HCFS) for 2023i provides valuable base data on the net wealth, incomes, and expenses of households in euro area member countries and Hungary and the Czech Republic.  

This HFCS reveals that, while Cyprus households on average have greater net wealth than most of their counterparts in the euro area, the levels of incomes of Cyprus households on average are considerably below that of households of many members in the euro area.  Indeed, the median annual gross income per Cyprus household was 30.900 euro in 2023, whereas the median for euro area households was 37,100 euro.   

Most notably, this ECB survey shows that the bottom 20 per cent of Cyprus households according to income were experiencing difficulties in meeting regular expenses, including debt servicing, and in their ability to save in 2023. The median annual gross income of the bottom 20 per cent of Cyprus households was estimated at 10,300 euro in 2023, with only a lowly 9.8 per cent of these households estimated as having the ability to save. And the median debt service to income ratio of this lower income group of Cyprus households was estimated at a very high 56.7 per cent in 2023 compared with an average of 19.2 per cent for similar euro area households. 

What is striking as well is that the middle-income quintile of Cyprus households had a median gross annual income of 29,700 euro in 2023, which was 20 per cent lower than the average for the corresponding income of euro area households. And after taking account of their regular expenses, only 15.1 per cent of this middle group of households in Cyprus had the ability to save compared with a much higher 42.5 per cent for the corresponding quintile of euro area households. 

Furthermore, households of young persons in Cyprus of 16 to 34 years recorded a median annual gross annual income of 24,000 euro in 2023, which was over 30 per cent below that of the incomes of corresponding households in the euro area. And most importantly only a mere 18.2 per cent of these younger households had the ability to save to, among other things, have the means to purchase housing and raise a family. In marked contrast, around 50 per cent of the younger households in the euro area had the ability to save. 

Although the concerning data for Cyprus on the inability of numerous lower and middle-income households to meet their regular expenses, including many with overwhelming debt servicing payments, refers to 2023, the rise of household real incomes over the last two years and the impact of inflation on real debt has not lessened the affordability crisis for numerous families and generally of the inability of households to saveii.   

Even the Cyprus government, which has tended to downplay the financial needs of low-income employees and pensioners, has since early 2025 reduced taxes and provided subsidies to try to make the cost of living more affordable for the population. Furthermore, the government is promising more measures and social security reform over the coming 18 months to deal with the affordability and housing crises. 

And the IMF in its recent report on Cyprus, despite being critical of the short-term horizontal policy actions extended by the government to address the cost-of-living pressures on households, calls for temporary, well-targeted measures to assist persons being most adversely affected by the affordability crisis.  

Need for substantive measures and reforms 

The Cyprus government and international institutions appear to act as though the affordability crisis is temporary and is attributable to external factors. They don’t acknowledge that the relatively low level of incomes and pensions paid to the majority of the population in Cyprus reflect persistent system, structural, and institutional weaknesses, that require fixing with substantive measures and serious reforms to help alleviate the affordability crisis. 

 Employee incomes 

The main source of the incomes of households is the compensation paid for the work of private sector employees, many of which are employed in the low-productivity sectors of the economy. It is estimated that the median income of workers in the leading retail trade, construction, and accommodation and food and beverage service activities sectors, averaged a lowly 1,400 euro per month in 2024 and that these workers received no more than a 5 per cent increase in their wages in 2025.  

While raising social benefits and minimum wage regulations can be used to contribute to increasing the incomes of the households of lowly paid workers and pensioners, any substantial and sustained increases in the remuneration of employees, particularly of the much larger group of middle-income workers, will need to be supported by increases in productivity. 

Traditionally, the questionable systems of Cyprus enable many employers to make easy profits by eliciting favorable contracts and treatment from the government, evading taxes, and not complying with labor, building, and other regulations including in the exploitation of labor in the payment of incomes, rather than in taking action to raise productivity.  

Accordingly, the Cyprus government needs to employ a “stick and carrot approach” using strict and even-handed enforcement of laws and regulations, including combatting prolific tax evasion to iron out the irregularities and corruption of many businesses, and in implementing taxation and spending policies to give incentives to employers to take measures to raise the productivity of their businesses. 

More specifically, the government along with employers can play a role in boosting business productivity by, among other things, empowering employees through facilitating investments and training in upgrading their skills and in ensuring worker rights, and by encouraging innovation and the application of advanced technologies, including the efficient use of Artificial Intelligence (AI), with tax incentives and expenditure grants.  

Housing 

In addition, while young people should benefit from the offering of better jobs associated with efforts to raise productivity there are a number of policy measures that the government and banks could take to support the ability of local citizens, particularly younger persons, to afford the purchase of a house. Surely, the government can rearrange tax incentives much more in favor of the building and buying of lower-cost social housing as against giving generous tax treatment to developers and purchasers, including especially foreign companies, of “more up-market” properties.  

Also, banks should devise schemes to offer much higher deposit rates to younger persons savingiii in order to purchase a house, while the government should consider subsidizing mortgage loans to lower-income households, with possibly financing from the proceeds of an extraordinary tax on high bank profits. 

Pensions 

Against the background of an aging population the Minister of Labor and Social Affairs, Marinos Moushouttas sees pension reform as the government’s top social priority, aiming at balancing the social security system’s sustainability with the provision of decent, adequate pensions, while at the same time expressing no intention of increasing the retirement threshold beyond the age of 65 years. 

Notably, the statements of the Minister don’t give any assurance that minimum pensions will be raised in a timely manner to adequate levels so that pensioners can eke out a decent standard of living. Indeed, with 33 per cent of Cyprus pensioners receiving incomes below the poverty line Moushouttas has said that “raising low pensions to the poverty threshold level was not economically feasible under current conditions” and added that “any further expenditure resulting from changes to benefits must be offset by savings in expenditure elsewhere”.   

Indeed, the statement of the Minister seems to reflect the priority of the government in focusing on populist announcements rather than supporting the living standards of existing pensioners and future generations with substantive and timely reforms. 

Undeniably, serious reform of the social security system involving the bringing of pensions to adequate levels, increasing the retirement threshold age, and raising contribution rates to the Social Security Fund and the National Health Scheme should be a priority of the government. 

Leslie G. Manison is Founder and Consultant, LG Manison Consulting Services, formerly Advisor to the Minister of Finance, Republic of Cyprus. Views expressed are personal. The article is republished from the blog of the Cyprus Economic Society.