Europe’s housing crisis can be solved. But a range of policy tools is needed to do so.
In her political guidelines for the next European Commission, issued in July, the returning president, Ursula von der Leyen, outlined ambitious proposals for the next five-year European term. They include appointment of the first commission member whose responsibilities would include housing, as well as the first-ever European Affordable Housing Plan.
These initiatives are in response to the growing challenge of unaffordable and inadequate housing throughout the European Union. House prices are increasing, rents are going up, interest rates have climbed and even the cost of keeping a house warm has escalated. While better-thought-out housing policies are a key part of the solution, aspects of the housing crisis could also be tackled by improving public services and urban planning and by ensuring social-protection benefits reach the people who need them most.
Significant cost increases
Many are struggling to make ends meet due to the cost of housing: home owners and renters, rural and urban, young and old. Those trying to buy or rent are looking at significant cost increases compared with a few years ago. House prices and rents have increased more rapidly than disposable income (see figure 1). Until recently, mortgage interest rates were at record lows but current buyers face high prices and high interest rates.
Figure 1: disposable income versus house prices, interest rates and rents
Even some who own their homes outright are struggling with higher costs. Especially older people in rural areas, whose incomes are often low, and those whose homes are energy-inefficient can find themselves unable to maintain their homes at a suitable temperature due to poor energy performance and financial strain. This is true for at least 15 per cent of outright owners in Bulgaria, Cyprus, Greece, Lithuania and Portugal.
The cost-of-living crisis has further disturbed the delicate balance between housing costs and other household outgoings for people in all tenures. Young people are disproportionally hit. They are living with their parents for longer because they cannot afford to move out. When they finally do, they spend more of their income on housing than other groups, as they tend to have lower incomes and higher housing costs. These days it is more likely that they rent rather than buy, especially in the cities to which many move for work. Between 2010 and 2019, the prevalence of renting increased from an already high 66 per cent to 68 per cent among 20-29 year-olds but went-up especially—from 38 to 45 per cent—among the 30-39 cohort.
Reduced homeownership among young people is not a problem for quality of life in retirement if rents are affordable and retirement income sufficient. But concerns arise for those who are likely to experience high housing costs and low income in old age.
Where housing costs—including maintenance and utilities—exceed 40 per cent of household income, financial strain is particularly likely, with over three in five such households reporting difficulty making ends meet (Figure 2). But not always: the impact is conditioned by income and needs, with for instance low-income households with children particularly vulnerable.
Figure 2: ability to make ends meet, by proportion of income spent on housing, EU27, 2019 (%)
Traditional housing policy
There is no single solution: the multifaceted nature of the housing crisis requires a delicate balance of measures. More needs to be done using traditional housing policy—which encompasses a wide range of actions to provide and support housing—while avoiding potential distortions of the property market. And other policies could focus more deliberately on helping to maintain living standards, even if much household income goes towards housing costs.
Measures to increase housing supply are the most obvious ones, but it can take several years for new housing to come on stream. More effort should be made to boost supply by renovating older accommodation and discouraging property owners from leaving dwellings empty.
Various housing-support schemes operate across the EU, including social housing (rental accommodation at below-market rents), rent and mortgage/purchase subsidies, and support to pay for utilities. Besides reaching few people in most EU member states, however, such schemes often have fixed income thresholds for eligibility—failing to support those with incomes just above the threshold while disincentivising those just below from maximising (or declaring) their income.
While mortgage and rent subsidies can be important for certain groups of recipients, they can backfire. Public subsidies can drive up prices, while mortgage subsidies in particular encourage larger mortgages to be taken out, potentially leading to over-indebtedness.
‘Greening’ measures—home insulation, upgrading heating systems, installing solar cells—help to reduce energy costs and protect households from associated price increases. Besides benefiting the environment and household finances, improving energy efficiency can contribute to health by reducing cold- and heat-related problems and improving air quality, inside and out. These measures however need to reach people with low incomes better, including private and social tenants and homeowners—more proactive approaches are required.
Reducing the burden
Important as good housing policy is, other approaches can reduce the burden of housing costs. Access to quality public services such as healthcare, childcare, education and transport, at no or low cost, can help prevent high housing costs from reducing living standards.
Improving the quality of neighbourhoods that are disconnected from jobs and services, unsafe and lacking green spaces can increase the supply of affordable housing. In particular, high-quality public transport and cycling infrastructure can connect such areas with employment centres at low cost (or for free), providing an alternative for many pushed out of expensive city centres into suburban apartments.
Such a policy would be a triple win—good for financial resilience, population health and the environment. There is however the risk of driving up house prices and rents, leading to ‘gentrification’, with higher-income groups moving in and low-income groups moving out. So such neighbourhood improvements must be implemented on a grand scale.
Improving income security through effective social-protection systemsis also key. It is not only legal entitlements that matter: benefits also need to reach the people entitled to them. In the case of minimum-income schemes, for instance, in each EU member state around 20-50 per cent of those entitled do not receive them.
Accessible and affordable
Housing problems affect health and wellbeing, embody unequal living conditions and opportunities, and result in increased healthcare costs, reduced productivity and environmental damage. They also contribute to labour shortages in areas with low ratios of income to housing costs. These shortages are common in education, childcare, public transport, healthcare, long-term care and other services, posing challenges for service delivery.
Current and prospective homeowners and renters alike are dependent on policy interventions to make housing accessible and affordable. By widening the policy perspective, more can be done. Housing supply needs to be increased by building and renovating, preventing dwellings from being left empty, greening homes and improving neighbourhoods. Measures to improve the energy efficiency of homes need to reach low-income groups, protecting them from future energy-price increases. Meanwhile, general social-protection schemes that reach the entitled plus good access to services can help ensure affordability.
Housing is a hot political issue in almost all EU member states. There is political impetus to build on existing good practices and the sharing of experiences. As the housing problem affects other important areas, such as demography, labour mobility and work-life balance, a common EU approach makes sense and is an important aspect of social cohesion. It demands reinforcement of the European Pillar of Social Rights, ensuring effective social protection, well-functioning labour markets and access to quality services.
Hans Dubois is research manager in the social-policies unit at Eurofound in Dublin.