Addressing the housing crisis in Europe
Tuesday, 28 May 2024
In a recent podcast interview, Carlos Carnicero Urabayen spoke with Hans Dubois, a Senior Research Manager at Eurofound, about the pressing issue of housing affordability in Europe. The discussion covered the factors driving unaffordable housing, the impact on different demographic groups, particularly young people, and the effectiveness of various policy measures being implemented across Europe. You can listen to the podcast interview here.
Hans’ research draws on extensive data from Eurofound's Living, Working and COVID-19 e-survey, European Union Statistics on Income and Living Conditions, and insights from the Network of Eurofound Correspondents.
Key factors driving housing unaffordability
Over the past two decades, the increase in disposable income across the EU has lagged significantly behind the surge in rent and house prices, in turn reflecting an overall tightening of supply conditions. This disparity has been exacerbated by recent increases in interest rates. This trend affects all EU Member States, though there are significant differences between various population groups and regions.
Impact on different socio-economic groups
The housing crisis affects different demographic groups in varied ways, with young people being particularly hard-hit.
A growing proportion of young individuals are unable to leave their parental homes due to high housing costs. This situation has broader implications, including delayed household formation and lower fertility rates. Additionally, young people who do manage to move out often spend a larger proportion of their income on housing and are more likely to rent rather than buy, which could contribute to housing insecurity, especially as they age. Low-income groups on the private rental market face largest housing insecurity, and inadequacy.
Policy measures and their effectiveness
Hans Dubois discussed several policy measures aimed at addressing housing affordability, including the European Pillar of Social Rights and the European Platform on Combating Homelessness. While the EU has limited competence in housing policy, it supports EU Member States through funding for retrofitting homes and other initiatives. However, the effectiveness of these policies varies, and much of the responsibility falls on individual European countries.
One significant challenge is the design of housing support schemes that do not inadvertently drive-up prices or create inequalities. For instance, mortgage subsidies can be counterproductive to the extent that they can lead to people taking on larger mortgages than they can afford, and utility subsidies can conflict with environmental goals if not implemented carefully. These subsidies, moreover, do not tackle the supply shortage, which is the underlying problem.
In general, while there are many small-scale initiatives across the EU, few have the scale needed to address the broader housing crisis effectively.In this regard, it is worth mentioning some country initiatives:
- Housing First Programs: In Finland and (more recently) Denmark, well-developed Housing First programs have successfully reduced homelessness. These programs prioritize providing homes to homeless individuals before addressing other issues.
- Gradual Subsidy Schemes: Countries like Poland and Germany have implemented subsidy schemes that are more gradual, preventing sharp cutoffs in support when individuals' incomes increase slightly.
- Fixed-Rate Mortgages: In Belgium, a higher proportion of fixed-rate mortgages has shielded homeowners from the impacts of rising interest rates.
Broader Economic and Social Policies
Our guest emphasized that solutions to the housing crisis must extend beyond housing policy. Providing more stable and better-paid jobs, especially for young people, and ensuring robust social security systems are crucial. These measures can help mitigate the financial strain that high housing costs impose on individuals. In a recent blog he argued that similarly access to services (healthcare, childcare, education, public transport) can ensure living standards, regardless of income and housing costs.
Conclusion
Our podcast episode on the housing crisis provides an overview of the housing affordability crisis in Europe. The discussion underscored the complexity of the issue, the varying impacts on different demographic groups, and the mixed effectiveness of current policy measures. While there are successful examples to learn from, a holistic approach that includes policies to boost supply, particularly in the rental market, along with broader economic and social policies, is essential for addressing this challenging crisis more effectively.
You can access the podcast episode here and the full report by Eurofound, titled "Affordable and Inadequate Housing in Europe," can be accessed here.
Carlos Carnicero Urabayen