The roots of Europe’s housing crisis: Why good intentions so often produce bad outcomes
Housing affordability
Fecha: julio 2026
Christian A. L. Hilber
SEFO, Spanish and International Economic & Financial Outlook, V. 15 N.º 4 (July 2026)
Europe’s housing affordability crisis reflects a fundamental mismatch between growing demand and increasingly inelastic supply, particularly in economically dynamic cities where planning constraints have become progressively more binding.Despite continued population growth, housing completions per capita have fallen substantially across the continent. As outward urban expansion has been curtailed, housing expansion has become increasingly dependent on redevelopment, a process that is slower, costlier, and more politically contentious than greenfield construction, and which often replaces affordable older stock without meaningfully expanding the total housing tock. Demand-side interventions such as mortgage subsidies and first-time buyer schemes tend to be capitalised into higher land values where supply is constrained, benefiting existing owners and developers rather than prospective buyers. The political economy of homeownership further reinforces these dynamics. Homeowners, whose wealth is tied to property values, have incentives to lobby for more restrictive land use regulation. The resulting reduction in housing supply responsiveness amplifies house price and rent growth, benefiting incumbent — particularly older — homeowners while imposing welfare losses on renters, younger households, and future generations. Lasting improvement in affordability requires evaluating policies by their long-run general equilibrium effects and reforming planning and tax systems to align political incentives with the objective of expanding housing supply.