Soaring costs across the EU are pricing out renters, deterring prospective buyers and preventing new homes from being built. As Europe’s housing crisis grows, so do homelessness rates across the bloc. What are the solutions to Europe’s housing crisis?
The month of September is always a busy time for the rental market in Paris. As students return to the city after the summer break, demand for lower-priced accommodation soars.
But in 2023, renters looking for a cheap room or studio faced a tougher challenge than ever. The French capital is now the second-most-expensive city in the EU – behind Dublin – for renters (at €28.50 per square metre per month), according to an annual Deloitte study published in August.
In cities across Europe, rising rents coupled with soaring costs for energy and food are forcing people to adapt to living conditions, particularly the young.
Across the 27 EU member states, more than a quarter of Europeans between 15 and 29 years old reported living in overcrowded conditions in 2022. In Ireland, 30% of 18- to 24-year-olds were still living with their parents in 2022 – an almost 10% increase in five years.
But it is not just Europe’s young renters who are feeling the squeeze. As rents in Paris, Berlin and Lisbon have reached unprecedented highs, interest rates on mortgages have also risen across the bloc, driving up costs for homeowners with variable rate mortgages and pricing out many potential buyers altogether.
In the Paris region, property sales fell 23% in the second trimester of 2023. Left unable to buy due to high interest rates, large numbers of aspiring homeowners are now putting extra pressure on the strained rental market.
The crisis has been decades in the making, said Ruth Owen, deputy director at FEANTSA, a European federation of national organisations working with the homeless based in Brussels.
“There is a fundamental structural issue which is that housing costs have been rising faster than incomes for decades in the European Union, and that trend has accelerated in many places,” Owen said. “It means that households are very vulnerable when there are any kind of external shocks.”
In the decade up to 2022, average rents increased by 19% in the EU and house prices by 47%, according to Housing Europe, an umbrella organisation that works with groups providing public, cooperative and social housing in EU countries.
And in recent years, external shocks have been plentiful: Covid-19, a European energy crisis prompted by the war in Ukraine and a global cost-of-living crisis have all contributed to worsening conditions throughout the housing market.
Lack of supply
There is little hope for quick improvement. The European Central Bank (ECB) raised its key interest rate to a record-high 4% in mid-September and interest rates will stay high for “as long as necessary” to beat back inflation, ECB chief Christine LaGarde said at the end of that month.
Housing supply is also at risk. As demand for homes has fallen, home construction across the eurozone has slowed to its lowest rate since April 2020, exacerbated by high building costs and supply-chain issues first caused by the Covid-19 pandemic and exacerbated by Russia’s full-scale invasion of Ukraine in 2022.
The issue is particularly acute in Germany, where there is expected to be a 32% drop in new housing construction between 2023 and 2025, according to a 2023 report from the IFO Institute research body in Munich.
Some 1.58 million new homes are expected to be completed in 2025 across 19 European countries included in the study – 14% less than in 2022.
There are also persistent issues with existing housing.
“In Europe, we have an ageing and inefficient building stock,” said Angela Baldellou, director of Spain-based housing NGO Observatorio CSCAE. “We need to adapt the stock in terms of energy efficiency, but also we need to adapt stock for people because Europe’s population is getting older every year.”
At the same time, building homes uniquely adapted to an ageing population facing increased climate and energy challenges will do little to address current issues if they are not affordable.
A workable solution requires “striking a good balance between sustainability goals and need for more housing, affordability and liveable places”, said Diana Yordanova, communications director of Housing Europe.
Political commitment
At its worst, a shortage of good-quality, affordable housing is likely to push prices up further, and to worsen access for those who are least able to afford shelter.
However, confidence in the market is low. Real estate was the most distressed sector in Europe in 2023, suffering from the highest levels of financial uncertainty, volatility and an increase in perceived risk, according to a study from Weil, Gotshal & Manges, a global legal advisory firm.
Avoiding crises-induced peaks and troughs that rock the market may require a change in approach in some countries and cities, Yordanova said. “In many countries, housing has been considered as an asset and it's very often being used for speculation or for investment.
"If we look at some of the most successful housing systems across Europe, there is continuous investment in public housing, so that once we're into a crisis the most vulnerable people do not fall through the cracks.”
The numbers indicate that this is not happening throughout the continent. “Nearly 900,000 people sleep rough or stay in homeless accommodation every night in the EU,” said Owen. According to figures from FEANTSA, the number of homeless people in the EU has risen by 30% since 2019.
However, there are some European success stories. In the Austrian capital Vienna, the city invests around €500 million in housing construction and rehabilitation as well as financial support for low-income households. Close to 60% of the population live in municipal housing or housing subsidised by the state.
Finland offers another example of how long-term government policy can successfully reduce homelessness. The Finnish approach works on a “housing first” principle that recognises housing as a basic human right that, once provided, serves as the foundation for resolving other problems.
Owen believes similar initiatives are possible across the EU. “The first step in tackling the situation in the European Union is a political commitment,” she said.
