Hans DUBOIS

Senior research manager in the Social Policies unit at Eurofound.

Housing unaffordability excludes parts of the population from housing, and leads to housing insecurity, problematic housing costs and housing inadequacy. These problems affect people’s health and well-being, contribute to unequal living conditions and opportunities and result in increased healthcare costs, reduced productivity and environmental damage. They also contribute to labour shortages in geographical areas where housing costs are high compared to incomes, including in education, childcare, public transport, healthcare, long-term care and other essential services. This leads to labour shortages, posing challenges for the delivery of these services.

Groups most affected differ between member states, in size and the type of problems they face. There are enormous differences in housing affordability between geographical areas within member states. In areas where jobs can be found – usually large cities – house prices and rents have increased most. However, in all countries, people with low incomes are more likely to experience housing problems than those with high incomes. Spending 40 per cent or more of their income on housing (the EU-defined ‘housing cost over-burden’) is more of a problem for low-income households. In addition, in many member states, incumbent tenants are better protected by rent controls than those new to the rental market, who, oftentimes, only have access to social housing waiting lists.

In most of these groups, young people are over-represented. As a result, they stay longer in the parental home. The proportion of people aged 25-34 in the EU, who are employed and living with their parents, is up from 24 per cent in 2017 to 27 per cent in 2022, with increases of 7 percentage points or more in Croatia, Ireland, Italy and Portugal. Overall, the age at which still half of people in the EU were living in their parental home increased from 26 to 28 per cent between 2007 and 2019. More often than before, those moving out of the parental home rent rather than buy their homes. Renters on the private market face larger housing insecurity than people in other tenures. They also more often experience housing inadequacy, for instance in terms of poor insulation and energy inefficiency, noise from traffic, lack of space and lack of access to a balcony or garden.

For potential home buyers, today, prices are record-high, as are mortgage interest costs. Pre-2022 buyers, however, if their mortgage interest rate was fixed for the long run, still pay the same monthly mortgage interest payments, while those with flexible, or short-term fixed, rate mortgages are facing increases in their monthly payments. And even people who own their homes without having to pay a mortgage, need to be considered by policymakers. This group is the largest in post-communist and Mediterranean member states. Relatively often they are older people living in rural areas. Many of them have low incomes and struggle with high utility costs amidst the rising costs of living. They cannot afford to keep their homes at adequate temperature, nor pay for home maintenance.

What can be done?

Member states have implemented a broad spectrum of housing support measures. While benefitting certain groups, they often come with challenges. Rent subsidies and ownership support can create inequalities between people with and without access to support. For instance, mortgage support tends not to benefit the poorest, who are more likely to rent. They can also drive rent or house prices up, as people who receive support are able to pay more for housing. Mortgage support can contribute to over-indebtedness, facilitating take-up of larger mortgages, a problem when people become unemployed for instance. Subsidising utilities purchase (electricity, gas) is at odds with the Green Deal, as it facilitates energy use, contributing to climate change and environmental degradation.

The extent to which these measures can have adverse impacts depends on their design. For instance, in some countries (Germany, the Netherlands, Poland), housing support decreases with income, rather than being available only for people with income below a certain threshold. Rent controls can be such that incumbents are more protected than people new to the market and discouraged from moving to housing that better suits their needs. They may be protected from rent increases since they moved in long ago, but would lose this protection when moving out to a different dwelling (to downsize after children leave the home, for instance), and/or to a different town (for employment opportunities, for instance). Rent controls can be designed in ways to reduce these disincentives and inequalities. Mortgage support can come with insurance against job loss. Social housing protects low-income groups against housing inadequacy and plays a key role in preventing and addressing homelessness. However, in many member states it has a very limited capacity. Even those countries with the largest social housing stocks have long waiting lists. These can be reduced, but it is a challenge to do this without compromising on housing quality and stability.

There is a range of measures which really need to be stepped up if policymakers want to solve the housing crisis. They include increasing housing supply by ensuring homes are built and renovated and vacant dwellings reduced (by large real estate investors for example); and increasing the capacity of so-called ‘Housing First’ programmes, offering homes to people who are (or about to become) homeless as a first step, rather than after engagement with social support. They have been proven effective in addressing people’s homelessness, but many member states do not have the capacity to house more than one per cent of the homeless.

Rather than subsidising energy use, the focus should be on reducing energy needs (insulation, solar panel installation). However, measures to reduce households’ need to purchase energy often do not reach low-income groups. To do so more effectively, necessary pre-payments could be abolished for low-income groups, and measures should be designed to both benefit tenants and lessors alike in order to be taken up. Finally, proactive measures to support people with accumulating rent, utility and mortgage payment debts should be implemented at an early stage. For instance, support services approach once rent or utility arrears are noted, or when eviction notices are issued.

Housing problems can also be addressed by policies in areas beyond housing alone. Suburban areas, for example, could be better connected with low-cost public transport and cycling infrastructure. If focusing only on some areas and increasing the quality of life in there, these measures would probably drive up house and rental prices. However, if access to such low-cost transport is improved at a larger scale, it can contribute to better household finances, better human health (cleaner air, physical activity) and a cleaner natural environment.
Also, people’s financial situation should be improved, with employment opportunities and effective social protection. For instance, in several member states, at least 20 per cent of people entitled to minimum income do not receive it (mostly because they do not know about their entitlement). Furthermore, many people could work, or increase their working hours, if access to high-quality child and elderly care was improved. Ensuring access to services, such as healthcare and education, is also key in maintaining living standards regardless of housing costs.

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