Is Europe facing a housing crisis? For many Europeans, rents or mortgages have become their highest expenditure, and the situation seems to be getting worse as house prices are growing faster than income in most EU Member States. Over 11% of households in the EU are now considered “overburdened” when it comes to housing costs (meaning they spend more than 40% of their disposable income on keeping a roof over their heads). However, this figure hides the fact that poorer households are disproportionately affected – roughly 40% of people considered to be at risk of poverty are overburdened.
In several EU countries, including the UK, Belgium, the Czech Republic, Finland, Sweden, Greece, Denmark, Spain, and Luxembourg, at least one-quarter of an average households income routinely goes on rent (not including extra costs such as utility bills). What’s the solution? Is it as simple as just “build more houses, stupid”?
What do our readers think? We had a comment sent in from Thomas, who argues that it’s time to consider “capping rents” as a way to bring spiralling housing costs back under control. Is he right? Would rent controls really help address the affordable housing crisis, or would they just end up distorting the market and discouraging investment in new housing projects?
To get a response, we spoke to Sorcha Edwards, Secretary General of Housing Europe, a European federation of public, cooperative & social housing. How would she respond to Thomas’ suggestion?
To get another perspective, we put the same comment to Monica Brezzi, Director for Technical Assessment and Monitoring at the Council of Europe Development Bank (CEB). What would she say about rent controls?
Evidence on the effectiveness of rent control is quite mixed even since its first introduction in NY City after WWI. On the positive effect, data show that rent control increased the probability a renter remained in one’s home, thus helping to keep lower- and middle-income residents in real-estate attractive cities and contributing to development of socially mixed neighbourhoods. However, a restrictive rent cap can discourage investors and reduce the housing supply, drive out of the market small businesses and landlords that cannot afford to make up a short term loss, monopolizing even further the housing market, which would, in the long run, result in further increase of housing demand and prices. Rent regulations, which can take various forms of setting limits on rent increases, should be implemented in combination with other policies and financing mechanisms to balance off housing supply and demand.
Next up, we had a comment sent in from Ginster, who thinks the solution to the affordable housing crisis is simple: build more affordable homes. Does Sorcha Edwards from Housing Europe agree?
Finally, we put this comment to Samir Kulenovic, Technical Adviser for Housing and Urban Development at Council of Europe Development Bank (CEB). What would he say?
Building more is not necessarily solution everywhere; the solution is rather to increase the availability of adequate homes. In some places this would require to build more houses; but in other cities may imply to change the incentives and obligations on housebuilders to expand social housing, or to make sure that vacant residential buildings are occupied and available also for lower- and middle-income people and that vacant commercial buildings can be transformed in residential ones.
Building more is not necessarily more. For example, housing policies and strategies that encourage “housing mobility”, economising housing developments such as cohousing, and provision of innovative financial instruments such as social impact bond, can contribute to easy housing crises in a financially and environmentally sustainable way.
Are rent controls the answer to affordable housing? Or governments just build more affordable housing (or open up more land for development so private companies can do so)? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!