Are rents across Europe too damn high? Over the last decade, rental prices have spiraled upwards in many European countries. In a recent study of 17 European countries, the IMF estimates that a typical renter household spends roughly a quarter of its income in rent, while a young family pays almost one-third. For the poorest in society, the burden of rent is even higher: a household in the bottom 20% of income pays on average 40% of their earnings on rent.

What do our readers think? This has been a long-running issue over the years, and we’ve covered housing costs many times on Debating Europe (see here, here, here and here).

For example, Ana thinks the solution to Europe’s housing crisis is for governments to invest much more in building new social housing. Johan, on the other hand, wonders is rent controls might be part of the solution, whereas Josh thinks an “empty house tax”, where one has to pay higher property tax on a house with no occupants, could be a good idea. Finally, Tobias argues: “The housing crisis is a byproduct of ECB [monetary policy]… The only real solution for the housing crisis is a drastic increase in interest rates for mortgages”.

To get a response to all these comments, we put them to Alfred Kammer, Director of the IMF’s European Department. How would he respond to each question in turn?

We have also been covering this issue on our German-language platform, DebatingEurope/de. We recently held a Citizens’ Panel with a group of young Berlin residents to discuss the rental and housing situation in their city with Christian Gräff, building and housing policy spokesman for the Christian Democrats (CDU) in the Berlin House of Deputies, and Reiner Wild, managing director of the largest Berlin tenant association.

You can see the debate (in German) below:

One of the first questions in the debate was asking why rental prices have been going up. A young resident made the point that, for years now, rents and housing prices in Berlin have been skyrocketing and are becoming unaffordable for normal people. They asked: what are the reasons for this? And can the free market stop this development?

Similar questions are being asked across Europe. To get an Italian perspective, for example, we put this question to Giordana Ferri, Executive Director of Fondazione Housing Sociale, an Italian organisation advocating for social housing. What would she say?

There are many reasons linked to this phenomenon [increased rent and housing prices], of course. Unfortunately, there is a vicious circle of what’s called ‘gentrification’, meaning that there are some city areas that become to sound attractive, firstly to pioneers, and not immediately by market agents. This way these areas start to be attractive and improve their social conditions, which is positive. However, the negative side, is when the market, which does not have rules, prevails and as such, pushes inhabitants away because market prizes increase and consequentially, these areas become less affordable for previous inhabitants.

Social housing can certainly help mitigate this phenomenon [gentrification] because, as I was previously saying, it is also a positive one, as it introduces new elements that can improve monofunctional neighbours, i.e. with population of the same social background. However, of course this phenomenon needs to be regulated. For example, public administrations could regulate this phenomenon, making sure there are still some spaces for rent, especially for people who cannot access the free market and at the same time do not have access to social housing. This can bring value to the neighbourhood because the mixed population will make it more diverse and livelier. For example, during lockdowns we have witnessed that it is not only a problem that people from the same social background live in peripheral areas but also that, once offices and shops are closed, city centre areas become desert. Hence, social diversity is a valuable element for neighbourhoods, including expensive ones. However, housing is not enough. Even if you pay a low rent, you cannot live in an area where supermarket prices are three times higher than those in peripheries. So, there is a need for a good local planning to make sure the neighbourhood evolves well, i.e. becomes safe, affordable and full of services, making sure that as a diverse as possible population can live in the same area.

Another question that came out of our Citizens’ Panel with Berlin residents was the question (again) of rent control. Last year, the city of Berlin introduced a rent cap, but it was ultimately declared void and the German Federal Constitutional Court annulled it. How sensible and effective are rent caps? What alternative solutions are there?

This is a very difficult question. The city of Berlin, as well as Vienna and other European cities, have a tradition of fixing rent caps and control on temporary rent. This news [the one mentioned in the question] has come out in a complex context of rent ceilings which many German and Austrian cities apply. I cannot tell if this the solution, which in any case would be very difficult to apply in Italy, where there is a different approach to private property. Certainly, public intervention is needed but, in my opinion, more for the way cities are designed and built [rather than by only introducing rent ceilings], because once you introduce rent cap, you need to act as strong and intervening government. In parallel, as it’s already happening in Berlin and Austria, we shall work on policies that do not require rent caps because there are natural rent ceiling adjustments within one neighbourhood [thanks to a good balance between being attractive for the market but still affordable].

Finally, our Citizens’ Panel wanted to know about long-term solutions to increase the supply of affordable housing. What can the state and the private sector do to create more affordable housing, for example through building projects?

There is a lot that can be done. There are many examples, also in Italy, of private sector’s work [to create more affordable housing]. Of course, it has to be a private actor willing to accept long-term and limited profit. The private sector can actually do a lot, especially towards affordable housing targeting middle-class. The private-public partnership can significantly help, notably to create economic and financial instruments based on a public-private resource blending, which can target a much larger number of people and their needs. The private sector must be involved. Indeed, almost all European social housing systems are hybrid: the public intervention replies to extreme housing needs with a related rent cup, while the private input becomes much more effective once it’s combined with the public one. In Italy, we look at these [public and private interventions for affordable housing] as two separate processes, but whenever the public and private sectors operate together, which is not yet systemic although we hope it becomes so [in Italy], we get impactful results because we can better balance resources according to needs.

How can European cities make rental housing affordable? Should governments invest much more in social housing? Are rent controls or “empty house taxes” part of the solution? Can the free market solve the problem on its own? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!

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17 comments Post a commentcomment

What do YOU think?

  1. avatar
    EU Reform Proactive

    Another great question- but once more a global problem without a satisfactory outcome in a market driven economy where “democratic governments” might change policies, rules & “defective directives” every now & then- usually after new elections.

    Some even sell off old government housing stock (in secrete?)- instead offering them to the 0%-20% poor for lower prices! Another charade!

    Sorry, I have no workable solution nor one rule to solve this century old malaise. But those, who are financially & common sense savvy will & do solve their own problems, despite the many hurdles.

    The 25%-33% quoted figure to spend on rent (not to forget that many folks opt to rent “for live” instead developing “greater ambitious” and strive to become their own landlord a.s.a.p.

    Reduce & limit Governments assistance to the “bottom” (proven) 0%-10%? Governments are in “business” to govern- not become landlords or businesses. What else?

    What are our politicians & parliamentarians doing during normal working hours?
    Please ask them what they can & are able to offer their poor electorate- not bankers and supporters of tax havens!

    Or, ask China, Russia or Cuba of their experience how best to look after their poor & their poor by choice!

  2. avatar

    Housemarket is one big bubble, old houses are overpriced

  3. avatar

    Well, I’m not an economist, but it seems fishy to me that price hikes were fed by lower and lower interest rates, making owners (the older generation) cash in and locking out aspiring owners (the younger generation), or putting them in so much debt that if interest rates rise back they will not be able to afford to stay in their new home. So imho there needs to be a serious generational correction. Perhaps a property tax on increased market value beyond some percentage above inflation for example. An appartment doubling in price just over a few years is just not acceptable.

    • avatar

      or perhaps a monopolies commission & a bar on nayone being higher than a millionaire?

  4. avatar

    This may be a supply-demand problem. The prices are high beacuse there are not enough houses, because not enough are built, and building itself is too expensive, because of labor costs and material cost etc. Thereby on one hand demand could be somewhat reduced by developing agglomerations and creating new city centers.
    On the other hand building could be made easier with simpler regulations and new technologies, it could be examined if the 3D house printing and other new tech could be a method that really works.

  5. avatar

    They don’t want to.
    All they want is the sweet, sweet smell of money, so property investors are preferred.

  6. avatar

    How about buying a house, instead of renting one? Living in a countryside is affordable even for the lower-middle class. Spend an hour a day, to drive to your workplace and enjoy your low rent, clean air, low crime and no noise pollution. I never did understand the pressure to live in a city 🤷

    • avatar

      have you seen the price of fuel right now? & lock-dowons have hit part time work more than anything. We need to oust all of these people who think they have the right to ‘rule’ us & go back to a more simple system of governance – more importantly a fair & democratic one where they are not allowed to become billionaires off the backs of poor people.

  7. avatar

    I made an accepted and listed proposal for IBA Heerlen 2020 to change the way we construct houses, which I also shared with a Limburg housing corporation and the responsible representative of the village of Katwijk in The Netherlands for the former airport Valkenburg.
    It would be a Start up for investors/construction companies who can contact me.
    The financing of owning or renting a house would be an entire different situation and much more durable.

  8. avatar

    Easy !
    Make corporate ownership of residential buildings/houses illegal, and progressively tax the higher the number of residential properties someone owns.
    Suddenly you will not need “rental housing” as most people will be able to OWN their residence.
    But I guess pumping trillions into the rich who own the rented properties will be more of the EU way, right? 😉

    • avatar

      George one issue is that many countries invest retirement money that way.
      First you will get expensive rent. By the time you retire they will pay that high tax and say there is null on your retirement account.

  9. avatar

    Here you go! Then listen to people like Catherine austin-fits, & Whitney Webb. Some of the brightest women I have listened to:…/ebf761ea-fcc8-4fd4-a636…

  10. avatar

    Inflation, higher rent prices, stagnating wages, rising energy prices, over 2 years of lockdown due to a pandemic that further diluted the already struggling middle class coupled with a continuously escalating inequality between the super rich and all the rest should be valid causes for major concern. Don’t be surprised if more and more populistic politicians, promising a chamge to the narrative, rise to power like mushrooms all around the free world if the current order doesn’t start providing better conditions for the average person.

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