Housing Crisis Threatens to Fracture Central and Eastern Europe

A lack of affordable housing in urban centres is driving political instability across Central and Eastern Europe. The transition from communism brought new freedoms, increased mobility, a wider array of consumer goods, and economic growth to most countries in Central and Eastern Europe (CEE) following their integration with Western Europe. Yet, a crucial question remains: why the marked shift towards right-wing politics in recent elections and the emergence of “anti-establishment” movements, as championed by figures like Russia’s revanchist ideologue Alexander Dugin? The answer may lie in the deepening housing crisis. Despite world-beating home ownership rates in CEE, generally exceeding 80 percent and often surpassing 90 percent in many states – for example, Romania (96 percent), Slovakia (94 percent), Croatia and Hungary (both 91 percent), Lithuania (88.8 percent), and Poland (87.3 percent) – these high averages obscure a critical imbalance. Ample housing exists in regions with few job opportunities, while select urban cores, offering robust work prospects, suffer from both a scarcity of housing and exorbitant prices. Three decades of post-communist labour migration to low-quality work options abroad have left the working and middle classes in CEE increasingly frustrated. Securing well-paying employment or establishing thriving businesses today often necessitates relocation, which, in turn, means acquiring housing in these expensive urban markets. Romania exemplifies this paradox: despite having the EU’s highest home ownership rate at 95 percent, one might assume easy access to housing and political stability would not be concerns. Regrettably, this is not the case.

The unexpected rise of populist Calin Georgescu last autumn, who was subsequently barred from running in the December 2024 presidential election, underscored widespread anxieties about the cost of living, swaying many Romanians towards his platform. Consider Cluj-Napoca, Romania. Two decades ago, it was a quiet regional capital. Today, it is a hub for high-value-added manufacturing and information technology. Consequently, data from Numbeo, a global aggregator of housing price indicators, reveals that city centre housing prices per square metre in Cluj exceed those in Athens (EUR 3,215), Genoa (EUR 3,200), Portland (EUR 3,159), and Belfast (EUR 2,769). This reality deeply frustrates Romanians who aspire to find good work within their home country but cannot afford to relocate to these prohibitive urban centres. Don't miss out on cutting-edge thinking. Join tens of thousands of informed readers and stay ahead with our insightful content. It's free. Why is housing supply failing to meet demand in CEE cities experiencing high job growth? Currently, governments lack effective housing policies. Cost savings from construction scalability are absent, and private banks are understandably reluctant to lend liberally without collateral. Short-term loans without collateral come with high interest rates over short repayment periods and, when granted in the absence of increased housing supply, tend only to inflate prices on existing properties. Private banks are simply not equipped to finance housing construction at sufficiently low risk and expense for borrowers. However, public development and mortgage banks can extend housing loans with fixed terms, over longer (though not excessively long) periods, and at lower interest rates.

While private banks may grumble at the expansion or creation of these public lending institutions, increased social stability ultimately benefits all, including the banking sector. The expansion of public development banks is a crucial step towards meeting housing demands, provided these funds are directed towards new construction. The second solution is more ambitious but arguably more vital: the creation of concerted public or public-private construction programmes to build social housing at scale. These units could be designated for rent, rent-to-own schemes, or outright sale. Critically, they should be serviced by green mobility options such as metro or tram lines, alongside access to public childcare, quality public schools, and public health services nearby to improve overall quality of life and reduce stress. Scale and meticulous planning are paramount. We have observed, for instance, how construction costs decline when firms build with frequency and scale, thereby overcoming engineering challenges, as demonstrated by Spain’s metro expansion projects. Such housing initiatives should primarily serve the working and middle classes, fostering socio-economic mixing to build stable communities. These proposed solutions represent a departure from the European Social Democratic (and American Democratic) policies that have largely prevailed since the 1990s. During this period, public sectors often reduced their scale and competencies, shifting their focus to target smaller numbers of vulnerable populations to the exclusion of the broader working and middle classes. This public sector retrenchment was perceived as cheaper and aligned with new economic realities that made higher taxation levels difficult to sustain due to increased capital mobility.

However, returning to the mid-20th century levels of public sector scale, competency, and coordination will be essential for restoring social and political stability and maximising economic growth opportunities. This can be achieved by delivering these vital public goods to our working and middle classes. Failure to do so risks continued flirtations with right-wing populist movements, which have increasingly demonstrated their ability to shape public policy agendas, even without electoral victories, in the absence of social stability. Jeffrey Sommers Jeffrey Sommers, Centre for Political Economy, Visiting Professor Political Science Department, Babeș-Bolyai University, Romania; and Professor of Political Economy & Public Policy, University of Wisconsin-Milwaukee, USA. Daniel Pop Daniel Pop, Centre for Political Economy, Lecturer Political Science Department, Babeș-Bolyai University, Romania; and former Senior Advisor to the Open Society Foundation. Cosmin Marian Cosmin Marian, Centre for Political Economy, Professor and Chair Political Science Department, Babeș-Bolyai University, Romania.