EU - Policy Department for Economic, Scientific and Quality of Life Policies
2023
The authors are not explicitly stated in the provided text.
This study examines the challenges of housing affordability in the EU and suggests policies to improve access to affordable housing. It identifies that housing affordability varies significantly among Member States, with a notable increase in the proportion of low-income households spending over 40% of their income on housing. Factors contributing to rising housing costs include the financialization of housing, foreign investment, and the impact of short-term rental platforms. The study highlights a trend of decreasing public spending on social housing while demand-side measures have been favored, often exacerbating affordability issues. The EU's influence over housing policy is indirect, utilizing regulations and recommendations rather than direct control. Key initiatives, such as the European Pillar of Social Rights and the Housing Partnership Action Plan, aim to improve access to affordable housing, particularly for vulnerable groups.
Abstract
This study analyses the current situation and key challenges with regard to housing affordability in the EU, as well as policies to ensure access to affordable housing at national and EU levels. After assessing the key trends, the authors also provide recommendations for policy makers and stakeholders on improving the affordability of housing. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Employment and Social Affairs (EMPL).
EXECUTIVE SUMMARY
Background
Affordable housing is becoming a more distinct field of housing policy and decision-making in many EU Member States. The EU has no direct competence over housing policy, but it can affect housing conditions in the Member States indirectly through regulations, such as state aid law, fiscal law and competition law and through "soft law" measures such as recommendations and guidelines.
Aim and methods
The main goals of this study are to:
- Provide an in-depth overview of the housing situation in the EU, including its main trends and challenges by specifying areas in Europe experiencing particular difficulties;
- IdentifytrendsandbestpracticeinaffordablehousingpoliciesatMemberStatelevel;and
- Identify the main policies in relation to the affordability of housing at EU level and specify what more can be done at EU and national levels in the future.
The analysis is based on desk-research (review of recent publications and statistical data), supplemented by several interviews with key EU-level stakeholders in the field of housing policy.
Key findings
There is a variety of criteria for and definitions of housing affordability used across different Member States and institutions. The most commonly used measure of housing affordability, however, is the criterion of housing price-to-income ratio: Eurostat defines the housing cost overburden rate as the share of the population living in households that spend 40% or more of their equivalised disposable income on housing. Between 2010 and 2018, the average housing cost overburden rate in the EU-27 countries remained stable at around 10% of population. However, there are substantial differences between EU Member States in terms of the proportion of the population spending more than 40% of their disposable income on housing. Whereas housing cost overburden is relatively low in most Northern European and Central and Eastern European (CEE) countries, it is higher in Germany, Denmark and Bulgaria, and is a particularly acute problem in Greece and some of the Balkan countries.
In recent years, the position in terms of housing affordability has deteriorated, in particular among low-income owners and private renters. In 2018, almost 38% of households at risk of poverty spent more than 40% of their disposable income on housing, compared to 10.2% of the general population in the EU Member States. Housing conditions/access to decent housing for low-income owners and renters have also deteriorated in recent decades. In addition, the absence of a single widely adopted definition of homelessness in the EU has made it difficult to assess the extent of homelessness across the EU countries. The available data, however, indicates that rates of homelessness have increased over the last decade in a number of EU countries. The causes of such an increase are a combination of rising housing costs, the impact of the economic crisis and, over the years that followed, continued austerity-related measures, such as freezing or cutting social programmes or benefits, as well as the inadequacy of policies to address homelessness in many Member States.
One of the key factors behind rising housing costs and the decreasing affordability of housing in Europe is the so-called 'financialisation' of housing, which is generally defined as the transformation of housing into a financial asset or commodity. The integration with and increasing dependence of housing on the general financial markets, especially the financial markets for mortgages has, Policies to ensure access to affordable housing over recent decades, been one of the key factors linked to the financialisation of housing in the EU.
Evidence also shows that secondary property ownership is widely used in many EU Member Stateas an investment, to supplement absent or low second-tier pension arrangements by those who are inadequately covered by such arrangements. Evidence also shows that foreign investment increases local house prices and reduces the rate of home ownership in the area, especially in places where housing stock reacts more slowly to housing price changes.Another recent trend that affects housing prices and access to affordable housing in the EU is the rise of collaborative economy platforms for short-term accommodation (e.g. Airbnb, HomeAway). Negative effects of short-term rental platforms include the reduced supply of housing, as properties shift from serving local residents to serving Airbnb travellers. This hurts local residents by raising housing costs, and contributes to the gentrification of some(especially central)city areas. Our overview of recent housing policies at national level reveals that over recent years the general trend has been that of decreasing public expenditure on supply-side housing measures, i.e. development of social/affordable housing. In parallel, there has been an increase of public expenditure on demand-side housing measures, i.e. public expenditure on social welfare-type payments in the EU. Although over the last few years, mortgage interest tax reliefs have been phased out or abolished in a number of European countries, in general public spending policies acrossEuropean countries still focus strongly on home ownership. According to a number of experts, demand-side policies, rather than improving housing affordability for households with lower and middle incomes, often result in an increase in local housing prices. In contrast, recurring immovable property taxes (e.g. annual taxes on a certain value of property) have been an increasingly popular measure among EU Member States because they are one of the best instruments to address speculation in housing market, increase the supply of housing in the market, and decrease the share of vacant properties.
The EU has no direct competence over housing policy, but it can affect housing conditions in the Member States indirectly through regulations, such as state aid law, fiscal law and competition law. Social housing is defined as a service of general economic interest (SGEI) under the current 2012 SGEI package and is therefore exempt from State aid regulation, meaning that Member States are not required to notify the Commission of compensation for social housing. However, this exemption is limited to "disadvantaged citizens or socially less advantaged groups". According to a number of stakeholders, the current limitation of social housing to "disadvantaged citizens or socially less advantaged groups" under the current SGEI package restricts the provision of social and affordable housing to a very limited target group.
In terms of direct policy making in the area of affordable housing and rights to housing, the EU has largely employed 'soft power' – administrative measures, recommendations, general principles and guidelines for national/local policy makers. Over the last few years there have been a numberof EU-level policy initiatives of this nature, addressing access to affordable housing. These include Principle 19 of the European Pillar of Social Rights, which envisages "Housing and assistance for the homeless"; the European Semester process (although only a few country-specific recommendations focus explicitly on the affordability of housing); and the Housing Partnership Action Plan, which proposed 13 substantial actions and recommendations at EU level, focusing on affordable public housing. The European Social Fund (ESF) has had tangible impacts on European cities, including better access to housing among vulnerable groups through various projects. Meanwhile, projects funded by the European Regional Development Fund (ERDF) have had the most obvious impacts on improving the quality and energy efficiency of the housing stock in the Member States.