Housing affordability: Approaches to measurement and key data insights

The resource titled “Housing affordability: Approaches to measurement and key data insights” is published by the European Foundation for the Improvement of Living and Working Conditions (Eurofound). The authors of this background paper are Marie Hyland and Massimiliano Mascherini. This document is prepared for the Danish Presidency of the Council of the European Union for a high-level conference on affordable and sustainable housing.

In Europe, the biggest challenge for many individuals is finding and affording a home. The chronic undersupply of affordable housing is at the core of this crisis, exacerbated by rapid urbanization, demographic changes, and the financialization of housing. Property prices and rents have soared, while the stock of social housing has declined due to reduced public investment and the sale of social housing units. For low-income individuals, homeownership or affording the private rental market is increasingly difficult. The social rental sector is often not a viable option, leading to a significant impact on household budgets and overall well-being.

Despite the widespread acknowledgment of housing affordability issues, there is considerable debate regarding its definition and measurement. The EU average housing cost overburden rate has seen a decline from 10.1% in 2017 to 8.2% in 2024, which seems to contradict the general perception of rising unaffordability. However, certain groups experience worsening affordability, indicating a need for better metrics. The paper highlights five prominent approaches to measuring housing affordability, including the ratio of housing prices to income, the ratio of housing expenditure to income, and the residual income approach.

Between 2010 and 2024, house prices in Europe increased by an average of 55.4%, while rents rose by 26.7%. The largest increases occurred in capital cities and urban areas with concentrated employment opportunities. Demand for housing is driven by demographic trends, urbanization, and increased investment from both individuals and the tourism industry. Limited housing supply is hindered by geographical constraints and regulatory planning laws, leading to underinvestment in construction.

The document emphasizes the challenges faced by renters, particularly those in the private market. Households classified as at risk of poverty or social exclusion (AROPE) spend an average of 35% of their income on housing, compared to 17% for non-AROPE households. Young people, especially those living independently, face housing affordability stress at twice the rate of older cohorts. The 30/40 indicator reveals that 14% of households across the EU experience affordability stress, with higher rates among tenants and specific vulnerable groups.

Historically synonymous with social housing, the concept of affordable housing now also encompasses housing costs relative to income. Various metrics, such as the housing cost overburden rate and the 30/40 indicator, are available to analyze affordability. However, averages can obscure the difficulties faced by certain groups, particularly renters and single-parent households. The paper raises critical questions regarding the measurement of housing affordability, the thresholds for considered unaffordable housing, and the inclusion of housing quality in these assessments.