Public Policies and the Housing Affordability Gap

Overview of the Study

The discussion paper “Public Policies and the Housing Affordability Gap” by Konstantin Arkadievich Kholodilin, published by DIW Berlin in November 2025, examines long‑term trends in housing cost burdens across 28 advanced economies from 1950 to 2023. Using longitudinal data on housing expenditure, floor‑space, utilities and policy variables, the author assesses how rent control, social housing and housing allowances have influenced overall affordability and the gap between low‑ and high‑income households.

Key Historical Findings

Between 1950 and 2023, the share of total household consumption spent on housing, water, electricity and fuel rose from roughly 15 % to over 30 % in many countries. This increase coincides with substantial improvements in housing quality: per‑capita floor space more than doubled in several nations (e.g., Germany), and universal access to toilets, hot water and electricity was achieved. However, housing cost inflation outpaced income growth, especially for low‑income groups, widening the affordability gap.

Impact of Housing Policies

The paper analyses three main policy instruments:

• Rent control – Reduces housing cost shares for both low‑ and high‑income households but does not narrow the income‑based gap.
• Social housing – Lowers housing cost shares across the board; the effect on the gap is statistically insignificant in most specifications.
• Housing allowances – Increase overall housing cost shares by enabling higher rent payments, with limited impact on the affordability gap. Regression results (fixed‑effects panel models) show that rent control and social housing have negative coefficients for average housing cost shares (e.g., rent‑control coefficient ≈ ‑0.54), while housing allowances have positive coefficients (≈ +1.7). None of the policies significantly alter the ratio of cost shares between the poorest and richest quintiles.

Data and Methodology

The analysis combines macro‑level data (real per‑capita GDP growth, Gini index, homeownership rates, trade openness, floor area per person) with policy intensity indices (rent‑control index, share of social housing, housing‑allowance spending as % of GDP). The sample covers 28 countries (including Australia, Canada, Germany, Japan, the United Kingdom, the United States, among others) over the period 1981‑2023. Housing cost shares are interpolated using the Stineman algorithm to address irregular observation intervals.

Implications for Sustainable Housing

The findings suggest that while tenant‑protection measures and public housing reduce absolute housing costs, they do not automatically improve affordability for the most vulnerable. Sustainable housing strategies in Europe may therefore need to combine supply‑side interventions (e.g., increasing energy‑efficient floor space) with targeted demand‑side support that directly addresses the cost burden of low‑income households. The persistent rise in housing cost shares also highlights the importance of integrating climate‑friendly retrofits and energy‑saving technologies to curb utility expenses, which form a substantial part of the total housing cost burden.

Conclusions

Overall, the study concludes that housing affordability has deteriorated for low‑income groups despite improvements in housing quality and the presence of rent‑control and social‑housing policies. The gap between the poorest and richest households has widened over the latter half of the twentieth century, stabilising only in the 2010s. Policymakers aiming for equitable, sustainable housing across Europe should consider more finely‑targeted subsidies, stronger rent‑control mechanisms, and investments in energy‑efficient housing stock to mitigate the growing cost burden.