Social and affordable housing in Europe: A market gap analysis

The discussion paper titled "Social and affordable housing in Europe: A market gap analysis" is published by the Council of Europe Development Bank (CEB), a multilateral development bank dedicated to social investment across its 43 member countries. The paper is authored by Leonardo Porta and overseen by Florian Meyerhoefer, both from the CEB's Loans & Social Development Department. The CEB aims to finance projects that address the needs of vulnerable populations, focusing on sectors such as education, health, and affordable housing.

The paper highlights significant regional disparities in social and affordable housing markets in Europe, emphasizing the need for tailored policy interventions. Northern Europe faces high demand and low vacancy rates, making urban housing unaffordable. In contrast, Southern Europe struggles with economic stagnation, while Central and Eastern Europe experiences low construction activity and housing deprivation.

Between 2012 and 2019, Northern Europe saw steady population growth and increased demand for housing, particularly in urban areas, which led to rising costs and competition for rentals. Southern Europe also witnessed demand pressures, especially in cities like Lisbon and Paris, despite slower population growth. Central and Eastern Europe displayed positive household growth but faced affordability challenges, particularly in high-demand areas.

The analysis identifies several market gaps, revealing that lower-income households spend a larger percentage of their disposable income on housing than higher-income families. Issues such as income disparities, poor housing quality, and inadequate policies contribute to these market failures, resulting in mismatches between supply and demand. The paper underscores that housing costs often represent the largest portion of a household’s budget, impacting wealth accumulation and socio-economic opportunities.

The COVID-19 pandemic had immediate and delayed effects on the housing market. Low interest rates initially stimulated demand, but the fiscal aid programs implemented during the crisis have exacerbated existing inequalities. While government support helped stabilize economies, it also highlighted disparities between wealthier Northern Europe and other regions. The pandemic shifted housing demand patterns, with an increase in remote working leading to a preference for lower-density areas.

The paper concludes with several recommendations, including creating and preserving affordable housing units, aligning housing supply with local market conditions, and implementing tenant-based assistance programs. It emphasizes the critical role of international financial institutions like the CEB in addressing housing deprivation and fostering inclusive housing markets.

The findings advocate for targeted policies to provide decent and affordable housing, especially for vulnerable populations. The CEB's ongoing projects in various countries demonstrate the potential for effective interventions to bridge existing housing gaps and promote social cohesion across Europe.