Why is there a housing crisis and how do we fix it?

The housing crisis in Europe has reached critical levels, with rising prices and a lack of affordable options significantly impacting various demographics. This issue is explored in depth by the European Investment Bank (EIB), with contributions from authors like Janel Siemplenski Lefort. The EIB focuses on financing projects that promote sustainable development, and this document captures the challenges and potential solutions to the current housing crisis.

Cities across Europe are grappling with a severe shortage of affordable housing, particularly in urban centers like Dublin, Lisbon, and Budapest. Over the past 15 years, average rents in the EU have surged by 25%, while house prices have skyrocketed by 50%. Approximately one in ten Europeans now spends over 40% of their disposable income on housing, a situation that has prompted concern from officials like Dan Jørgensen, the EU Commissioner for Energy and Housing. He emphasizes that the crisis threatens social justice and economic stability, hindering essential workers from finding homes in cities.

To address the shortfall, experts estimate that nearly one million new dwellings need to be constructed across the EU. This requires innovative and cost-effective building methods, regulatory reforms to streamline the permitting process, and financing solutions that encourage both new construction and the renovation of existing properties. The persistent imbalance between housing supply and demand has been exacerbated by factors such as migration to urban areas for job opportunities and rising interest rates following the COVID-19 pandemic.

The share of social housing in the overall housing stock has diminished, dropping to 8% in 2021 from 11% a decade earlier. While some EU countries, like Austria and Denmark, have robust social housing programs, many regions lack the necessary frameworks to encourage affordable housing development. As a result, younger generations and low-income families find it increasingly difficult to enter the housing market.

High housing costs not only limit access to housing but also deter skilled workers and young professionals from moving to economically vibrant areas. This immobility can hinder overall economic growth and innovation, as companies struggle to find qualified employees. Furthermore, the social implications of the housing crisis are significant, with young people from lower-income backgrounds facing barriers to education and employment opportunities.

Addressing the housing crisis requires a multifaceted approach. The EIB proposes an action plan to increase lending for affordable and sustainable housing, targeting €4.3 billion in financing for innovation, renovation, and new construction. By supporting the adoption of innovative construction technologies and improving energy efficiency, the EIB aims to enhance both housing supply and living conditions across Europe. Additionally, regulatory reforms and the harmonization of building standards can facilitate faster and more effective housing development.

The EIB has financed nearly half a million social housing units across 16 countries since 2018. The bank's new action plan focuses on increasing investment in energy-efficient projects, expanding the reach of affordable housing, and developing new financing models that can leverage public and private capital. The overarching goal is to address the housing crisis, which is not only a pressing social issue but also a critical factor for maintaining Europe's economic and social fabric.