Rising costs and declining construction are worsening Europe鈥檚 housing crisis (Photo: AdobeStock)

In most European medium and large cities and economic centres, population is growing, ageing, and families are becoming smaller. The consequences are housing shortages and rising housing prices in these areas, excluding both low-income households and middle-class workers like teachers, nurses, firemen, etc.

The latest FIEC figures show that the residential construction sector has been declining significantly in several EU Member States. Overall, new construction and renovation of housing fell by 2.6% in 2023 and was expected to fall another 5.7% in 2024. On average, housing rents in the EU rose by 18% and house prices by 47% between 2010 and 2022, by which time 10.6% of people in the EU cities were living in households that spent over 40% of their disposable income on housing.

This situation results from multiple factors. High building costs are one of these many factors leading to the current housing crisis. Construction costs rose to an all-time high after the impact of the COVID pandemic on supply chains, the energy price surge and supply chains disruptions caused by the war in Ukraine, as well as rising costs for labour and acquisition of land. The latter can represent up to 50-60% of the final purchase price in the most frequented areas. Indeed, in those densely populated areas, land is scarce, and zoning rules are slow to evolve. Also, financing costs and the unseen rise of interest rates that quadrupled within a year have negatively impacted the construction industry.

Clearly, building suitable, sustainable and affordable housing for all EU citizens has become one of the biggest urban challenges that Europe faces.

Affordable housing

While housing policies are the responsibility of the Member States, housing has become, for the first time ever, a distinct part of a European Commissioner鈥檚 portfolio. European Commission President Ursula von der Leyen, who already referred to the housing crisis in her political guidelines of July 2024, designated the Dane Dan Jorgensen Commissioner for Energy and Housing in the new Commission. His mandate includes working on an affordable housing plan and a new strategy for housing construction, to support housing supply, reduce building costs, ensure there are enough skilled workers and improve the sector鈥檚 productivity.

Flanked with a dedicated Task Force, Jorgensen will be supported by the financing power of the European Investment Bank. The European Parliament also wants to play a strong role in the game. A special Committee on the Housing crisis in the European Union has been created and will be chaired by Italian MEP Irene Tinagli. Amongst other tasks, this committee will investigate the potential barriers and bottlenecks affecting the construction sector and their impact on the housing crisis, map innovative initiatives, identify needs for potential reforms and make recommendations in a report due within 12 months.

But of course, the main question remains: without direct competency in housing matters, what can be done at the EU level?

Proposal

In a position paper published in December 2024, FIEC pointed out that, while housing policy remains under Member States鈥� jurisdiction, there is an urgent need for a coordinated EU response to address the shortage of affordable and sustainable housing.

Knowing that the overall regulatory environment and lengthy administrative procedures represent a huge burden for the production of housing, more consideration should be given to the option of reviewing EU rules, funds and policies that have an effect on national housing markets, with the aim of promoting simplification, streamlined processes, fair competition and economic growth to the benefit of all.

Looking at serial and industrial construction, which the European Commission would like to boost, FIEC acknowledges that it is part of the sector鈥檚 future and can help to some extent to remedy the low productivity, by speeding the process and cutting some costs. Ideally, such industrialisation shall aim at streamlining the overall construction process. With this transformation, the housing production will eventually become quicker, cheaper and safer, increase quality and offer a higher added value.

On the demand side, there is an urgent need to put in place measures for ensuring households and young people access to affordable housing via financial and fiscal incentives, providing easier access to loans and mortgages.

While public funding is very constrained, it is also necessary to attract private investments in new housebuilding projects by easing prudential requirements for credit. Indeed, investing in housing projects should not be considered as riskier or less attractive than other activities.

All in all, the coordinated action of the EU and Member States can play a leveraging role and attract more market-based developments, in addition to social housing programmes.