The high cost of land remains the main driver behind rising housing prices in the Grand Duchy, a report by the Housing Observatory finds.

Between 2010 and 2021, land prices in the Grand Duchy have increased an average 8% per year, with a sharp +12% between 2018-2019 and a whopping +17% between 2019 and 2020. This figure dropped to 12% in 2020, marking the first time that annual building land prices rose at a slower rate than that of housing (15%). The cumulative increase was 136,5% for the decade overall.

The price of land makes up 31% of the housing price, with 28% for flats and apartments - but these figures should be taken with a grain of salt, as flats are usually located in more central areas and houses outside of the capital.

However, for a property developer in Luxembourg City, the price of land per m² would represent an average of 44% of the final price of the marketed home, compared to only 20% in Clervaux or Wiltz.

Despite regional differences, the cantons of Luxembourg (+16.4%) and Esch-sur-Alzette (+12.8%) have the fastest growth rates. Significant increases were also seen in cantons around the capital (Capellen, Grevenmacher, Mersch, Remich, Echternach). Below-average increases were seen in Clervaux, Diekirch, Redange and Wiltz - the cantons furthest away from the capital.

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Furthermore, the Observatory states that the majority of real estate in the Grand Duchy is in the hands of a small number of private investors. In 2022, the 1,000 private people with the most properties held more than 40% of building land in the country. When it comes to construction companies, the ten biggest enterprises held 48% of the combined land owned by businesses.

Despite these findings, Luxembourg's housing market is experiencing both a decline in advertised prices as well as lower construction activity. The government recently presented a €150 million euro plan to bolster the construction sector, but the Chamber of Skilled Trades and Crafts says these steps are not ambitious enough.

The segment most affected is flats under construction, which witnessed a staggering 72.5% decrease compared to the first quarter of 2022. Existing flats (down 41.5%), houses (down 42.9%), and building land (down 41.4%) are also facing a similar decline. Rental prices, on the other hand, continue to surge, with 11% in the first quarter of 2023 compared to 2022.