House and apartment prices have decreased by 6.4% over the last twelve months. Nevertheless, persistent high prices and interest rates continue to cause uncertainty in the market, which has implications for those who rent. After increasing by 6.7% over the last year, the Housing Observatory says that rental costs are now beginning to stabilise.
While non-furnished apartments remain the norm in Luxembourg’s rental market, the proportion of furnished apartments for rent has increased over the past ten years, making up 11.6% of all advertisements in 2022. Prices for furnished apartments climbed by 76.5% over the last 12 years. Unfurnished apartment rates went up by 59.4% within that same time frame.
Another study by the Housing Observatory has analysed prices over a longer period, going back to 1975. In the last 50 years, there were four periods where prices increased drastically before falling again.
The first substantial and continuous increase in housing prices was slowed by two petrol crises. To give one example, prices increased by around 20% between 1975 and 1976.
The next long period of price increases was seen across eight years: from the middle of the 1980s until the beginning of the 90s, a period during which a strong economy led to considerable population growth. The market was slowed by an international labour crisis and mortgage interest rates of between 6.5 and 8.25%.
The start of the new millennium saw another eight-year period of rapidly climbing prices, which came to an end as a result of the 2008 financial crisis.
That downturn did not last long, however. The thirteen years from 2010 have seen prices rise considerably across the housing market, in no small part fuelled by historically low interest rates. As of this year we are however seeing a decline in prices, again related to an increase in the cost of taking out a mortgage with rising interest rates.
These price cycles are however not a rarity in the housing market. What is harder to explain is the exceptional acceleration in prices seen over the last five years. A strong economy and associated population growth does not sufficiently explain why prices saw such a rapid increase.
One hypothesis is that these market developments made for an interesting prospect among traditional and institutional investors alike, with the latter increasingly seen investing in Luxembourg’s housing market. Brexit is also believed to have had an impact, leading to an increased interest in establishing a more permanent base in the Grand Duchy. Finally, there is the fact that there has only been a small increase in new construction since the year 2000.
