A floundering response to the unsustainable cost of housing

Saying that the cost of housing in Luxembourg is unsustainable is about as novel as putting butter on your cheese sandwich before the cheese. I'm sure there's some madman out there who likes to slap their cheese on a dry slice of bread and then proceed to butter the cheddar, but on the whole it won't be common practice. Common knowledge, however, is that renting and buying in Luxembourg are both ludicrously expensive.

Salaries aren't keeping up with the cost of housing

In an article we published earlier this week based on a report from our TV colleagues, we included data to show that rents in some areas increased by as much as 170.96% (Niederanven) between 2010 and 2020, while Luxembourg city saw a comparatively modest - but realistically anything but - increase of 115.49% during that same period.

Looking at the example of Niederanven, announced rents per square metre in 2010 were just shy of €15 per month - by 2020, it had reached nearly €40. If we assume that you're looking to rent a standard 2-bedroom apartment of 75m2, that means you'd be paying around €1125 in 2010, but €3000 just a decade later.

Salaries have of course increased as well, but have they kept up? Not at all. According to Eurostat data, the average full time adjusted salary per employee in 2010 stood at €54,797, and by 2020 it had increased to €67,890. That's a salary increase of just under 29%.

If we go back to that 75m2 flat in Niederanven, that means your annual rent in 2010 would equal 24.6% of your gross (pre-tax) salary. By 2020, rent would make up a considerably higher 53% of your gross income.

Niederanven is a bit of an extreme example, though, so let's look at the national average. In 2010, the average announced rental price per m2 was €15.18, and by 2020 it stood at €32.04. That's an increase of 111%.

For our average earner, they were spending 24.9% of their gross income on rent in 2010, but 42.5% in 2020 - an increase of 70.68%.

That is of course only if they're renting the hypothetical flat alone, but still it rather puts the crisis into perspective, doesn't it?

Unsurprisingly, this situation hasn't gone unnoticed by our elected politicians, nor anyone else. But what solutions have been put forward, and will they work?

A leaking price cap

If you've stayed on top of the news lately, you will have heard of the now infamous price cap amendment that was put forward in October of last year. It was, understandably, met by both confusion and criticism (also here).

The idea of a price cap is not new in and of itself, instead what's been put forward is an amendment to the cap. This amendment is part of a larger overall bill, which housing minister Henri Kox stated has the goal of providing "better protection for tenants."

The cap amendment, however, seems rather to do the opposite. In an RTL Fact Check article, we found that the maximum chargeable rent would increase considerably as a result of the draft reform bill.

While First Councillor at the Ministry of Housing Mike Mathias argues that it is market forces rather than rental caps that decide rental rates, with caps in place with the purpose of limiting 'excessive tendencies', I think it safe to say that raising the cap will certainly not have the effect of making housing more affordable or 'protect tenants'.

The market is the problem

Mathias is, however, right in implying that the market is the issue. Luxembourg thrives in no small part by attracting talent from across the world with the promise of a high quality of life and hard-to-beat salaries seen in few other places. Yet that quality is deteriorating for many, as the cost of living increase fuelled by a malnourished housing supply eats ever larger chunks out of workers' paychecks.

As my colleague Christos Floros points out, not enough is being done on this front. House prices are through the (very expensive) roof, yet forecasts show that fewer homes will be built in the next couple of years than the past few. Meanwhile, the cost of building new homes far outstrips the rate of inflation.

Back in 2019, I opined on the many issues of suggesting flatshares as a solution to our housing problem, which at the time has been put forward as a 'novel' solution by a local politician. Unfortunately things have not improved over the past three years, and earlier this month we had a report on a non-profit that offers shared living as a means to combat the housing crisis.

I take no issue with this organisation, but rather with the sad reality that this service is needed in one of the richest countries on Earth.

The simple truth is that we need more housing, but every aspect of building in Luxembourg means new and old properties alike are priced beyond the realms of financial possibility for a large swathe of our inhabitants. You can cut out all the avocado sandwiches you want, buy miserable eggs from battery farm chickens, rely on public transport to get around - the fact remains, if you are paying in excess of 40% of your income on renting a home, saving up to buy in a market with ever-increasing prices may never become a possibility.

What we need is more housing, and some mechanism of control over the careening cost of both building and renovation, with further incentives for first-home purchasers. Yet this is not on the horizon.

Instead, we're getting a price cap that isn't a cap, and a reduction in the number of new constructions. Anyone with a basic grasp of economics will tell you that reducing the inflow of new supply while keeping or increasing demand will lead to increased rents, rather than making it more affordable.

Sounds like that price cap may just come in handy after all, for how can we maximise profiteering with the current, lower, ceiling?