Housing in the European Union: Market Developments, Underlying Drivers, and Policies

Guillaume Cousin, Christine Frayne, Vítor Dias Martins and Bořek Vašíček ()

No 228, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: House prices have risen sharply across the European Union over the past decade, following cycles of boom, correction, and renewed growth, with recent increases driven by structural factors. This has outpaced income growth and reduced affordability, particularly in the context of higher interest rates, while underdeveloped rental markets often fail to provide effective alternatives. Housing demand is influenced by incomes, wealth, demographics, and mortgage conditions, with wealthier households and investors playing a growing role. Urbanisation, migration, and changing family structures continue to amplify pressures in cities with limited supply. At the same time, shifts in preferences, the rise of short-term rentals, and institutional investors have added to demand in specific markets, while climate risks are increasingly priced into assets. On the supply side, new construction has lagged behind demand due to regulatory barriers, sector inefficiencies, and labour shortages, with renovation often prioritised over building. Rising land prices, concentrated ownership, and restrictive zoning further constrain supply. Addressing affordability requires a comprehensive policy mix, balancing direct housing interventions with broader fiscal, macroprudential, and environmental measures. Evidence suggests supply-side reforms—such as land-use changes, social housing investment, and infrastructure improvements—are more effective than demand-side subsidies, which tend to inflate prices. Other tools, including rent regulation, taxation, and macroprudential measures, involve tradeoffs and distributional impacts. Given the complexity of housing policy and its multi-level governance, tailored approaches at EU, national, and local levels are essential.

JEL-codes: G51 R21 R31 R5 R52 (search for similar items in EconPapers)
Pages: 88 pages
Date: 2025-10
New Economics Papers: this item is included in nep-eec
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