Luxembourg: Europe's Richest Country Grapples with Housing Crisis

Bullion Bite

Luxembourg, the wealthiest country in the European Union, is facing a housing crisis that is making it nearly impossible for some to live there. The crisis has become the number one concern in the Grand Duchy of 660,000 people, which is smaller than Rhode Island, the smallest US state.

Pascale Zaourou, a teacher and mother of three children, had to wait five years before being able to access coveted social housing. "On the private market, renting an apartment with two rooms costs at least 2,000 euros — it's difficult with only one income," she told a recent demonstration in Luxembourg City.

"Affordable housing is scarce, especially for young people and single-parent families," she said.

Antoine Paccoud, a researcher at the Housing Observatory, which compiles data guiding government policy, backed up that sentiment.

"More and more Luxembourgers are crossing the border to live in Germany, Belgium or France just because rents and property prices are lower," he said.

The situation is jarring for a country with a flourishing economy based around financial services. Net average earnings for a single worker in Luxembourg were 47,000 euros ($49,000) annually in 2022, according to estimates from the EU's statistics agency — the highest in the bloc.

A Crisis Overshadowing All Others

In the capital city, new-build flats sell for 13,000 euros per square metre (around $1,300 per square foot) and older ones go for 10,700 euros. The average cost of a house is 1.5 million euros.

Rents increased by 6.7 percent between June 2022 and June 2023, much faster than the inflation rate of 3.4 percent over that period.

Philippe Poirier, a political analyst at the University of Luxembourg, told that housing has become "the question that overshadows all others" at the legislative elections.

He ticked off "the scarcity of housing and land, the cost of construction or purchase, and the high rents" as the key problems.

A Complex Problem

The structural problems with housing in Luxembourg run deep and changing them will not be easy.

Paccoud said a lack of inheritance tax and only symbolic duties have encouraged owners to sit on land without developing it.

"0.5 percent of the resident population, or 3,000 people, own half of the buildable land," he said. "These owners are holding on to their land as long as possible because prices are increasing."

The economic opportunities on offer also bring in droves of foreign workers, which helps drive up the cost of the limited housing pool. Around half the people living in Luxembourg are not citizens of the country.

There is a wide gulf in terms of home ownership rates between native Luxembourgers, at 80 percent, and foreign residents at just 50 percent.

While many Luxembourgers have nearly guaranteed jobs working for state institutions, foreigners have to deal with the changeable job market.

"Those who are at the bottom of the scale in Luxembourg are rather the resident foreigners," Poirier said.

As a result, and despite the high salaries and an official minimum wage of 2,571 euros a month, Luxembourg ranks in the top three in the eurozone in terms of risk of poverty for single-parent families with one income, according to a recent report by the Chamber of Employees.

Potential Solutions

The two major political parties hoping to spearhead the next government have pledged action.

Prime Minister Xavier Bettel's Liberal Party promised to create a super-ministry for housing, wants to tax vacant properties more, and invest in social housing.

Socialist leader Paulette Lenert — the health minister in the current coalition government — is pushing for huge investments in affordable housing.

However, it remains to be seen whether any of these measures will be enough to solve the housing crisis in Luxembourg. It is a complex problem with deep roots, and there is no easy solution.

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