White chairs leaning on a wall, Luxembourg.
There is a tiny house in the neighbours’ garden. It is not any taller than 60-70 cm. It is green — it perfectly blends with the surrounding landscape of green shades of grass that build uphill. It has a porch facing eastwards, ideal for morning coffees and where to look for shelter in sunny afternoons. A Chartreaux cat quietly observes it from a distance.
It is the perfect house, a projection of the desire of many in a country where it is hardly impossible to aspire buying a house with a garden and all the comforts to call it a place of your own. Paradoxically, this green, wooden structure is too tiny for any child to enter and play with it.
Who would have accorded the volume to build this wee dependance and exploit a single terrain twice? These four walls — with an upstairs granary — must be kept well hidden from the public administration. And, what kind of cows should this reality sustain?
What I know for sure is that this tiny house in the neighbours’ garden enjoys a vantage point on possibly the most amazing sunsets and the clearest starred skies in Luxembourg.
Luxembourg's ridiculously high housing costs
As a young adult, I look at the ridiculous amount of money that from my monthly salary feeds into covering for rental costs. Will I ever afford a house in this country? Am I ready to start a mortgage I will pay for the next thirty years? The answer is no. Will I ever be? I really do not know.
This is the Luxembourgish reality. You are economically independent, yet you do not earn enough to be able to make lifelong plans. Buying an apartment to eventually resell it does not sound very appealing.
After some personal research and reasoning, I comprehend that land use might take me a step closer to develop an understanding of some of the basic rules of the housing crisis in Luxembourg, if not be the root cause of this tangle.
Luxembourg's poor policy-making response
There certainly are plans out there that regulate land use in terms of sustainability. First among all is the PAG (Plan d’Aménagement Général) “version 2011” or “new generation” which determines the construction volumes and ensures that there is a good blend of different living and working spaces (single-family homes, flats, studios, offices, shops, etc.). This measure was taken following the unprecedented economic and demographic growth of the last ten years. According to Michel Zimer, Head of Credit Process Management at Spuerkeess, the population increased by nearly 24% in ten years (from 512,029 in 2010 to 634,730 inhabitants in 2020, that results in 122,701 more people to be housed).
On top of this, the PAP (Plan d’Aménagement Particulier) defines the type of land use. The PAP NQ (Nouveau Quartier) is dedicated to areas yet to be urbanised, while the PAP QE (Quartier Existant) to already urbanised ones.
Is enough potential land for accommodation purposes made available in Luxembourg? The answer was yes in 2021, and possibly still is. 5,018 hectares per year are destined to this end. Well, let’s now say that the (64.2%) of the building land for residential use is owned by a number of private residents who make up 0.5% of the Grand Duchy’s population.
The unrivalled monopoly of a few on the housing market
Efforts to mobilise the building spaces, go under the name of the Housing Pact 2.0 (Pacte Logement 2.0). State subsidies are paid for the actual construction of affordable housing by local councils. A special development plan (PAP NQ) is created, where the building potential reserved for housing is increased by 10% compared to the general development plan (PAG).
Large property owners and developers preserve their role as the main players in this game, where they remain uncontested. Max Leners, lawyer and General Secretary of the Robert Krieps Foundation, explains that from a fiscal perspective there are no differences between a first-time buyer and a real estate investor from a SICAV-SIF (Société d’Investissement à Capital Variable-Specialised Investment Fund) since 2014. The accelerated amortisation scheme — a 5% rate is applied on new properties for the five years — also encourages this kind of investment. This category of local investors have never stopped buying properties. On the other hand, local and historical real estate agencies manage the vast majority of residential land, that they bought when terrains were not that expensive. This makes them the creators of the majority of development projects, where they can maximise their profit.
The annual household surplus
STATEC projections indicate that between 5,600 and 7,500 additional housing units need to be created each year, depending on the economic growth scenario examined. However, only 3,987 homes were completed in 2018, with an annual household surplus of 5,390. This shortage of newly built household evidently shows that the supply does not meet the demand.
A record-low interest rate environment allowed many to buy a property in the last ten years, borrowing higher amounts while keeping the same monthly repayment. The value of the property they bought has exponentially increased ever since.
The LISER (Luxembourg Luxembourg Institute of Socio-economic Research) recognise Luxembourg’s regulatory context as facilitative of private land-based wealth accumulation strategies, that are sustained by private interests, low taxes on land and inheritance.
Their findings confirm that the vast majority of the land zoned dedicated to residential purposes is in the hands of a small number of private individuals and companies. House prices have grown taking homeownership off the table for an increasingly larger portion of the population. Living in Luxembourg is no longer an option for many.
White chairs leaning on a wall with vases, Luxembourg.
Will the bulle immo ever be popped ?
We wish housing prices will decrease some day. But what are the chances that the bulle immo will get popped? It will eventually happen, right?
The Observatoire de l’Habitat mentions that the prices have not stopped rising in the last twelve months. They registered last June that the average price per m2 rose by 8.2% in the last year with regard to new properties for sale, and by 2.4% in terms of existing properties.
Yet, the sensationalistic RTL does not fall short of regularly reassuring us that the housing market will change some day. The sales are dropping (-17.3% in the last year), more properties are made available on the market, the demand is decreasing, majorly due to inflation. Pierre Clément, Nexvia's CEO, explained: “Prices have increased by almost 50% in the last three years. This, even if we were talking about a 5, 10 or 15% correction, in reality it would be a fairly small adjustment. It would take us to levels similar to 2020-2021.”
Their source also declared that the volume of properties on sales has augmented by 60% in the last months. This adds up to the important fact that interest rates (thirty-year fixed rate) have risen from 1.4 to 3.5% last June.
The property mobilisation tax for a fair land use
The government have finally intervened in the housing crisis, that sees the populations that have arrived in the country in the last ten years mainly at loss. We can see that the efforts of the government coalition led to some results. The property tax bill presented on October 7th includes a property mobilisation tax. The mobilisation tax will distinguish between land that is immediately available for construction and land where there are ongoing roadworks, public and collective infrastructures before it can be built upon. The Minister of Interiors, Taina Bofferding, resolutely stated: “It is unacceptable that owners do not build housing on their land, even though it is intended for this purpose, while more and more people, young people, families, can no longer afford to live in Luxembourg.” This tax will be between 9 and 11% depending on the municipality and should be high enough to persuade land owners of undeveloped plots to be build on them.
The website of the Ministry of Internal Affairs informs that the property tax reform will apply not any earlier than in 2026 — this information is not very encouraging. It also looks like not all the municipalities have updated their PAG. Only 72 out of 104 communes have done so today. All communes in 2011 were advised to revise existing plans, two of which date back to 1937. The procedure takes between 11 and 14 months.
The bill includes a compulsory levy on unoccupied accommodation, that will replace the 2008 municipal tax on unoccupied accommodation. A residence will be considered unoccupied if no person is registered in it for a period of 6 months. The tax will amount to 3,000€ per residence and will increase by 900€ per year to a maximum of 7,500€.
The new law gives hope that things will change, showing that the government seems sensitive to the housing crisis. We will certainly have to be patient. May the reform be truthfully implemented, and bring about an actual solution to a situation that hits many that work and live (or wish to live) in this country.
Sources (in alphabetical order): Delano, gouvernement_lu, Fondation Robert Krieps, LISER, Luxembourg Times, Observatoire de l’Habitat, RTL, Spuerkeess, STATEC.