In its 5 December economic report, Statec talks about a “clear cooling in house prices.” On the face of it, after years of price explosions, one might be tempted to welcome this news. Unfortunately, it goes hand in hand with the risk of leading to a drop in private investment in new construction projects, aggravating, in the medium term, the housing crisis in Luxembourg.

Wouldn’t it be the right time for a public actor, such as the City of Luxembourg, which is at the epicentre of this housing crisis with the highest prices in the grand-ducal market, to invest massively in order to support construction activity on the one hand and to build up an affordable rental stock worthy of the name on the other hand?

Statec notes that “various factors--rising interest rates, higher construction costs than selling prices--are likely to weigh on real estate investments.” At the press presentation, it pointed out that there were “fewer construction projects,” showing that building permits for residential construction at the end of the first half of 2022 were at their lowest level (in terms of volume to be built) for almost 10 years. As a result, construction business confidence is also in the doldrums and is currently at a level comparable to autumn 2020, when we were in the midst of the covid-19 crisis.

VEFAs are collapsing

The industry complains that VEFA [sale in the future state of completion] sales have collapsed because, with sales prices often indexed to the price index and interest rates having risen sharply, many interested parties are being turned down by the bank. Without pre-financing, projects are abandoned or postponed.

On 15 December, , secretary general of the Federation of Craftsmen, expressed his concern on RTL and repeated what had been announced at the general meeting of his federation on 22 November: “The sector estimates that, for the year 2023 alone, production will fall by 1,500 units, from 3,500 to 2,000 completed homes.” The order books of the construction industry are still full, but by the summer of 2023, the sector is likely to be hit hard. Here too, morale is at an all-time low, with “almost seven out of ten companies [saying] they are in a crisis situation.”

The calculation is quite simple: if these 1,500 houses are not built, they will be missing!

Indeed, players in the construction sector will not be able to simply build these extra houses when the situation has improved. They would already today have neither the capacity nor the manpower to build 1,500 additional dwellings per year.

After a crisis in which some players risk disappearing and a certain number of workers risk going back to their country of origin for lack of work in Luxembourg or moving to other less strenuous areas of activity--a phenomenon observed in the horesca sector after the covid-19 crisis--it is to be feared that the players in the construction sector will be all the less capable of doing so.

Time for a public investor?

What if, for lack of private investors, a public investor stepped into the breach?

We are in a period of budgetary closure in the good city of Luxembourg. As every year, the budget provides for some €30m of investment in real estate to create housing, especially social and affordable housing. This is not much if the political ambition is to create a substantial affordable rental stock. It is true that, unlike the rules governing the state budget, the municipal council can vote for an investment beyond the budgetary framework at any time, if the opportunity arises. However, the City of Luxembourg’s rental housing stock remains meagre with 738 dwellings (if one does not count furnished rooms). The College of Aldermen boasts of a 50% increase over the course of the legislature (at the beginning of the legislature, the City of Luxembourg owned around 550 dwellings). That’s some 30 additional dwellings per year, what a great success!

The City of Luxembourg would be an ideal actor, especially since it has the financial means to intervene. It has budgetary reserves of--brace yourself!--€1.1bn. A massive investment would be possible, especially if there are building projects waiting to be implemented. In such a situation, the City of Luxembourg is even in a strong position to negotiate prices. In the current situation, it has a unique opportunity to quickly build up an affordable rental stock at an acceptable acquisition price, while supporting the craft industry.

The projects are there, the money is there, we are looking for the political will!

This article was first published in . It has been translated by Delano.