Chamber of Deputies

Housing Pact 2.0 tries to address affordable housing challenge

The Housing Pact 2.0 is an "important tool", but "will not be enough on its own" to solve the housing crisis, according to Julien Licheron, a researcher at Liser. Shutterstock

The Housing Pact 2.0 is an "important tool", but "will not be enough on its own" to solve the housing crisis, according to Julien Licheron, a researcher at Liser. Shutterstock

After the failure of the Housing Pact 1.0 to encourage the construction of affordable housing, version 2.0, adopted Wednesday in the Chamber of Deputies, will attempt to meet the challenge. In particular, it will make the payment of state subsidies to municipalities conditional on the actual construction of affordable housing.

The Housing Pact 2.0 (Pacte logement 2.0), version 1.0 of which expired at the end of 2020, was adopted on by MPs on Wednesday . The question is whether this second version will be more effective than the first in combating the housing crisis.

Because the more or less €40m per year paid by the state to municipalities in the framework of the Housing Pact 1.0 has far from changed the situation in the country. And for good reason: "Only 2.2% of the expenditure has directly supported the creation of housing", says the report on the Housing Committee's bill, with the rest going mainly to public infrastructure such as schools, crèches and swimming pools. “Housing Pact 1.0 has therefore largely failed to achieve its objective of contributing to the creation of affordable housing.

Yet this is the "big challenge" for Luxembourg. Hence a "paradigm shift in financial terms" with the Housing Pact 2.0: conditioning the payment of state subsidies to the actual construction of affordable housing by local councils.

State-commune partnership

An agreement, signed between a municipality and the state, defines the measures to be carried out by the municipality and the terms of payment of the subsidies. An annual assessment is then made to evaluate the progress of the various projects. It is then decided whether or not to renew the agreement.

A "housing advisor”--another new feature of this pact--will help the municipality to draw up this assessment. He or she can be an external expert or a municipal employee and will generally help to implement the pact at municipal level.

Another "paradigm shift" in the Pact 2.0 concerns municipal planning and urban development: for each "new district" created under a special development plan (PAP), a defined share of the gross built-up area for housing (at least 10% from 10 dwellings) is reserved for affordable housing and transferred to the municipality or the state. In return, the building potential reserved for housing in the respective PAP is increased by 10% compared to the general development plan (PAG).

“Goes in the right direction”

This project "goes in the right direction" and the "logic is good", according to Julien Licheron, researcher at Luxembourg Institute of Socio-Economic Research. One of the strong points is that it targets a sector, affordable housing, and "an actor who has a good view of the field": the municipalities. However, argues the Chamber of Employees (CSL), this pact fails to make the municipalities "a 'big player' capable of competing with the large property owners and developers".

That said, although it is an "important tool", it will not be enough on its own, explains Licheron: "We are in a liberal market and the municipalities do not have a decisive economic role".

Thus, if the project "goes as far as it can", it will be a matter of not stopping there and accumulating other "small measures" which, "put together", could reduce the crazy pressure exerted on the Luxembourg housing market.