Rising property prices, soaring construction costs, towering demand and restricted supply are threatening the grand duchy’s economy, the IMF said.

“In addition to posing medium-term financial stability risks, the rapid pace of housing price growth is affecting affordability, and, if continued, could reduce Luxembourg’s attractiveness for workers,” the IMF stated.

“Efforts to boost housing supply, including for affordable and social housing, and reduce speculation through higher taxation of unused land and empty dwellings are welcome.” However, the organisation recommended several policy measures to more significantly alleviate housing pressures. These included tax changes such as “phasing out deductibility of interest payments” and “limiting the eligibility for exemptions from capital gains tax on inherited properties to 1-2 years.”

The IMF called for urban planning changes such as “constructing higher, ecologically sustainable buildings with greater density”, “decentralizing activities to rural and regional development centers” and “promoting remote work”, and “streamlining burdensome administrative processes” for obtaining construction authorisations.

The comments came as part of the IMF’s recently released of the grand duchy’s economy.

The IMF similarly called for property market reform in , , and .

Economy more or less on track

The Washington-based outfit said on 11 March 2022 that overall Luxembourg’s economy had “recovered rapidly” from the pandemic and its financial sector was “resilient”.

In addition to housing costs, the IMF flagged rapid inflation and long-term unemployment as worries. In the financial sector, volatility in the wake of the Russia/Ukraine conflict and profitability pressures are “sources of concern”.