The OECD [1] has highlighted the lack of affordable housing as a threat to competitiveness and inclusive growth. Strong demand, driven by housing shortages, a growing and affluent migrant population, low interest rates on property loans and a speculative approach to real estate investment, pushed average Luxembourg houses prices to explode by 90.5% from 2010 to 2020 [2]. Prices are already out of step with average earnings. If this rate were to continue unchecked, by 2030, the median price per square metre for a house would reach €12,635 and almost €20,000 for a flat [3]. Given salaries are not expected to grow at the same rate, large parts of society would not be able to buy property.
Land speculation, in which owners hold onto plots until the value increases, has been blamed by the government for slowing the rate of construction of housing to meet demand. Because the land is there--in 2020, it was estimated there were 2,840 hectares of land fit for construction[4]. The OECD recommends introducing land value taxes for unused land that has been zoned for housing, or sanctions for failing to use building permits. “Higher recurrent taxes on real estate, based on up-to-date valuations reflecting the market price of the property, could also help to reduce the number of vacant dwellings,” it said.
Luxembourg’s “pacte de logement”, a housing blueprint which enters into force in 2021, aims to create more social and affordable housing by empowering communes to find solutions with state support. Among other things, it sets out a quota for 30% of all new housing projects to be composed of affordable and/or rented properties. To tackle land speculation, the document introduces stricter deadlines for developers between securing land and beginning construction. Local authorities, meanwhile, will also be able to combine smaller parcels of land together for construction.
Communes take the lead
Communes like Differdange have shown that it is possible to take the lead on innovative housing solutions. The Gravity residential project, expected to open in the centre of Luxembourg’s third-largest city in 2023, includes 80 affordable flats, starting at €309,000. Low-income candidates, the elderly and large families with a history in the commune will get priority.
The affordable housing firm SNHBM recently increased its output from 80 low-cost units per year to 350. Elmen, its landmark, low-cost village to accommodate around 2,000 people on farmland in the west of Luxembourg, was only possible through a collaboration with the commune. To avoid the kind of speculative investment that is outpricing modest homes from the market, buyers and renters in Elmen must live there. Eligibility is also dependent on earnings: the lowest earners receiving support, while there is a ceiling on income.
The firm’s approach of developing properties on land that is leased for 99 years, a system known as emphyteutic leasing, may conflict with an established idea that investment in a home is also a pension back-up. Nevertheless, it has proved popular and in November 2019, interested buyers camped overnight to be first in line for an affordable housing project in Alzingen.
Illustration: Sofia Azcona
SNHBM director Guy Entringer says the main barrier to being able to construct affordable properties is the cost of land, which can be multiplied by 10 or 20 the moment it is classified as constructable land in a general development plan (PAG). “I think it’s important public authorities become owners of the land first then integrate it into the constructable area. If we first integrate it into the constructable area, prices will be too high and we cannot offer houses at the prices we are used to,” he told Delano in 2020[5].
The SNHBM and communes are testing the market with models such as cooperatives, large apartments with small, private living quarters and large communal spaces for people who want to “live together and reduce costs,” Entringer says. In the capital, house-sharing has proved popular with young professionals already. In many instances, property owners convert living rooms into bedrooms to get maximum bang for their buck. The Esch-sur-Alzette local authority recently muddied the waters on this practice when it introduced strict rules on co-housing, meaning that people who are not related by family must sign a joint contract with landlords. The government has since intervened[6]. But it seems no satisfactory resolution has been found.
Renting
These models are not ideal for everyone, but they are a start for the growing section of society who can little afford rents in Luxembourg. The country’s housing observatory found that in 2018, among 20% of the country’s lowest earners, six out of ten households (around 18,000) were spending more than 40% of their income on rent. The most vulnerable tend to be single-parent households and those on fixed-term contracts.
The Mieterschutz, a tenants’ rights group established in 2020, is providing some support and lobbying power. Rents rose 2%-6% annually from 2019-2020[7] which, according to Mieterschutz co-founder Aldina Ganeto, means middle-income households are now being priced out and many households live in overcrowded accommodation. “They need to be earning €4,000 a month if you’re just one person. Imagine if you’ve two or three children and more rooms,” Ganeto said. Dramatic action will be needed in future to make the rental market more affordable particularly as the effects of the pandemic will impact renters for years to come. An imminent reform on lease agreements should remove some barriers for tenants and owners, establishing co-tenancy agreements and determining distribution of rent and charges. In future, agency fees will be split between tenant and owner while rental deposits will be capped at two months’ rent, as opposed to three.[6]
Location, location, location
Projects like Elmen could ease access for buyers and tenants by 2030, but only if they get the locations right. The OECD warned against urban sprawl, because it encroaches on the natural environment. While Elmen is located close to Capellen, an employment hub, the nearest train station is five kilometres away. Constructing further away from transport hubs places pressure on the country’s already stressed road network. According to GPS data for 2019[8], Luxembourg commuters spent 21 extra minutes per 30-minute trip in the morning, and 22 extra minutes per 30-minute evening trip. Government efforts to electrify private vehicles will not clear the roads and so it is shifting to a multimodal strategy for getting around, involving private and public transport. A game changer will be the planned fast tram, to be built beside the A4 motorway. By 2028, it will be carrying commuters between Esch, in the south, to the capital, in 14 minutes[6]. A large number of new jobs is expected to be created along the tram’s axis by 2030, notably in Foetz and Leudelange, giving options for people living in the south, where the population is denser, and over the border in France.
One of the country’s biggest developments, housing up to 10,000 people (of which 30% of homes will be affordable), will be on a former ArcelorMittal steel site in Esch-Schifflange[5]. Expected to be completed by 2040, it will be on the tram’s route and well served by buses, although with schools, offices and small businesses, the mini-town could potentially be self-sufficient. Other projects that will ease road congestion by 2030 include the expansion of Luxembourg City’s central train station by 2024, to boost train frequency, and several park-and-ride car parks close to train stations in Rodange (2022), Mersch (2023), Wasserbillig and Ettelbruck (2026)[9]. The north of Luxembourg, which is more sparsely populated, fares less well in the transport stakes. MP André Bauler (DP) complained in a parliamentary question, in December 2020, of growing congestion in the northern canton. It is currently served by a single rail line leading to Belgium. While tweaks to the national bus network could help in future, it will not combat cross-border traffic.
The cross-border population
Even if Luxembourg succeeds in stabilising house prices, it will always rely on a cross-border workforce, which is why the government is working closely with counterparts in neighbouring countries and communes to study and improve public transport. MMUST, a multimodal transport scenario modelling group tracking traffic movements and demographic projections to identify future gaps in infrastructure, forecasts an additional 287,000 new residents in the perimeter zone of Belgium, France and Luxembourg by 2040[10]. Currently, it says two-thirds of journeys in that area were made by car, 20% on foot and 9% by bus--a ratio authorities in Luxembourg and France will seek to transform over the next decade. Together, they have developed a multimodal strategy to create infrastructure and reorganise transport along the Metz-Thionville-Luxembourg line by 2030. This will include widening the motorway strategically for multimodal transport and creating car parks dedicated to car sharing, among other things.
Luxembourg is also working with cross-border authorities to improve links between poorly served suburban areas over the border and transport hubs “with high-speed buses, collective taxis”[11]. The key will be to make it faster and cheaper to take public transport than the car. It won’t be easy. If park and rides become fee-paying, as is the case of the Thionville-Metzange car park, cross-border workers will insist on driving to work.
Remote working, which is possible for half of jobs in Luxembourg[12], could also help lower congestion in these areas. As a post-pandemic prospect, however, it remains hamstrung by cross-border fiscal and social security regulation. Satellite offices in Luxembourg border towns are one solution that has already been explored by employers like Deloitte, which moved 230 staff to Esch-Belval in 2018. No doubt more will follow.
[1] OECD 2019 economic surveyof Luxembourg [2] Eurostat [3] Delano calculation based on 2020 Q1-Q3 figures from Immotop [4] Luxembourg government [5] Delano Newsmakers podcast [6] Delano reporting [7] Athome spring 2020 report [8] TomTom
[9] CFL [10] Modèle Multimodal et Scénarios de mobilités Transfrontaliers project [11] Greater Region Cross-border Operational Strategy 2021 [12] Becker Friedman Institute for Economics
This article was first published in the March 2021 edition of Delano Magazine