The prospect of higher rents is preventing people from moving
Photo: Mike Zenari
Tenants in Luxembourg newly moving into a property pay 44% more than people who have been living in the same type of apartment or house for more than ten years, research by the central bank shows.
Rent increases are regulated in Luxembourg but because of quickly rising real estate prices, owners can demand more from new tenants than those who have been living in a comparable but older property, the BCL said.
Tenants who have been living in the same property for at least 10 years pay around €9,10 per month per square metre, compared to costs of €13.10 per month per square metre for people who have been renting for four years or less.
Every additional year, results in around €20 less per 100m2. “For example, if a household rents a 100 square metre apartment for five years and then moves out, they will usually have to pay an additional €100 per month for a comparable property,” the BCL said in its report.
This difference in price affects mostly young people or new arrivals to the country. It has also resulted in young people living at home longer, according to the BCL, as they save up to buy rather than spending years renting a property. The more difficult it becomes to enter the property market, the longer they will stay at home.
The BCL also found that owners have a tendency not to exhaust the legal limits to increase rent for existing tenants, saying this was due to rents already being high for the market.
If property prices--and the rents that investors charge--will keep rising, this will eventually lead to rent on older properties becoming below market average, leaving owners with three choices, the BCL said: Invest in the older properties to raise rent, wait for tenants to move to raise rent within the legal limits, selling the property rather than renting it out below market value.
The current market inequalities also result in tenants staying in a property even when the household shrinks--for example, because of divorce, children moving out, a death in the family--because a smaller flat would cost as much or more. In an already overstretched market, this means that what housing there is, is often used inefficiently, the BCL said.
Around 30% of households in Luxembourg rent rather than own their home, with an average surface of 80m2 for €924, according to 2010 to 2018 data presented in the report.
These prices contrast starkly with the €1,467 in average rent reported by the Observatoire de l’Habitat, but the difference can be explained by the fact that the housing monitoring body only takes into account properties available to rent (excluding those that have been occupied at cheaper rates for years or even decades by the same tenants).
This article first appeared on paperjam.lu and has been translated and edited for Delano.