High house prices are hurting young people, vulnerable groups and the European economy. Solutions to the housing crisis include expanding supply with faster and cheaper construction, more financing and less red tape.

The best way to tackle the problem is to increase the supply of housing. However, the pandemic further exacerbated the imbalance between supply and demand by making it difficult for developers to get the permits, materials and people needed to build new projects. Residential construction slowed, and it was further weighed down by the higher interest rates governments put in place to tackle inflation, which spiked after the pandemic because of supply shortages and high energy prices caused in part by Russia’s invasion of Ukraine.

Residential building was much more active in the 1990s and early 2000s. The global financial crisis, caused in large part by the unravelling of the US mortgage market, gutted investment in new construction. “It really never fully recovered,” Sinnott says.

The limited availability of new land in urban areas further complicated residential development. European city centres are already dense, and many of them have natural barriers such as parks or green spaces that make it difficult to expand.

The construction sector also needs a revamp. While some big builders exist, they contract out much of the work to smaller firms, which have difficulty finding workers with the right skills. These smaller firms suffer from low productivity and don’t necessarily have the means to invest in digital tools or training that could make building more efficient. Roughly 75% of construction firms in the European Union do not invest in any kind of innovation activity, according to the Investment Report. “These are very small firms,” Sinnott says. “They may not even have a computer. They are living from project to project.”

A host of companies in Europe are developing innovative technologies and materials to deliver better-constructed homes faster. The construction sector needs more support in integrating these new technologies into their projects.

To offset high prices and sluggish supply, about half of EU countries provide some form of regulated social and affordable housing – although the regulations and people who qualify differ widely. The biggest programmes are in Austria, Denmark and the Netherlands (20% of the housing stock), while slightly smaller ones exist in Finland, France and Ireland (10-20%). Central, Eastern and Southern Europe provide the least social housing. In all, 14 million dwellings in the European Union can be considered as social housing, but their share of total housing declined steadily over the last decade, dropping three percentage points to 8% in 2021.

The result is prices that far outpace growth in incomes.

• Read all of our Invested in Housing series.

Housing and rental prices have surged steadily since 2010, even accounting for dips in 2011 and 2013 caused in part by the European debt crisis. From 2010 until the end of 2024, rents increased 26.7%, while home prices rose 55.4%. Some of the fastest rises were in Hungary (234%), Estonia (228%) and Portugal (120%). Italy was the only country to see prices decline (-4%).

For those who already own property, ballooning house prices have been a windfall. Fratto, who co-authored the EIB Investment Report section on housing, says that this wealth creation has benefitted low-income homeowners as well, particularly since housing tends to make up a large share of their assets. “Homeowners benefited a lot from the increase in house prices because they saw huge increases in their wealth,” she says.

Meanwhile, those with second homes in tourist hotspots have profited from rising values and lucrative rental markets. “For some people, like those providing accommodation, having a second home that you can rent has been a huge benefit,” she says.

On the flip side, young people, renters, and first-time buyers are finding it increasingly difficult to get a foot on the property ladder. Even in countries where prices remained relatively constant, barriers like hefty down payments exclude many would-be buyers. In Italy, residential prices have been stable, but downpayments that average around 35% of the purchase price keep homeownership out of reach for many.

Overall, the share of young people and low-income groups that own their own home slid in the last two decades:

• Ownership rates for 24-to-35-year-olds decreased 5.9 percentage points from 2005 to 2023 (to 58% in 2023 from 64% in 2005), compared with 0.8% for the overall population.
• Ownership rates for low-income households fell 9 percentage points (to 62% in 2023 from 71% in 2005).

People who have moved to other parts of the European Union are also penalised. Among people who relocated to an EU country less than ten years ago, 18% own their home, compared with 69% of people were were born in that country. That gap persists for years after arriving in the new country. More than two decades after relocating, 40% of non-native residents own their home, well below the home ownership rates for locals, according to the EIB Investment Report.

That's a sign that people who move for economic opportunity – which is, after all, a good thing for Europe’s economy – end up being financially penalised.

The solution sounds simple: build more homes. But building more homes, quickly and relatively cheaply, faces obstacles that vary from place to place:

• Construction needs more innovation and investment to improve productivity. Construction needs to adopt more efficient ways of procuring materials and building, using more modular designs that allow for quicker construction, mass production that uses robotics, and innovative, new building materials that improve energy efficiency and cut emissions. Public money used to fund housing projects could be directed towards these kinds of construction, providing more stable demand. That would enable construction firms to invest in plants and equipment that would make increase their output and bring down costs.
• Regulatory barriers and the lengthy permit processes slow down residential projects. Housing construction is subject to regulations at the EU, national, regional and local levels, resulting in a high degree of complexity and reams of red tape. Harmonising regulations and encouraging standardised measures of building performance (energy, for example) would foster innovation. More land also needs to be made available for residential development, which would facilitate large-scale housing projects.
• More investment is needed in energy efficiency and building renovation. The density of many European cities means that we need to make the best use of the housing we already have by renovating old and dilapidated homes and apartments. Refurbishing buildings would improve living conditions and bring down energy costs. Renovations are expensive, however, particularly for homeowners. We need new, innovative ways to finance energy efficiency investments.
• Social and affordable housing needs more money and a better regulatory framework. New financing models could be used to attract investment, but they need to be paired with public policies that aid the development of social and affordable housing. Many countries lack the legal and policy framework that would encourage the creation of affordable housing providers, although they are trying to develop these frameworks based on guidance provided by other EU countries. Finding new ways to blend grant funding with commercial funding will also help leverage private capital.

The European Investment Bank has financed nearly a half a million social housing units across 16 countries since 2018 – including the Irish housing association that built Anselm Leahy’s new apartment. But we, and everybody else, need to do more. The housing crisis is increasing inequality and limiting opportunities for an entire generation of young people. “It creates all these intergenerational issues,” Sinnott says. “You have problems providing basic public services. You block people out of a source of wealth. You prevent needed migration.”

“The housing crisis,” she says, “fundamentally puts Europe’s economic and social model under strain.”