The housing crisis in Europe: why have homes become a luxury, and what are the authorities doing about it?

Arik Shabanov. PhD in Law. Expert in real estate investment. Managing Partner at Prime Legal.

The European housing market is experiencing not merely a temporary glitch, but a full-blown structural crisis. Homes and apartments are becoming increasingly unaffordable for the middle class, while rent has turned into a significant financial burden—even for high-earning professionals. We examine the mechanisms behind this crisis, how the situation varies from country to country, and whether Europe has a genuine chance to restore housing to the status of a "basic necessity" rather than a "luxury."

What went wrong: the primary drivers of the crisis

At the root of the problem lies a persistent imbalance: demand consistently outstrips supply, a gap that has remained unbridged for years. The causes are not isolated incidents but systemic issues, which combine in different ways depending on the country.

Supply shortages. In many major cities, the volume of new construction has chronically failed to keep pace with population growth. This is not a matter of simply failing to build a few city blocks; it is a long-term lag that has compounded over time, much like a snowball effect.

Rising demand driven by migration and urbanization. Berlin continues to attract professionals, remaining a hub for the European startup ecosystem. In Spain, there has been a notable influx of migrants from Latin America throughout 2023 and 2024, while the arrival of students adds further pressure to the market. Demand is being fueled by several distinct groups, all of whom are seeking housing simultaneously.

The tourism factor as a hidden "consumer" of housing stock. In Spain and Portugal, short-term rentals—facilitated primarily by platforms like Airbnb—have effectively removed a significant number of apartments from the long-term rental market. For local residents, this means that housing is not just becoming more expensive—it is also becoming physically less available.

Long-term consequences of the past. In several countries (such as Spain), the 2008 mortgage crisis left a lasting mark: many development companies collapsed, and investor confidence in housing as a "reliable" asset class was shaken for a long time. Recovery has been slow, and even now, the industry has not returned to its previous pace of construction.

Financial and infrastructural barriers. Rising interest rates and stricter mortgage terms are making home purchases less accessible. At the same time, construction costs are climbing, and the supply of land suitable for development is shrinking. Compounding this are bureaucratic hurdles: in some countries, obtaining building permits can take years.

Europe is not a monolith: what are the specific dynamics?

Despite a common trend, the situation varies significantly from one country to another.

• Mediterranean countries (Spain, Portugal): Here, the tourism factor and short-term rentals take center stage. In popular locations, the housing market effectively serves tourists rather than local residents.
• Northern European countries: The impact of migration and the growth of the technology sector is more pronounced. In cities with well-developed IT and startup clusters, demand is driven by high-earning professionals, which further pushes up prices.
• Countries with strict regulations: In these nations, bureaucracy is the primary barrier. Even when there is demand and capital available, project implementation is stalled by lengthy approval processes and development restrictions.

What are the authorities doing, and will it work?

Governments are attempting to respond, but their solutions run up against the same systemic barriers: capital, time, and bureaucracy. Construction of affordable and social housing. This is the most obvious yet simultaneously the most difficult path: it requires substantial investment, long implementation timelines, and the overcoming of land-use and administrative constraints.

• Rental regulation. Some cities are imposing caps on rent increases and restricting short-term rentals in particularly strained areas. While this may temporarily alleviate pressure, it does not solve the underlying problem of scarcity.
• Support for alternative models. The development of housing cooperatives and other forms of collective ownership is a promising, albeit currently niche, approach. It requires time and institutional support.
• Coordination at the EU level. Mayors of major cities are increasingly calling for a more active role from the European Union—such as the creation of a pan-European plan, the allocation of targeted funds, and support for public-private partnerships.

Scenarios: from stabilization to social tension

Future developments depend on whether—and how quickly—a balance between supply and demand can be achieved.

• An optimistic scenario: systemic reforms (accelerated construction, sensible regulation) gradually ease the severity of the shortage, prices stabilize, and social tension subsides.
• A pessimistic scenario: if measures are delayed or fragmented, the imbalance will persist. This will continue to drive prices upward, exacerbate social inequality, and potentially become a source of political instability. There are already warning signs: the unaffordability of housing is forcing people to delay starting families and, in some cases, is leading to serious psychological issues.

Overall, the housing crisis in Europe is not an isolated event, but a structural problem that requires a comprehensive, long-term approach.