Luxembourg’s Housing Situation: A Double Crisis or the New Normal?

By Eva Zastawnik, Charlotte Kieffer, Theo Delvaux and Timon Tsapanos

Source: Stock Picture

Imagine earning €3,000 a month, then crossing a border each night because the country that pays you won’t house you. In Luxembourg, salaries shine while square metres cost gold. Young people look to Arlon, Thionville, and Trier as the city cranes keep swinging over Kirchberg. 

This article dives into Luxembourg’s housing crisis and why prosperity hasn’t opened the door.

Luxembourg may have the highest GDP per capita in the world, and yet it remains one of the toughest places to find a home. As Fondation Idea mentioned, in the 2000s, real estate costs continued to weigh heavily on low incomes and increasingly on middle incomes. Two decades later, the pressure is even greater: rents are surging rather than cooling off. Indeed, the official rent index rose 1.7% year-on-year in Q1-2025, which is broadly in line with inflation. Luxembourg City is the prime example of this phenomenon. 

For young adults, students and lower-income households, the issue is severe enough to push many towards neighbouring countries for relief.

The 2024 elections

The housing crisis dominated the 2024 elections and remains at the top of the political agenda for the new coalition. In 2024, housing Minister Claude Meisch called it a “double crisis”: a severe shortage of homes colliding with a slowdown in new construction, as higher interest rates make both buyers and developers hesitate. Yet Prime Minister Luc Frieden recently declared that “the construction crisis is mostly behind us”, revealing a striking contradiction at the top of the government over how severe the sector’s troubles really are. Nevertheless, the state is stepping in with subsidies, land mobilisation and bulk purchases of housing to stabilise the sector.

The real question is whether these measures will be enough to ease a housing shortage that has been decades in the making or if this is becoming Luxembourg’s new normal.

Supply Problem

Luxembourg’s housing market has long been marked by a sharp imbalance between demand and supply, a persistent housing deficit. The population has risen by about 30% since 2010, primarily due to immigration, which is one of the fastest rates in the EU. Each year, more than 7,000 new households are formed, yet fewer than 4,000 homes are built. As Housing Minister Claude Meisch put it, “More people have moved to Luxembourg than we have built homes”. 

Economic growth has amplified these pressures. The country’s thriving financial sector and high wages attract workers, pushing up demand for housing.  High-earning professionals, often in banking or EU institutions, have had the purchasing power to drive prices upward. At the same time, nearly 228,000 cross-border workers, about 47% of the labour force, commute daily from neighbouring countries because they cannot find or afford housing in Luxembourg.  This dynamic highlights not only strong demand but also deep structural barriers on the supply side.

Land availability itself is less of a problem than land use. Large amounts of buildable land are withheld from the market by owners speculating on rising values, while municipalities often restrict higher-density construction. Between 2010 and 2021, house prices surged by 135%, compared with around 42% in the euro area. Investors have seized control of the housing market. Between 2015 and 2021, more than 40% of new apartments went to landlords or speculators, while just 0.5% of the population holds half the country’s building land. Meanwhile, construction costs have soared. Paul Nathan, vice-president of the Chambre des Métiers, cited the international “polycrisis” of recent years, from the pandemic to the war in Ukraine, as drivers of sharply higher building expenses. Energy and material price surges, coupled with rising inflation and interest rates, have made financing new projects increasingly difficult. “That led to a crisis in the real estate sector,” he noted.

Social Housing

These structural strains are compounded by the fact that social housing accounts for only about 2% of the stock, one of the lowest shares in Europe. The Fonds du Logement followed a modest 2023, when it released around 80 properties to the market, with plans to add 250 new homes in 2024. Yet this remains far below what is required to meet demand. For many households, especially younger and lower-income residents, housing has become increasingly out of reach.

Luxembourg is increasingly adopting a more comprehensive strategic approach regarding its housing policies. Previously, local authorities and municipalities operated within a more rigid framework and had little to no incentive to plan affordable housing. As a result, planning often favoured expensive and less accessible developments. The most emblematic modification is the Pacte Logement 2.0 policy, which financially rewards communes that actively plan affordable housing. Thanks to this, communes now have more motivation and the possibility to prioritise affordable projects over expensive ones.

Public construction is also expanding quickly. The state-sponsored developer, the Société Nationale des Habitations à Bon Marché (SNHBM), sharply increased output as compared to prior years. In 2024, work began on 301 units, 250 homes were completed, and over 1000 projects were under construction by the end of the year. The long-term goal is to finish around 400 units per year, with sufficient land reserve for an additional 2,800 homes. This represents a significant improvement compared to earlier programs, which were slower and often criticised for failing to meet demand.

Trying to solve the speculation issue

Another recently added lever is the vacancy tax, which directly targets speculation. Empty homeowners face a €3,000 charge in the first year, which rises by €900 each year until it reaches €7,500. It’s a strong nudge to bring empty homes back onto the market, something older housing policies only partially addressed, but never as directly as now. Combined with targeted subsidies and support for first-time buyers, these tools add up to a more coordinated strategy. Whether this will fully resolve the crisis remains uncertain, but the approach is far more comprehensive than what Luxembourg tried before.

What emerges from this overview is that Luxembourg’s housing market urgently needs change before it solidifies into what economist Michel-Edouard Ruben has already described as a “permacrisis.” The warning signs are not new: back in 2002, former Prime Minister Jean-Claude Juncker already called housing prices “crazy for normal people.” Yet, alongside government measures, we now see a surge of citizen-driven initiatives attempting to close the gap. WeConnect, for instance, fosters intergenerational cohabitation, enabling young people to find accommodation below market rates while offering companionship and financial support to elderly hosts. Similarly, cooperatives such as Ad hoc experiment with new housing models and cohousing projects, seeking alternatives to the traditional speculative market.

While these efforts are very impressive and promising, they remain small compared to the scale and urgency of the crisis. Luxembourg’s housing shortage has been persistent for decades and requires policies capable of delivering long-lasting impact.

The measures of other countries

Other countries have shown that decisive actions can make a difference: Sweden’s “Million Programme”, for instance, enabled the construction of one million homes between 1965 and 1974, expanding affordable supply.

Switzerland, especially Zurich, offers a more recent example, where resident-initiated cooperatives make up between 18% to 20% of the city’s housing stock. They are non-profit, cost-rent organisations that typically impose rents about 15% to 20% lower than market prices.

In this sense, Luxembourg could also adopt more efficient measures to expand affordable housing options, giving younger generations who grew up in the country the chance to build independent lives instead of remaining dependent on their parents.

To avoid long-term economic consequences, Luxembourg must address the structural causes of its housing shortage. Postponing or downsizing the issue may harm Luxembourg’s growth model, as high housing costs make it increasingly harder for businesses to attract new and especially young talent. Solving this issue is, in this sense, not only a social priority but also an economic necessity.