Housing: Enabling access to affordable housing for everyone

Over the past decades, economic dynamism has brought Luxembourg and its inhabitants considerable prosperity. However, due to a lack of policy measures to effectively accompany this growth, the country is now facing a housing shortage that has been worsening for several years and threatens to weaken social cohesion. Housing prices, which are rising faster than incomes, are a burden on purchasing power and hamper economic development. The structural imbalance between supply and demand on the housing market threatens the dream of home ownership for more and more people in Luxembourg, especially young families. By far not only the lower income strata are affected, the housing problem now reaches far into the middle class. The current situation, characterised by rising interest rates, is leading to a decline in demand and a standstill in the construction industry, which is putting pressure on medium-sized businesses and increasing the deficit of new buildings.

In view of this situation, it is obvious that policy makers need to make significant additional efforts. Despite numerous measures in recent years, the housing crisis has lost none of its urgency. The measures taken so far have not been effective enough, so we must continue to fight the housing crisis resolutely through short-term and structural measures.

The DP will therefore launch a historic housing offensive. Our goal is to build the number of flats required to meet demand in the medium term, according to STATEC numbers. For this reason, we will massively expand the real estate portfolio owned by the public sector, following the example of the City of Vienna, and strengthen the cooperation between public and private stakeholders to this end. In the short term, we will ensure that as many projects of private developers as possible, which cannot be realised due to the current crisis, are taken over. In addition, we will work to build on unused publicly owned building land as quickly as possible. With the help of public tenders, we intend to involve the construction industry more actively and efficiently in the creation of public housing.

In recent years, government investment in the construction of affordable flats has steadily increased. We will continue to pursue this path consistently. At the same time, we are convinced that private investors are important partners in advancing public housing. We will make greater use of private capital here and specifically involve citizens in an effort to combat the housing shortage. Private investors already play a significant role in the construction of rental housing for the private market. We will continue the current incentives and introduce additional targeted measures.

As DP, we will create innovative programmes to facilitate access to affordable housing for young families and the middle class. For example, through the concept of hire purchase, where the rents paid can be credited towards the purchase of the property.

Furthermore, one of our main concerns is to simplify, digitalise and make the approval procedures more transparent. Experience has shown that we are unable to develop the necessary momentum in many real estate projects due to cumbersome procedures and unnecessarily restrictive laws, especially in the area of environmental protection. By introducing a “Code de la construction” we want to make the legislation more readable. To increase the pace of housing construction, we will make environmental protection regulations more efficient and ensure that strong legal environmental protection does not lead to unnecessarily long approval procedures.

Create more housing quicker

In the short term, we will ensure that as many projects as possible are taken on by private developers that have been put on hold due to the current crisis. In general, the state should be more active in the real estate market and make more use of offers of complete blocks of flats (existing or new construction) that are for sale in order to increase the public real estate stock in the short term. Thus, an inter-ministerial task force was already set up under the leadership of the DP-led government to examine the bids quickly and efficiently and to conduct negotiations with the private builders. The state should be given the opportunity to buy up these projects at reasonable prices in order to add them to a large public real estate park as rental housing.

The DP will continue to work towards ensuring that municipal and state land can be built on without delay. These plots of land are to be used primarily for rental housing. It must be avoided that municipalities and the state sell buildable land to the highest bidders and thus participate in the price spiral for real estate. By conducting public tenders and, if necessary, concept awards, we intend to involve the construction industry more actively and efficiently in the creation of public housing.

To make faster progress in public housing construction, the DP will break new ground and develop building land that is outside the building perimeter but close to urbanised areas. The DP will classify land in green zones as building land that can only be used for public housing and cannot be traded on the open market. The DP will ensure that this only happens where it makes sense. In addition, the DP will pay attention to social mixing.

Currently, the approval of housing projects is the responsibility of both the Ministry of the Environment, Climate and Sustainable Development and the Ministry of Home Affairs. In order to significantly de-bureaucratise and accelerate the lengthy approval procedures, the DP will bundle all expertise for housing construction in the Ministry of Housing. 

In the coming years, the stock of public rental housing will grow continuously, which must be managed efficiently and in the interest of the tenants. The DP will therefore create a new agency that will be responsible for the central management and allocation of all state rental housing. This agency will regulate the administrative tasks effectively and transparently through tendering procedures.

In order to support the municipalities in managing their rental housing, we will also offer the municipalities the possibility to have their properties managed by this agency.

With the building land contract, the DP will provide the municipalities with the right instrument to ensure that additional building land is actually built on within a set time frame. The building land contract will make speculation with building land unattractive and give the municipalities the planning security they need to create new housing and grow sustainably.

The DP will increase building density where it makes urban sense. Building upwards allows housing to be brought onto the market and at the same time slows down land consumption. The DP will investigate the introduction of additional instruments to motivate municipalities to build more densely than foreseen in their general zoning plan, analogous to the “Pacte logement 2.0” and “Plan sectoriel logement”.

The DP will provide more support to municipalities to become active in housing construction themselves. We will extend the current subsidies of up to 75% for municipalities that create social or affordable housing. Due to increased construction, material and energy prices, the maximum amounts provided for by law (legal cap) are often far below the 75% co-financing by the state.

In addition, the municipalities should also be provided with the necessary expertise to enable them to increasingly create affordable housing themselves. Therefore, we will make additional funds available to the municipalities to get professional guidance, for example from an architectural or engineering firm.

With the introduction of the Pacte Logement 2.0, the DP-led government created an important instrument in the last legislative period to systematically promote the creation of affordable housing. At the same time, the Pacte Logement 2.0 makes it possible to build more densely than envisaged in the general development plan. The DP will review the impact of Pacte Logement 2.0 in the creation of additional housing closely and adjust the legal framework if required.

In addition, the DP will investigate to what extent it is possible to apply article 29bis to already existing neighbourhoods in order to create additional affordable housing via redensification, at least partially. The DP will make sure that the proposed model makes sense not only in terms of urban planning but also economically for private developers.

The DP will strengthen the legal framework for shared flats so that tenants as well as landlords of shared flats have clear guidelines about their respective rights and obligations. The main goal is to create a larger offer of shared flats for young people.

Due to increased construction costs, more and more citizens are joining together in housing cooperatives to implement a project together. The DP will provide advice and support for the establishment of housing cooperatives and remove existing economic and legal hurdles.

The DP will increase the supply of affordable student housing close to campus and encourage private initiatives to build student housing. Furthermore, we will create affordable flats for young professionals.

Setting up an additional flat in a detached house is one way to quickly create more living space. The DP will therefore introduce a subsidy for the creation of “logement intégré” (self-contained flat). The DP will also examine to what extent it is necessary and beneficial to create a clear legal basis for the “Logement intégré”.

The DP will advise, sensitise and support municipalities to adapt local building regulations and to develop alternative forms of construction, such as “Tiny houses”.

The DP will promote the construction of housing for employees in industrial estates.

The DP wants to make it easier for owners to temporarily rent or lease their building land so that modular structures can be built on it. To this end, the DP will reduce the minimum duration of ground leases from the current 50 years to ten years, or introduce a new category of lease.

In order to promote this model, tax incentives similar to the model of the 50% tax exemption on rental income from housing within the framework of the “gestion locative sociale” could be introduced.

Refer to the chapter on Economic policy

Refer to the chapter on Tax policy

Introduce innovative financing programmes

The DP will make massive investments in public housing. To this end, the DP will provide the necessary financial resources to realise large public work projects. The DP will investigate whether broad-based tendering is a more efficient and effective approach rather than the state being a developer itself through its public developers.

The DP will create a state fund in which both citizens and businesses can invest in real estate projects. To guarantee investors a certain return, the fund will not only invest in affordable housing, but also in housing projects on the private housing market. The DP will also examine whether tax incentives can be created to encourage investment.

The public pension fund has reserves of around 26 billion euros. With these funds, broadly diversified investments are made according to clear criteria. The DP advocates that the pension fund invest a certain amount in projects for more affordable housing in this country. A pilot project to this effect was successfully initiated years ago in Grevenmacher. Here, a project was built by the Fonds du Logement and sold to the “Fonds de compensation” after completion and simultaneously leased back (sale and lease back). The public pension fund thus invests in domestic real estate projects and the Fonds du Logement can increase its supply of housing.

The private sector is a key partner for the DP in creating affordable housing. The DP will introduce financial support for companies that create affordable housing for their employees.

Furthermore, private companies should also be able to benefit from subsidies in the creation of affordable housing, which are currently reserved exclusively for municipalities and non-profit developers.

Other models of cooperation with private investors could also be the long-term leasing of privately owned apartment blocks by the state. Owners of an apartment building who do not wish to part with their real estate assets would draw a negotiated total rent over the term of the contract. One of the two public developers would be entrusted with the management and allocation, and the owner would be able to re-utilise his property once the long-term use by the state has expired.

In this sense, it would also be conceivable for a private developer to involve the state as early as the planning stage, to construct the building according to the demands of the affordable housing market and to rent it out to the state on a long-term basis after completion.

Finally, the public developers are also to rent land on which modular buildings are erected and rented out for a limited period of time. To this end, the DP will reduce the minimum duration of ground leases from the current 50 years to ten years, or introduce a new category of lease.

The DP will adjust state housing subsidies to the current situation in the real estate market and to inflation. Both the amount of the allowances and the salary ceilings for allowance candidates will be adjusted upwards. The processing of enquiries has already been significantly shortened. The DP will drive forward the modernisation and digitisation of the administration.

To give young people in particular access to home ownership, the DP will promote hire purchase. In this model, the rent paid over the years is deducted from the sale price, making it easier to buy their own housing.

In the “Rente viagère” (life annuity) model, a person sells their housing at an advantageous price and at the same time receives a monthly annuity from the buyer for the rest of their life. In return, the former owner has the option of continuing to occupy the housing. After the death of the seller, the housing reverts to the buyer. The DP would like to further promote this model in Luxembourg.

After the Climate bank was reformed in the course of the last legislative period and the interest-free loan was abolished, the DP will examine to what extent a further reform is necessary to ensure the effectiveness of this instrument. Since then, the interest rate has been increased significantly, making even a climate loan at a reduced interest rate unaffordable for many people.

In order to promote the energy-efficient refurbishment of existing housing, the DP will adjust the criteria of the climate loan so that all owners can receive an interest-free loan. This will help to achieve the national climate targets. At the same time, housing owners and tenants can significantly reduce their energy costs.

Due to the current market situation, inflation and uncertainty, transactions in the real estate market have declined considerably in recent months. The DP will temporarily reintroduce the “Quart taux global” to strengthen the supply side of the housing market.

The DP will again allow the transfer of a capital gain from property sales for a limited period of time if rental housing is sold and the proceeds are invested in a new building.

In the current legislative period, additional social housing was created, among other things by introducing tax reductions on property rentals to approved organisations for the management of social housing. The concept of managing social rental housing is to be expanded and further promoted, among other things by completely exempting rental income from tax, instead of the 75% currently in force.

After decades of stalled reforms, the DP-led government finally put a reform of the outdated property tax system on the table in the last legislative period. The DP has advocated that a property tax allowance be provided for parents who wish to reserve a piece of land for their children. We will implement the planned reform and thus ensure fairer taxation in this respect that is adapted to the reality of today.

In addition, the DP will also implement the proposed mobilisation and vacancy taxes. In a further step, the DP will increase and accelerate the mobilisation tax.

The DP will introduce a national housing register as planned. This not only serves to record the vacancy rate and calculate the vacancy tax, but is also a useful tool for the municipalities and administrations from a statistical point of view.

Simplify, digitalise and make procedures more transparent

The DP will conduct a thorough review of all approval procedures and simplify and accelerate the respective procedures. We will establish a systematic monitoring of the current legislation in order to be able to react quickly to obstacles in practice.

Since the current legislation and its implementing provisions in the field of housing and construction are only for specialist lawyers to keep track of, the DP will bundle the respective texts in a clear “Code de la construction”. This code will be accessible to everyone on-line in an interactive and user-friendly way. We also want to give additional funds to the “Cellule de facilitation urbanisme et environnement” as well as the “PAP Platform”, which help to accelerate procedures.

Many procedural difficulties come from the fact that each municipality has its own building regulations, which can vary greatly. The DP will work with the municipalities to review and harmonise municipal building regulations. Within this framework, the DP will advocate for a modernisation and flexibilisation of the regulations.

The DP will also push for a simplification of the procedures for the general development plans and partial development plans as well as the selective amendments.

The DP will ensure that all approval procedures can be submitted digitally and completed on-line. At the same time, the requests are also to be processed digitally to make the workflow more efficient and accelerate the procedures.

The DP will introduce time limits for each step of the authorisation procedure for state administrations, where this is possible in practice and compatible with, amongst others, European law. If the administration has not responded to a request or requested a duly substantiated extension of the deadline by the end of a 3-month period, this is automatically deemed to be tacit consent under the principle: “He who is silent agrees”. The DP will introduce the same regulation for approval procedures at the municipal level and at the same time also provide the municipal administrations with the necessary resources so that they can realistically meet the deadline of 3 months.

The DP advocates for a strong legal framework to protect the environment. However, lengthy and burdensome procedures are an unnecessary obstacle to the creation of additional housing. The strict interpretation of the Nature Conservation Act within the construction perimeter has led to dissatisfaction among many citizens. The DP strives for an ambitious but proportionate environmental protection that relies on the acceptance of the population. We will closely review the legal texts in order to simplify procedures, avoid duplication and eliminate unnecessary requirements.

The DP considers the situation as follows: Building land is building land. Once designated, it should be allowed to be built on without major inconvenience. The current regulations create an inverted incentive for owners to nip in the bud the emergence of any biotopes and the settlement of animals on a buildable plot of land, so that they do not have to pay for additional compensation measures afterwards. For this reason, the DP will ensure that an inventory of flora and fauna requiring compensation is drawn up only once, for example when the construction perimeter is extended. In the event of development at a later date, a new environmental assessment should then not be required, even if new habitats have formed in the meantime. In addition, developments on brownfield sites are to be completely exempted from the obligation to compensate for flora and fauna.

The DP will ensure that public developers lead the way in sustainable building materials and circular economy principles in their housing projects.

As part of the new waste legislation, the obligation to keep an inventory of the materials used in a building was introduced. The goal is that buildings can serve as raw material storage facilities and the materials can later be recycled. The DP will therefore specifically promote the circular economy in the construction sector, for example in the form of modular buildings.

Furthermore, sustainable building materials, such as wood, should be used to a greater extent. The DP will review and, if necessary, expand subsidies for sustainable materials, as they already exist in the context of energy refurbishment.

Refer to the chapter on Sustainability

New technologies, such as 3D printing, not only help to reduce the need for skilled labour, they also enable resource-efficient and sustainable construction. The DP will therefore support the use of innovative technologies and develop projects together with the construction sector to further strengthen innovation. The DP develops incentives to preserve existing building stock and convert it for new uses, including housing.

The DP will explore the benefits of digitisation for administrative simplification also in the housing market. The goal is to facilitate transactions, save costs and do so with the same legal certainty and reliability.

The introduction of a national housing register will serve as a basis for the DP to enable partial ownership of a property by means of “tokenisation” (payment procedure using blockchain).

The DP will complete the court-ordered reform of the legislation in force on rental agreements and ensure that it takes into account the current economic situation in the housing market and provides for a balanced relationship between tenants and landlords. In this way, clear and transparent rules are to be established which guarantee a high level of protection for tenants and at the same time provide the necessary incentives for private investors to invest in the creation of additional housing. In this context, the DP will closely monitor the effects of a reform on the rental housing market and, to this end, take stock after two years and make adjustments if necessary.

The DP will ensure a social mix in all housing projects of public developers. For this reason, these housing projects should not consist exclusively of rental and social housing.

The dynamic housing market in Luxembourg in recent years has led many sellers to demand top prices far above market value, which in turn contributes to price increases. In general, more transparency in the housing market contributes to realistic price tags. The DP will introduce guidelines to standardise the content of property advertisements so that potential buyers can better compare different properties.