Why Europe’s housing crisis can’t be fixed with more regulation

On September 9, the European Commission proposed the Affordable Housing Act, with the stated intention of fixing the widening gap between housing availability and affordability in Europe.

Over the last decade, property pricing in Europe as a whole has grown over 50%, while rental averages increased over 25%, pricing out first-time home buyers and adding pressure on expanding inventory. Hungary and Estonia most clearly signalled the brewing crisis from 2010 to 2024, with home prices rising by more than 200% in both countries.

Housing shortages are not simply a result of greedy landlords. They are driven by government policies that make it increasingly difficult to build and rent homes. Zoning restrictions, permit requirements, taxes, and energy and finance controls vary in each country, but still have cumulative effects that restrict supply across the continent. The scarcity from restricted construction and higher costs drives prices up even more.

The EU’s Affordable Housing Act gives municipalities the power to restrict short-term rentals, forces fast-tracked permit processes, and drives up public funding for social housing projects.

Each country’s national and local authorities still have ultimate control over zoning, planning, taxation, and permitting; thus this legislation would add yet another layer of intervention to an already overregulated market. The contradiction lies in the broader EU response: in its efforts to simplify the housing construction process, it’s actually adding more government regulation through new rules and subsidies. The Commission is rightly recognising barriers that influenced the crisis, but the real test lies in whether they remove them or add new ones that could make things worse.

Blaming landlords for the crisis overlooks the government policies that make building and buying homes more difficult. It’s much easier for a citizen to blame their landlord for rent increases than to look up zoning laws, interest rates, or supply deficits. Landlords play a valuable economic role by investing capital and supplying housing, helping keep the market active. They also pay taxes, meet energy requirements and face legal restrictions on how they can use their properties.

Berlin’s short-lived Mietendeckel rent freeze in February 2020 demonstrated the negative effects of forced policies on landlords, to the detriment of the housing market. First, the supply of accommodation decreased by up to 60%, prompting landlords to withdraw from the rental sector as they were blocked from generating market returns. Tenants temporarily benefited from lower rent, but reduction in the amount of available properties intensified competition for the remaining unregulated units, allowing landlords to increase rent. Berlin’s policies made renting out properties less attractive to landlords, demonstrating the potential consequences of government intervention in the housing market. At the very least, the European Commission’s regulatory approach does not create more homes, but risks worsening the complicated crisis it wants to solve.

Proposed housing subsidies and programmes may superficially look helpful for affordable housing, but actually risk inflating prices.

The Pan-European Housing Investment Platform, for example, was developed by the European Commission and European Investment Bank and directs public and private funding into below-market housing. If the funds are funnelled to buyer and renter budgets as vouchers or deposit assistance in a strained market, it risks an overnight increase in demand which may contribute to inflated prices. Manufactured purchase power from the funnelled funds would likely begin a bidding war between buyers or renters that translates into higher property pricing and rent instead of improving affordability. This gap emphasises F.A. Hayek’s ‘knowledge problem’, stating that centralised government intervention cannot reproduce the raw data communicated by market prices regarding housing supply need, the types of accommodation buyers and renters prefer, and where investment would be best deployed. Government subsidies may relieve financial hardship in the short term, but they are not substitutes for real reform that allows housing supply to directly respond to demand.

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The solution to the EU housing crisis is not found in more legislative proposals, but in allowing Europeans to build, invest, and rent more freely. Organically increasing the housing supply is possible through simplified permitting, fewer zoning and land restrictions, lower taxes, and financial rules that do not block beneficial housing market investment. This would also create more freedom for landlords and developers to respond to local demand and encourage state authorities to remove their own barriers to entry. Policymakers and landlords should evaluate proposed laws based on whether they enable more housing to be built, rather than on how much funding is provided or how many new regulations are introduced.

Europe cannot regulate itself out of a crisis created by regulation. A better housing market depends on the simplicity and appeal of construction and investment, not on the expansion of government intervention in an already restrained market.