Filippo Addarii / Jan 2026
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How Europe’s new housing plan could tackle inequality, mobilise capital markets, and rebuild citizens’ trust
In December last year, the European Commission launched the first-ever European plan for affordable housing. Formally, housing lies outside EU competences, a point President Ursula von der Leyen acknowledged openly when she first announced the initiative in July 2024. Yet housing has now moved to the very centre of the European policy agenda, arriving not gradually but abruptly, like a meteorite.
The political justification was made explicit in the President’s last State of the Union address in September 2025: “This is more than a housing crisis. It is a social crisis. If it matters to Europeans, it matters to Europe.”
This is not political marketing. According to Eurostat, more than half of Europeans living in cities now identify the lack of affordable housing as a top concern. Housing systems differ widely across Europe: in Italy and much of Eastern Europe, home ownership dominates, while in Germany and Austria renting is the norm; France has a strong non-profit housing sector supported by public finance, while Germany relies heavily on private provision. Yet despite this diversity, declining affordability is a universal trend. The Commission estimates that Europe needs around 600,000 new affordable homes every year just to stabilise the situation.
Affordability is commonly defined as the ratio between disposable household income and housing costs, whether rent or mortgage payments. Since 2014, both rents and house prices across the EU have increased by up to 60 per cent, while incomes have largely stagnated. Between 2010 and 2023 alone, average rents rose by nearly 23 per cent and house prices by almost 48 per cent. When housing costs exceed 40 per cent of disposable income, they become unsustainable. In Greece, the worst affected country, nearly 29 per cent of households now cross this threshold.
At first glance, affordability appears straightforward. In reality, it is a wicked problem. Rising prices are not problematic per se; they increase household wealth and support asset accumulation, something most Europeans aspire to. The problem arises when housing costs outpace income growth, benefiting owners while penalising renters, first-time buyers, and younger generations. This dynamic has become a profound intergenerational fault line, particularly where asset-rich pensioners coexist with young people locked out of both ownership and secure renting.
Moreover, income is only one variable. Affordability reflects the interaction of multiple forces: demographic change and shifting household structures; construction, labour, and energy costs inflated by geopolitical shocks; interest rates and financial conditions; short-term political incentives; planning and regulatory constraints; the rise of short-term rentals and vacant housing; and cultural preferences. Major events, from the Covid pandemic to ECB’s quantitative easing, have amplified these pressures. Housing affordability is not a single policy failure but the outcome of overlapping structural trends.
Cities feel this pressure most acutely. Milan is a striking example. One of Europe’s most successful cities in terms of regeneration and investment, it has also become one of the least affordable. Average prices have reached €5,700 per square meter, while an affordable level would be closer to €2,500. In 2023 alone, more than 15,000 residents left the city because they were priced out. At the same time, 18,000 publicly owned homes remain vacant due to a lack of renovation funding.
Policymakers have tried everything: subsidies, tax incentives, supply-side support, and rent controls. None offers a silver bullet. Vienna’s century-long model of housing as a public service is often cited as a success, yet similar approaches have failed elsewhere. Supporting demand helps individuals but often pushes prices higher. Affordability problems of this scale require orchestration, not isolated measures.
This is why the Commission’s intervention matters politically. Affordable housing sits at the heart of the cost-of-living crisis and of citizens’ growing distrust in institutions. Addressing it offers a chance to confront what economists Mark Blyth and Eric Lonergan famously described as “angrynomics”, the political backlash rooted in economic insecurity since the global financial crisis.
After a year of consultations involving more than 13,000 stakeholders, the Commission presented a plan built around four pillars: boosting housing supply through innovation, skills, energy transition, and regulatory simplification; mobilising large-scale public and private investment, inspired by the Juncker Plan; implementing structural reforms, including controls on short-term rentals, vacancy and financialisation, and improved data transparency; and supporting housing solutions catered for the most vulnerable groups, from key workers to the homeless.
Taken together, this makes affordable housing arguably the EU’s most ambitious social policy initiative. Yet implementation will be decisive. Much of the debate remains framed in terms of rights and social justice, which is essential for diagnosis but insufficient for delivery. Homes are built with land, capital, materials, and skills, not with declarations.
Affordable housing is, at its core, a political economy problem. At the micro level, it involves conflicting interests between owners, tenants, and new entrants. At the macro level, it collides with capital markets. Residential real estate is the largest asset class in the world, with a total value of around $286 trillion, larger than global equity and debt markets combined. The 2008 crisis showed how deeply housing finance can destabilise entire economies.
The Commission’s plan recognises this sensitivity but avoids confronting it directly. That is understandable. However, if results are to be delivered quickly, the focus must shift to investment mobilisation, the second pillar of the plan. This is where the EU has a proven track record. The Juncker Plan mobilised €439 billion for infrastructure during Europe’s darkest economic years. A similar approach is now needed for housing.
The current housing development model is broken. This is widely acknowledged by market participants themselves. What is required is creative destruction and the testing of new business models that align public purpose with private capital. Four priorities stand out.
First, affordable housing investment must move from a real estate logic to an infrastructure logic. Real estate investments focus on asset appreciation and market cycles; infrastructure investments focus on long-term service provision and stable cash flows. Treating housing as infrastructure allows affordability, quality, and stability to be embedded in the business model rather than treated as positive externalities.
Second, this shift requires a new public–private partnership model. The public sector must act as a market shaper, not just a regulator, providing land, planning certainty, standards, and risk-sharing mechanisms. Cities are central here, given their control over land use and proximity to communities.
Third, Europe needs dedicated housing finance instruments, including social housing bonds designed to attract long-term institutional investors such as pension funds and insurers. The success of green bonds offers a powerful precedent: in 2024 alone, green bond issuance in Europe reached €442 billion. Social outcomes are harder to standardise than environmental ones, but that is precisely why tailored instruments are needed.
Finally, none of this will scale without a European social impact standard for affordable housing. Without common definitions and metrics, social outcomes remain opaque, incomparable, and unpriced. A shared framework would reduce uncertainty, lower transaction costs, and enable capital markets to treat affordable housing as a legitimate infrastructure asset class. Over the past two years, I have led a Commission-funded project working with nearly 150 public and private investors to design the first social impact index for affordable housing. The European plan creates the conditions for such standards to move from experimentation to adoption.
Affordable housing is one of the defining issues of our time. It touches inequality, social cohesion, and democratic legitimacy. If Europe succeeds in delivering tangible results, it can renew the social contract between citizens and institutions. It is a challenge we cannot afford to fail.
