Europe Unveils First-Ever Pan-European Housing Package as Supply Shortages and Short-Term Rentals Drive Prices to Record Highs

Two Million New Homes Annually
Relaxed Subsidy Rules and Streamlined Permitting
Push to Boost Supply and Rein In Short-Term Rentals

The European Union has unveiled a pan-European housing policy package as surging home prices and rents intensify across the bloc. The decision to elevate housing from a member-state prerogative to a shared EU-level challenge reflects growing concern that housing costs in major economies have reached levels that constrain livelihoods, labor mobility, and economic participation. Social resistance has been mounting in countries such as Germany, particularly in Berlin, where rental inflation has triggered public backlash. The rapid expansion of short-term rentals, led by platforms such as Airbnb, has simultaneously eroded long-term rental supply, exacerbating shortages and driving rents higher.

Europe’s Housing Crunch Becomes a Socio-Political Crisis

On the 16th, the European Commission, the EU’s executive arm, announced the “Affordable Housing Plan,” warning that housing shortages are worsening across nearly all regions of Europe and now require a coordinated continental response. Teresa Ribera, Executive Vice-President of the European Commission, underscored the urgency at a press briefing, calling affordable housing “one of Europe’s most pressing challenges.”

According to the Commission, housing prices across the EU have risen by more than 60% over the past decade, while rents have climbed by over 20%. These trends have restricted mobility for work and education, delayed household formation, and ultimately undermined the bloc’s overall competitiveness. The plan outlines supply-side measures including streamlined administrative procedures to accelerate construction, incentives to boost investment in housing, and relaxed state-aid rules. The Commission estimates that Europe must deliver approximately two million new housing units annually to meet demand.

Housing policy has traditionally remained outside the EU’s formal remit, unlike agriculture, migration, or trade, with member states independently managing urban planning, rent regulation, and housing subsidies. However, as affordability has deteriorated to unsustainable levels in recent years, pressure—particularly from left-leaning political forces—has intensified for EU-wide intervention.

Under the newly proposed “European Strategy for Housing Construction,” the Commission aims to address the mismatch between supply and demand while enhancing productivity and innovation in construction and renovation. State-aid rules will be revised to allow member states greater flexibility in financing not only affordable housing but also social housing. In coordination with national and local governments, the Commission also plans to simplify regulations and procedures that constrain housing supply.

Berlin’s Crushing Housing Costs

Among EU member states, Germany stands out as facing one of the most acute housing crises. Unlike most countries, Germany has a higher proportion of renters than homeowners, a reflection of long-standing market characteristics. Rent increases during tenancy have historically been restrained, tenant protections are strong, and long-term occupancy is common. With relatively few restrictions on home use, many Germans have preferred renting over taking on large mortgages to purchase property.

That stability has collapsed under a severe supply crunch. Until the global financial crisis of 2008, Germany was widely regarded as one of the world’s most stable housing markets. Over the past decade, however, housing prices in its seven largest cities have surged by nearly 120%, while rents have risen by roughly 60%. Large real estate corporations, increasingly focused on yield maximization, have been a key driver. Firms estimated to control around 20% of Berlin’s housing stock have aggressively raised rents, fueling public anger.

In response, residents have taken to the streets demanding that housing be converted into public assets. A spokesperson for a housing nationalization movement argued that much of Berlin’s rental stock is controlled by profit-driven corporate landlords, leading to shortages and spiraling rents. Housing, the group insists, is a fundamental human right rather than a commodity, and properties owned by large real estate firms should be brought under public ownership. In 2021, Berlin held a referendum on public acquisition of large housing portfolios, with nearly 60% of voters in favor. The city’s legislature is now debating legislation to advance public ownership.

Rental inflation driven by supply shortages is also evident across Northern and Central Europe. According to Eurostat, rents in Hungary and Lithuania rose by more than 60% between 2015 and 2024, while home prices in both countries more than doubled over the same period. Estonia has recorded the sharpest increases in rents and housing prices among EU countries over the past decade through 2022. In Ireland, the situation has become so extreme that local media describe it as “insane,” with one-bedroom apartment rents in Dublin exceeding the salaries of many high-income professionals.

Short-Term Rentals Fuel Rent and Price Inflation

Short-term rental platforms such as Airbnb are increasingly cited as a major contributor to rising rents and home prices. Academic research supports this view. A study titled “The Negative Aspects of the Sharing Economy: The Relationship Between Airbnb and Housing Rents,” led by Professor Jin Jang-ik and colleagues, found that for every increase of 100 Airbnb listings per square kilometer, housing rents rise by approximately 0.4%. The researchers concluded that as long-term rental properties are diverted into short-term accommodation, reduced supply inevitably drives rents higher. Empirical evidence from eight French cities confirms Airbnb-linked rent inflation.

Several countries have begun tightening regulation of the short-term rental industry, with Spain among the most aggressive. On the 15th, Spain’s Ministry of Consumer Rights imposed a fine of approximately $70 million on Airbnb for listing unauthorized tourist accommodations. This marked the second-largest consumer protection penalty ever levied by Spanish authorities.

The action followed a May order requiring Airbnb to remove roughly 65,000 listings for regulatory violations. Under Spanish law, properties offered for short-term tourist rentals must obtain approval from local authorities and display an official registration number. Investigators found that more than 65,000 listings on Airbnb either lacked registration numbers, used fraudulent identifiers that did not match official databases, or failed to provide clear host information. The ministry said these illegal listings misled consumers and disrupted the legitimate housing market.

Industry data show that Spain’s average monthly rent rose from roughly $600 in 2014 to about $1,070 in 2024, an increase of nearly 78% in a decade. Tourist hotspots such as Barcelona, Madrid, and Málaga have led the surge, with annual rent increases frequently reaching double digits. The disparity in returns has been decisive: short-term tourist rentals can generate up to four times the income of long-term leases, prompting landlords to evict tenants and shift properties into the vacation rental market. The resulting supply squeeze has driven rents sharply higher, while swelling tourist numbers have pushed into residential neighborhoods. Longtime residents, unable to afford soaring rents, are being forced out to city outskirts, accelerating gentrification and displacing communities from their historic homes.