Luxembourg is failing to curb rising property prices says IMF

Luxembourg, Portugal, the Netherlands and Germany are among the four OECD countries that have been unable to contain the rise in property prices since the Covid-19 pandemic, according to the International Monetary Fund (IMF).

The average cost of housing in Luxembourg has risen by around 50% over the past five years, a report in the IMF’s Finance & Development magazine published in December concluded. More than half of low-income homeowners spend more than 40% of their salary to repay their mortgage.

Just over 40% of low income households spent over 40% of their income on rent in the private market. That amount was substantially lower, at around 10%, in the subsidised affordable housing market.

Since 2021, the cost of mortgages in Luxembourg has tripled, making home ownership even more difficult. The IMF’s housing affordability index, which measures the relationship between household income and the cost of a typical mortgage, fell from 105 points in 2021 to 72 in 2024 in the Grand Duchy. The study classifies Luxembourg as an imbalanced market.

Lack of effective policies

Although the current and previous governments have introduced tax incentives and a series of measures to boost construction, the IMF concludes that Luxembourg still lacks effective policies to control price rises and increase affordability.

The study also points out that the influx of foreign capital continues to inflate the Luxembourg property market, exacerbating local residents’ difficulties in acquiring their own homes.

To mitigate the growing risks of homelessness and avoid a threat to the country’s economic and social stability, the IMF recommends implementing structural reforms.

Among the proposals are the removal of regulatory barriers to construction, incentives for the creation of affordable housing and greater control of foreign investment in the property sector.

(This story was first published in Contacto. Translated and edited by Cordula Schnuer)