How Luxembourg wants to create more affordable housing

The Luxembourg government is calling on private property owners to rent their homes to the state for 20 years at below-market rates, in a bid to expand the stock of affordable rental housing, Housing Minister Claude Meisch said on Friday.

Under this new appeal, private landlords can lease their properties to the state, which will then sublet them through the Fonds du logement at even more affordable prices, Meisch announced at a press conference

The initiative, known as Gestion locative sociale, aims to provide more affordable housing options without the need for new construction.

After the 20-year rental contract expires, landlords have the option to extend the lease or sell the property to the state, which holds a right of first refusal. Alternatively, owners can sell their properties to other buyers during the lease term, provided the lease agreement with the state remains in force.

This call complements the government’s existing programme of purchasing new housing projects from private developers. To date, the state has acquired projects with a total of 293 flats at a cost of €179 million. In 2023 and 2024 alone, 208 units were purchased for nearly €126 million. Since then, 29 additional units have been added, with six contracts covering 257 units expected to be signed soon, Meisch said.

Earlier this month, the housing minister anticipated this call for collaboration to the private and the social sector during a University of Luxembourg report presentation about the challenges faced by tenants in Luxembourg’s private rental market.

Cooperation with private developers

Another new solution is the possibility for private property developers to make their land available for the construction of affordable flats, or to build the flats themselves, which are then leased to the state – in this case, the Fonds du logement – for 20 years. This arrangement, which Meisch referred to as a “private-public partnership”, ends after the lease expires. The owner can then rent out the flats on their own terms or sell them to the state, if it holds a right of first refusal.

A committee, made up of representatives from the housing and finance ministries as well as the Fonds du logement, will be responsible for analysing and selecting projects.

If cooperation is agreed, the rent at the time the agreement in principle (accord de principe) is signed may not exceed 80% of the average rent in the respective region, as determined by the Observatoire de l’habitat (Housing Observatory). The annual rent may not exceed 5% of the capital invested in the project.

Before the tenancy agreement is signed, the rent is reviewed again using the latest data from the Housing Observatory. From the time the contract is signed, the rent can be adjusted, but only every two years and limited to three index increments – roughly 7.5%

Call for projects from private developers

Interested developers can submit their projects at ppp@ml.etat.lu and find out more about the conditions and objectives of this call for projects on the website www.ppp-logement.lu.

(This article is based on reporting by the Luxemburger Wort, with machine translation. Additional reporting, editing and adaptation by Lucrezia Reale.)