Luxembourg is building smaller homes as high rates bite

A study of building permits shows that the average size of new homes – both houses and apartments – has decreased significantly since 2022, national statistics office Statec revealed in its economic report on Wednesday.

The reduction in size of new homes is “probably a consequence of the sharp rise in mortgage interest rates, which had significantly increased the cost of buying a property,” Statec wrote. This has led to a “downward adjustment” on the new-build market, not only in terms of sales prices, but also in the size of dwellings. New home prices fell by 3.5% in both 2023 and 2024.

The average size of flats sold under construction has only been around 77 square metres since 2023, compared to around 82 square metres in the previous ten years. “In the first half of 2025, it even fell to 71 square metres, an all-time low,” said Statec.

Chambre des Métiers calls for new policy measures

Despite the government’s efforts, the housing crisis is worsening, the Chamber of Skilled Trades and Crafts (Chambre des Métiers) recently said, pointing out that 6,000 fewer flats have been built in Luxembourg since 2022 than the average for the years 2016 to 2020. Luxembourg should be building 6,000 new homes a year to meet housing targets, but only just under half of that number are actually being built.

“Although procedures are currently being simplified and cooperation between public and private players is being expanded, these initiatives are not enough given the scale of the crisis,” said the chamber.

Tax measures aimed at helping home buyers expired at the end of June, and, coupled with a fall next year in expenditure from the special fund to promote housing construction, has led the chamber to call on the state to introduce targeted incentives to boost housing construction and at the same time promote access to home ownership for households.

Demand for property loans is slowly increasing

Despite weakening in the summer – after the tax incentives expired – demand for mortgages for new builds picked up again in September. In the first nine months, an average of around 25% more residential construction loans, totalling €5.9 billion, were granted than over the same period last year. However, this was also significantly less than in the first nine months of 2021, when low interest rates saw some €8.2 billion in mortgages approved.

According to the Luxembourg Central Bank, 4,235 residential construction loans were granted in the 3rd quarter of 2025. But that is still some way below the years prior to 2022, when there were quarters in which up to 7,000 loans were granted for residential property.

(This article was first published by Luxemburger Wort. Machine translated with editing by Duncan Roberts.)