The escalating prices for homes in Luxembourg have been catching everyone’s attention, especially those who wish to settle here or start out on their own with either a new family or just an apartment closer to work.
With a whopping increase of 11% just last year, it feels as if we are all being taken up the steep side of a roller coaster wondering when we are going to cross over the peak and plummet. But is the real estate market going to take us on a wild ride, or is this upward path going to continue?
Both the analysts at Spuerkeess BCEE and Michel-Edouard Ruben, an economist with the Fondation IDEA, believe there is no end in sight to the increase of housing prices.
At the American Chamber of Commerce Real Estate Committee’s event held in October, representatives from the Spuerkees BCEE presented a great deal of information about the past, present and future trends. According to their report, the Luxembourg population has increased 20% from 512,029 in 2010 to 613,894 in 2018. Approximately 80% of this increase is due to the arrival of new residents from abroad with 20% coming from a naturally higher number of births than deaths.
Luxembourg has become very attractive to companies and job seekers, particularly due to Brexit in recent years, but the number of new dwellings being built has not kept up pace. BCEE sights the Statistics Portal (STATEC) of Luxembourg’s projections which state that between 5,600 and 7,500 additional housing units a year need to be built depending on the economic growth scenarios. The average rate of construction since 2010 has been 2,891 housing units which is well under what is needed.
Michel-Edouard Ruben has at times been critical of the projections of STATEC in the past. He notes that between 1970 and 2000 more housing units were built than there were households in the country and this stock of housing is still providing relief for the market as it is being slowly renovated and/or released for sale or rent. However, he stated in a recent interview published in the 2019 September/October issue of Wunnen magazine that this reserve will dry up as soon as 2021.
Although he says there are factors such as the conversion of current single family homes into more dense apartment buildings which could buffer the predictions a little, the demand for housing after 2021 will essentially be two-thirds higher than what the construction sector can produce. This sector employs 10% of the population in comparison to a 6% average in Europe, and they are already suffering a lack of skilled workers.
According to the BCEE, the number of households in Luxembourg now is 253,000 with an average household size of 2.35. By 2060 the number of households is predicted to be between 462,000 (with 0% GDP growth) and 539,000 (with 4,5% GDP growth) and an average household size of 2.08.
Ruben concludes, “Objectively, it seems that all the ingredients are in place for prices to continue to rise further in the coming years.” With concern to government intervention he notes, “There seems to be a little music playing that whispers that winning the price war will be a titanic affair.”
In their 2019 Concluding Statement of their report on Luxembourg, the International Monetary Fund wrote, “House prices have continued to rise rapidly, driven by limited supply as well as demand factors reflecting high demographic growth. The government should follow through on its medium-term agenda to alleviate supply constraints by boosting the construction of social housing, changing urban planning laws, and reforming real estate taxation.” However, it remains to be seen how much of an impact these initiatives, if implemented, will have considering the increasing demand.
The AMCHAM Real Estate Committee concluded that speculation plays essentially no role in the current escalation of housing prices in Luxembourg, and that the evidence shows that there is no bubble. The trend is for the prices to continue to go up.
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