… if policymakers abandon the illusion that the free play of market forces will solve it.

The glaring discrepancy between wage and price trends in the housing sector is having an enormous impact on the situation and social prospects of many citizens, who are having to devote an ever-increasing proportion of their purchasing power to housing.

Acute housing crises are on the rise. At the same time, gentrification is gaining momentum, pushing low-income households out of a growing number of neighborhoods and localities.

Yet the pace and depth of policy responses are in open contradiction to the evolution of the housing crisis.

The rise in prices and values caused by the supply deficit and the prospect of a persistent long-term gap between supply and demand have led to a speculative dynamic unprecedented in the history of real estate.

The so-called free market will not solve the housing crisis, as it is largely responsible for creating and exacerbating it.

Intervention by the state and the law in the functioning of the market is not only defensible and legitimate, it is necessary and without alternative in the pursuit of the general interest of society.

Massive investment in the construction and purchase of public housing

For decades, the construction and acquisition of public housing and the acquisition of land and building plots by the State or local authorities have developed at a very low level. Compared to the housing market as a whole, it is even highly regressive. The OGBL calls for massive investment in public housing, with priority given to rental housing.

Taxation: a cornerstone in the fight against the housing crisis

Tax legislation must become a lever in the fight against speculation, the explosion of prices and the increase in the socially unjust distribution of real estate and building land.

All areas of the land market, construction and real estate that are exposed to speculative demand must be subject to new tax regulations.

It is important to distinguish speculative demand from housing demand. Higher taxation on owner-occupied housing is counterproductive and socially unjustifiable, given the general trend in housing costs.

1) All tax breaks that encourage speculation in the construction and real estate sectors must be abolished. Counterproductive tax provisions such as generous depreciation allowances, low capital gains tax and tax benefits linked to the receipt of loans must be abolished or limited to single-family homes.

2) National tax legislation is also needed to enable the Luxembourg State to tax gains arising from the sale of shares, rights or holdings in foreign entities which derive their value principally from real estate located in Luxembourg.

3) In addition to the problem of speculative purchases and land hoarding or the retention of building land and vacant dwellings, the speculative purchase of real estate is playing an increasingly important role. The excessive accumulation of real estate as a high-yield capital investment must be discouraged through taxation.

In order to curb excessive accumulation and encourage the release of land and building plots, a graduated tax intervention is needed, with tax allowances at the bottom and a progressive effect at the top.

There are several possibilities, such as the introduction of a progressive wealth tax or a progressive inheritance tax. Given the urgency of the crisis, a progressive wealth tax seems to be the most effective way compared to an inheritance tax.

The reform of the property tax could offer a way forward in this respect.

In addition to adjusting the basic tax values, the government should seize the opportunity to include in the reform an element of regulation against speculative demand and excessive retention of land, building land and real estate.

This would take the form of a progressive tax rate that, based on an allowance, increases progressively as the total value of the taxpayer’s built and unbuilt assets increases.

The progressive part of the property tax should be absorbed by a national distribution pot. This pot could be made available to municipalities and the state for the purchase of land and the construction of housing as part of public housing construction, according to distribution rules defined by law. In this sense, the property tax would make an essential contribution to the massive promotion of the construction and purchase of housing in public hands, which is also urgently needed.

The introduction of a so-called “retention tax” is also essential. This would apply to land included in general development plans that is deliberately left unbuilt by the owners, as well as to housing that has been left unoccupied (and often dilapidated) for several years, also for reasons that depend on the will of the owners. Such a tax is long overdue, and experience has shown that it requires national legislation.

As with the progressive property tax proposed above, the basis for calculating the property tax payable by the taxpayer in the case of speculative retention should be weighted according to a) the duration and b) the extent of speculative retention of building land or housing vacancies.

Similarly, the property tax should be particularly weighted in the case of second homes or temporary rentals, especially through digital platforms.

In addition, we need to ensure that these measures take effect quickly and not only in 10 to 15 years’ time.

Another very important fiscal issue in the fight against speculation is the taxation of capital gains when building zones are extended onto previously unbuildable land.

The multiple increase in the value of the land, which is not the result of the productive performance of a private landowner, but of a public decision and public investment, must largely benefit the public authorities.

The introduction of a high rate of taxation on this capital gain, combined with a public right of first refusal and a tax to prevent the speculative retention of building land, is therefore not only legitimate but essential if we are to combat effectively the speculative acquisition and hoarding of land.

What’s more, this measure represents an important source of revenue for the public authorities to support a more offensive public housing policy and to financially cushion the significant and costly social damage caused by speculation in the housing sector.

For a legal cap and regulation of rents, linking their maximum ceiling to the evolution of wages!

The leasehold law proposed by the government must be rejected outright, as it does nothing to alleviate the crisis situation and may even have the opposite effect in some respects.

At the heart of the criticism is the lack of rent regulation, which would establish the long-awaited link between rent trends and the incomes of tenant households.

The government is urged to replace the current outdated and counterproductive legislation on maximum rent levels with one that at least neutralizes the jaws effect that has occurred since 2015 between rent trends and trends in tenant incomes.

In addition, legislation is needed on brokerage fees that 1) decouples these fees from price trends in the real estate sector and 2) charges fees to landlords when the brokerage is retained by the landlord.

There is also a need for reform of tenancy boards, which need greater professional scope and rights to protect tenants and monitor compliance with the law.

Socially differentiated support models to achieve climate targets

In the context of the gradual decarbonization of society, the housing sector and spatial planning are of paramount importance for achieving the climate goals set by the COP21 climate conference (Paris 2015).

The targets set for the use of green building materials, energy savings and efficiency, and the use of renewable energy call for support policies that cover both new construction and the modernization, renovation, and rehabilitation of older buildings, while taking into account the social situation of homeowners.

This presupposes socially graded support models that are tailored to the different financial capabilities of the various strata of homeowners.

Unfortunately, the current concept of tax relief and state aid ignores the criterion of social justice. This neglect of the social aspect also unnecessarily complicates the achievement of climate goals.

It is also necessary to ensure by law that the portion of investment costs covered by public subsidies is not passed on to rents. In this context, a climate-friendly housing premium should also be introduced to reduce the burden on tenants in the event of rent increases.

André Roeltgen