To understand European voters’ anger, look at their rent bills

When Bourgeois Fincas, a property agency in Barcelona, lists a flat for rent on the internet, it gets 200 enquiries within an hour or so and it is let within a day. “It’s been like this since last year,” says Jaume Cortes, who works there. “The change is brutal.” The agency is based in the Eixample, a leafy grid of elegant 19th-century streets that stretches north from the city’s historic Gothic heart. In many cases the new tenants are digital nomads or other foreigners seeking a second home in the sun. But at the bottom of the market the competition is just as fierce. In poor suburbs of Barcelona and Madrid agents report individual rooms being fought over, some rented by the hour by shift workers who take turns sleeping there.

All across Europe, cities face housing shortages. Average house prices in the EU surged by 60% between 2015 and 2025, well ahead of household incomes. In many places rents take up much more than 40% of average salaries, a threshold that can imply financial difficulty (see chart). Housing is an urgent political issue: some link the populist right’s rise to the difficulty of finding a home, especially for the young. In Spain and the Netherlands polls find it is the top public concern. The EU talks of a “housing crisis”; its 27 national leaders are due to discuss this at a summit this year. In 2024 the European Commission appointed a housing commissioner for the first time (shared with energy). It plans to tweak rules to allow more public investment and let governments limit tourist flats.

Housing markets vary from country to country. Germans tend to rent their homes, while southern and eastern Europeans prefer to buy. Public and social housing (ie, those subsidised or run by non-profit organisations) makes up 30% or more of the stock in the Netherlands and in Vienna. By contrast, in Spain public housing accounts for just 3.4%. The EU average is 8%.

Yet the surge in rents and house prices is taking place across the continent, a symptom of a growing mismatch between supply and demand. Nowhere is the shortage more acute than in Spain. The Bank of Spain reckons there is a shortfall of 700,000 homes. There are 1.2m more households now than in 2021, mainly because of massive immigration. But Spain builds fewer than 90,000 homes per year. On top of that, sun-seeking foreigners account for up to a fifth of buyers.

There are shortages elsewhere, too. Germany is building only around half the 400,000 new housing units economists say it needs each year. France will start around 300,000 new homes this year, according to its Building Federation, but that is some 220,000 fewer than it needs. Immigration is one factor, but so is the steady dribble of people from countryside to city. A census in Spain in 2021 found 3.8m empty homes, 14% of the total, mostly in poor repair or in small towns or villages where few want to live. Much the same applies in Italy.

One response to the crisis is rent controls. These are longstanding in Germany. In the Netherlands, where the waiting list for social housing in Amsterdam is almost 11 years, a centrist government greatly expanded them for private rentals in 2024. In Spain in 2023 the Socialist-led administration of Pedro Sánchez, under pressure from its far-left allies, approved a housing law that allows regional and local governments to cap rent increases.

“The way to fix a disastrous situation isn’t not to protect anyone,” says an official at Spain’s housing ministry. Yet the rent-control approach has perverse consequences. Jorge Galindo of Esade, a business school in Madrid, compares it to ordering the queue rather than trying to reduce it. It favours insiders—those who are already renting—at the expense of outsiders who are unable to find a home.

Take Catalonia, whose regional government has applied rent caps for most of the period since 2020 and has imposed additional regulations on landlords. The result in the first two years was a 5% fall in rents for existing tenants, but a 10% fall in the number of new rental contracts, according to a study led by José García Montalvo of Pompeu Fabra university in Barcelona. “Regulation has created uncertainty,” he says. “Landlords don’t know what to do.”

Dutch controls have had a similar outcome. Landlords barred from charging market-rate rents often sell their apartments, reducing the supply of rental housing. Those who suffer are “the people at the bottom, with limited budgets” or recent arrivals, says Matthijs Korevaar at Erasmus University in Rotterdam. Rather than bludgeoning landlords, it may be better to coax them with tax cuts on rental income: Portugal has cut income tax on rent for moderately priced homes from 25% to 10%. Mr Sánchez has offered a tax break for landlords who don’t raise rents.

The imperative is to build more homes. But that is harder than it sounds. Mr Sánchez has launched a €7bn ($8.2bn) four-year plan focusing on public housing. The Catalan regional and Barcelona city administrations have similar plans. But mayors and regional governments control most development land, and many practice NIMBYism. “The bottleneck is administrative,” says Said Hejal of Kronos, a firm that builds mainly mid-market housing in Spain and Portugal. In Catalonia it can take 12 years to get the permits to build. A draft land law which would cut red tape fell foul of the bad blood between Mr Sánchez and his conservative opponents.

Europe faces a shortage of construction workers. Spain has only enough to build 100,000 homes a year says Mr Hejal. After the bursting of a housing bubble in 2008, when the country was building an excessive 560,000 houses a year, many immigrant building workers went home. Many others switched to less demanding jobs in tourism. The continent’s construction industry is inefficient, with many small and backward firms. The Iran war has driven up the costs of building materials.

Governments have only just started to tackle this bottleneck. To cut costs, a public-housing project in Stockholm features standardised elements such as kitchens. Mr Sánchez’s plan includes spending €1.3bn in European funds to ramp up industrial production of modules for housing construction. Portugal’s government is planning a cut in VAT on construction from 23% to 6% for affordable homes.

But many are still fixated on engineering of the social kind. In Germany, spending on housing benefits for individuals has exceeded spending on new housing projects ever since 2005. It is now around four times higher. In the short term, subsidies without construction may relieve some residents’ headaches. In the long term, they worsen the migraine for everyone. ■