Residential investment in Luxembourg has been lagging behind for some time, according to economist Michel-Edouard Ruben from the Idea Foundation. In a working paper presented to the press on Thursday, Ruben outlined six ways to move housing policy beyond its usual automatic responses, namely, the fiscal measures the government often recycles in an effort to stimulate the property market.
Ruben noted that government initiatives such as the recently announced housing construction booster package largely rely on the same standard measures: accelerated depreciation, lower VAT rates for rental housing, and exemptions from registration fees on certain properties. The Idea Foundation instead aims to offer proposals that go beyond these familiar approaches, according to Ruben.
One particularly noteworthy proposal is the creation of a mutual fund dedicated to building housing for employees. This fund would be financed by a new housing contribution: a 0.5% levy on all professional income in Luxembourg.
Ruben calculates that such a tax on wages could raise around €200 million per year. With this level of funding, the mutual fund would become one of the country's largest investors in real estate and would be managed by Luxembourg's social partners, Ruben explained.
The idea is inspired by a previous temporary budget-balancing tax, which was used to finance child benefit reforms between 2015 and 2017, and worked very well back then, according to Ruben. He also argued that this new contribution could partly offset the loss of tax revenue expected from upcoming changes to income tax classes.
Beyond this headline proposal, Ruben suggested opening up the sale of affordable housing to people who already own property, as long as that property is located more than 150km from Luxembourg's borders, a response to the fact that many affordable homes in the country remain unsold.
He used the example of Slovakia, where home ownership rates are close to 100%. Someone with a house in Slovakia would have to give it up, even though they can neither live in it nor rent it out, according to Ruben.
Other proposals include making rental contracts both more flexible and more secure, promoting new models of home ownership such as property leasing and housing cooperatives, encouraging the division of under-occupied homes to create new housing units without using more land, and removing obstacles that prevent employers from providing accommodation for employees, such as by changing how benefits-in-kind are calculated.
Regarding rental prices, the proposal includes a suggestion that landlords should continue to be free to set the rent at the outset, but that subsequent increases should be very clearly regulated. It could be stipulated, for example, that rent may only be raised once every two years by up to a certain percentage.
Finally, Ruben said the national housing pact should be made more binding, setting concrete development and construction targets. According to Ruben, the goal is to require municipalities, often accused of dragging their feet, to use the many tools at their disposal to fight land hoarding and bring more sites forward for development.
