Honour to the man of science. For Julien Licheron, a researcher at Liser and the Observatoire de l’habitat, the current system, which is based on the rule of 5% of the capital invested – “a rule which, on paper, provides a good framework for rents and which has been supplemented by a limit on increases during the lease to once every two years” – has the merit of existing. But it suffers from several limitations. Firstly, in the case of older properties and/or those purchased a long time ago, where it is difficult to calculate or prove the capital invested, or to find the documents needed to make this calculation. Secondly, in terms of the effectiveness of controls and penalties.

In essence, rent controls can be an effective tool for resolving one aspect of the housing crisis: that of a household’s access to – and retention in – housing. “But it is a tool that can have potential adverse effects, in particular the risk of disinvestment if the framework or controls are too strict, which would exacerbate the shortage. It is a tool that needs to be handled with care and is not a panacea. It should be just one tool among others to boost supply. It must be part of a package of measures with one objective: to increase the supply of housing. Rent control without an increase in supply risks creating a shortage. He also sweeps aside a common misconception: it is not rent control that will bring down rental prices overall.

A glaring lack of data

The system lacks above all, in his view, precise and detailed statistical data. Data that he considers essential before any reform is undertaken. “Whether we want to set up a new system based on invested capital or a much more market-based control system, in any case, we feel it is essential to have detailed information, at a sufficiently fine level of spatial disaggregation, with regard to rents, whether they are in the course of a lease or those of new contracts”, he explains.

Statistics that are essential for calibrating any reform, whatever its scale. “History counts. If we change the system completely, we risk a complete redistribution of the rental market, with winners and losers, including among tenants. Some would see their rents fall thanks to tighter controls, but others, whose landlords are ‘virtuous’ and haven’t raised prices for years, could see rises.”

In Luxembourg, there are two main statistical series “which coexist and provide useful, but not sufficient, information”: advertised rents collected in property advertisements used by the Observatoire de l’habitat – “which are reliable for new contracts, but say nothing about current leases” – and the Statec rent survey carried out as part of the national consumer price index. “It’s an interesting survey, but it doesn’t allow for a detailed spatial analysis. Liser is currently working on the creation of a German Mietspiegel-type rent grid, based on the age of the building, energy performance, location and length of occupancy.” The results will be known in the spring.

A hard-to-find consensus

The reform of the Luxembourg system is an eminently political subject. It has been removed from the reform of the leasehold which the government pushed through in April 2024. The minister for housing, Claude Meisch (DP), explained this impasse by his desire “not to add a legislative shock to a market that is already sufficiently disrupted”. It was a tactical retreat, as the minister reaffirmed that the reform had not been abandoned. And if a bill has not yet been tabled, it is because “the matter is complex because of the divergent, clear-cut interests between owners and investors on the one hand and tenants on the other. But one cannot live without the other and it is necessary to reach a consensus”, continued the minister.

A consensus that could be difficult to reach.

The market has its rules, and that’s the problem.

David Wagner, MP, déi Lénk

MP déi Lénk David Wagner is a staunch supporter of rent controls. In 2018, he tabled Bill 7257. The latter drew strong reservations from the Conseil d’État, which pointed out the risks of the system infringing property rights. The system was based on capping rents via a reference value, the obligation to state the capital invested in contracts and the creation of a national rents commission to guarantee compliance with the measures and prevent abuse. A commission to which all leases would have to be notified and filed. The reference value – also known as the weighting coefficient – was intended to decouple the maximum authorised rent from the current market value of the property, which would have the advantage of not passing on overheated property prices to rents. The text is still on the desk of the parliament's housing committee. And it is technically the only reform of the tenancy agreement that MPs can debate.

“This reform did not affect the rate of 5% of the capital invested, although we could consider lowering this percentage”, explains David Wagner. For him, rent control is not the solution to the housing crisis, but a treatment that has the advantage of being able to be administered quickly. For the déi Lénk councillor, the solution is to build more and build faster. To achieve this, he would like to see the creation of a national construction company whose mission would be to build public housing and preserve the workforce.

The place of the private sector? “The market has its rules, and that’s the problem. One day we’re going to have to ask ourselves who benefits from the subsidies and tax breaks. For us, developing an alternative offer so that people can house themselves without breaking the bank requires the development of a strong public sector.”

The framework must always support property investment.

Jean-Paul Scheuren, vice-president of the Chambre immobilière

For the vice-president of the Chambre immobilière, Jean-Paul Scheuren, the solution to the housing crisis lies in the need to guarantee the quality of habitability, while protecting profitability for small private investors.

Rent controls? Yes. If it is a qualitative framework, based on the definition of minimum standards of habitability. “The aim is to ensure that specific housing conditions are respected to guarantee the quality of life of the occupants.” And that this framework does not discourage landlords. “The framework must always support property investment. If the framework were too strict or restrictive, small private investors could stop investing in local housing. Let’s not forget that they represent 60% of landlords.” In Jean-Paul Scheuren’s view, as well as looking at rent controls, we should also look at the taxation of rental income. Rental income is more heavily taxed than capital income. “Income that often benefits from a 50% exemption and no capital gains tax, whereas rental income is taxed like normal income.”

“The real issue lies in the supply of housing rather than controlling it.” Rather than applying rigid ceilings, the vice-president of the Chambre immobilière advocates stimulating the supply of subsidised housing and offering tax incentives for landlords who moderate their prices. “This system would reduce pressure on prices while guaranteeing an attractive net return for investors thanks to the tax savings.”

The totem pole of 5% of invested capital? “A rigid rule that is often circumvented and unsuitable for older homes and should be abandoned in favour of a formula that allows for adjustment over time based on the real evolution of market prices.”