Luxembourg’s housing policy has revolved around the same key measures for years: building more homes, speeding up procedures, supporting homebuyers and reforming property taxation. For the Idea Foundation, this approach is clearly no longer sufficient. In its latest working paper – provocative, if not downright iconoclastic – entitled “Widening the Overton Window”, the think tank proposes six avenues aimed at breaking free from the ‘automatic responses’ of housing policy.

His starting point is simple: the problem is not solely one of supply. Demand must also be solvent. ‘Building more’ therefore does not automatically guarantee that households will be able to buy. Rising house prices, the increasing cost of borrowing and stricter conditions for accessing loans have gradually pushed part of the middle classes out of the market. For an employee earning twice the net minimum wage, the proportion of income required to buy a 55-square-metre off-plan property has thus risen from 34% in 2015 to 59% in 2023.

Simply spending money is no longer enough

In short: the housing problem can no longer be reduced to a shortfall in new-builds. Tax expenditure on owner-occupied housing had already reached €785m in 2025, comprising the Bëllegen Akt scheme, reduced VAT, interest deductibility and home savings schemes. At the same time, some 9,500 households were on the waiting lists for affordable rental accommodation with the National Register for Affordable Housing (Renla).

Herein lies the paradox: the state spends heavily on supporting housing, yet fails to make it sufficiently accessible. The logical solution – and one that is somewhat unwelcome to the current model – is therefore to shift the debate to a different front: namely, who will actually be able to afford the homes that Luxembourg intends to build. Without a fundamental change to the model, the country risks continuing to produce housing policies… without actually making housing any more affordable.

The think tank has identified six areas of focus that need to be addressed in order to move from a war of attrition to a war of manoeuvre – the only way for the middle class to become homeowners again. It will be no easy battle.

Who will be able to buy the flats?

This is one of the central issues addressed in the document. Idea proposes, first and foremost, to tackle ‘effective demand’, that is to say, households’ ability to finance housing. In particular, the think tank puts forward the idea of a ‘mutual scheme’ designed to finance the construction of housing for employees, funded by a contribution of around 0.5% of earned income. According to its estimates, such a mechanism could generate nearly €200m a year.

The aim is to restore solvent demand to the market, at a time when residential construction is currently suffering from a combination of high prices, interest rates and macroprudential rules. But the foundation does not stop at funding. The think tank also proposes relaxing the ‘no prior home ownership’ criterion for accessing affordable or moderate-cost public housing. A household could therefore retain a property located more than 150 kilometres from the Luxembourg border, or an unsuitable property in Luxembourg, provided, in particular, that it is placed under social rental management.

Rents: a new approach

Another controversial proposal: a thorough review of the relationship between landlords and tenants. Idea advocates a form of ‘flexible security’ for the rental market. The initial rent would be freely negotiated between the parties, whilst the landlord would be obliged to disclose the rent paid by the previous tenant. Once the tenancy agreement has been signed, rent increases would be subject to various parameters, such as changes in prices, energy costs or the geographical location. The idea is therefore to ease the constraints on setting the rent at the start of the tenancy whilst enhancing transparency and predictability throughout the tenancy period.

This proposal breaks with the approach of imposing ever more caps. It is also based on the observation that if private rental investment becomes insufficiently profitable, some landlords may withdraw from the market. Idea believes the balance should be shifted in favour of private investment, whilst strengthening controls on housing quality and compliance with the rules.

Taxing homes that are too large

This is probably one of the most unconventional measures: tackling the issue of under-occupied housing. Idea points out that nearly 70% of people aged over 65 live in under-occupied homes. Rather than focusing solely on building new homes, the think tank therefore proposes transforming part of the existing housing stock: dividing up large houses, creating integrated housing, building upwards, or developing building rights above existing buildings.

And to encourage landlords to take action, Idea proposes a ‘bedroom tax’, modelled on schemes in other countries, which would apply to properties that are clearly under-occupied. The principle would be to tax landlords whose properties are significantly larger than their needs. Several adjustments are being considered, particularly for low-income households, with the option of converting this charge into a debt payable at the time of sale or inheritance.

A politically explosive idea in a country where a home is also part of a family’s heritage.

Property, with a difference

Idea’s findings are equally worrying when it comes to home ownership. The proportion of 35-year-olds who own their own home has fallen over successive generations: from 67.5% for those born in the 1950s to less than 60% for those born in the 1980s. In light of this trend, the think tank proposes rethinking home ownership. Progressive ownership, shared ownership, co-operatives and property leasing are among the solutions put forward. Idea draws inspiration in particular from the UK’s ‘Help to Buy’ scheme, with public funding covering up to 25% of the purchase price, interest-free for the first five years. The scheme would be targeted at first-time buyers and at new-build homes developed by approved developers.

But the report refuses to peddle an illusion: the middle class will not easily become homeowners again. This conclusion is perhaps the most lucid – and the most provocative – part of the document.

Local authorities under pressure

Idea also wishes to review the balance of power between the State and local authorities. The Housing Pact could thus evolve into a genuine contract between the State and local authorities, with differentiated targets for construction and infrastructure provision. Above all, sanctions would be introduced in the event of inaction: formal notices, financial penalties, substitution or the appointment of a special commissioner. The idea is clear: if a local authority has the necessary tools but fails to use them, it should no longer be able to opt out of the national effort to build housing.

But this proposal raises a fundamental question, quite apart from the issue of circumventing the constitutional principle of local authority autonomy: can building targets be imposed where there is insufficient solvent demand? The report itself acknowledges that the issue of funding and demand cannot be separated from that of supply.

Making businesses key players in the housing sector

The final lever: employers. Idea believes that the current tax system discourages companies that would like to provide accommodation for their employees. When accommodation is provided free of charge or at a reduced rate, the benefit is currently assessed on a basis that may be close to the market price. The think tank therefore proposes a more favourable tax treatment, which could, for example, be based on a rent 25% below the market rate, subject to anti-abuse mechanisms.

The aim is to foster the development of a housing market linked to employment, given that nearly one in two workers in Luxembourg is a cross-border worker. The Foundation takes this line of thinking to its logical conclusion by calling for a review of cross-border housing.