Luxembourg’s housing policy benefits rich, think tank says

Luxembourg is making wealthy people wealthier with about €800 million a year in tax breaks and other incentives for those who can afford to buy their own homes, a think tank said on Tuesday.

The cost of buying a home in Luxembourg more than doubled in the past decade, resulting in the Grand Duchy having the second-fastest rate in the European Union. The resulting crisis in housing affordability could be attacked if Luxembourg's leaders slashed the current array of buyers' benefits that have had the effect of pushing up home prices, the IDEA Foundation said in a report.

“A fraction of this sum, which contributes to financing the enrichment of wealthy owners, should rather be used to reduce the cost of housing for the most vulnerable tenants and increase the housing stock in public hands,” the report said.

Luxembourg's housing policy is based on legislation that allows a tax credit of up to €40,000 for couples that buy their home, the report said. Other benefits to buying a main residence include a reduced VAT rate, a deduction of up to €4,000 a year in home loan financing charges and no taxes on the property's appreciated value.

Instead of the current one-size-fits-all scheme, the Grand Duchy should instead target benefits to home-buyers based on their income and assets, the report said.

Last year, Prime Minister Xavier Bettel announced plans to create a register of empty flats and houses, whose owners would be taxed to nudge them into renting or selling the properties and increasing the housing supply. Real estate experts told the Luxembourg Times that the move would have little impact on the country’s exploding housing prices.

Redirecting some of the €800 million per year now spent on home-buyer benefits would allow the state to buy more apartments that could be rented out at affordable costs, the IDEA Foundation proposed.

“The renewal of housing policy that is needed, should have the reduction of the cost of access to decent housing for those who are truly financially constrained, at the centre of its goals,” said Michel-Edouard Ruben, an economist who authored the report.

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