A larger increase in affordability ratio for tenants (renting at the market prices) between 2010 and 2018
The household housing affordability ratio is an indicator of the ability to access and remain in housing. It measures the ratio between the cost of housing (mortgage repayments or rent payments + normal household running costs) and a household’s disposable income (EUROSTAT definition).
6 out of 10 households are paying off a mortgage or pay rent
In 2018, over a third (36%) of households were owner-occupied with a mortgage or loan and 25% were tenants paying a rent at the normal rate. In total, this makes 6 in 10 Luxembourg households that are repaying a mortgage or paying rent (61%). These two categories of households are subject to higher housing costs than other household categories, and these costs are at risk of taking up an increasingly large proportion of their budget over time.
A more marked increase in affordability ratio for tenants
The analysis of the affordability ratio by household tenure status shows an overall increase for all households, albeit one that is slightly more marked for tenants renting at market prices. Although the affordability ratios for homeowners and tenants were almost identical in 2010 (around 30%), it rose to 32.6% in 2018 for owner-occupiers with a mortgage or loan (+5.7% over the period) and 36.7% for tenants (+23.3%). In addition, the proportion of tenant households whose affordability ratio exceeded 40% also increased more quickly than for owner-occupied households with a mortgage or loan.
In order to obtain reliable data on the affordability of housing for resident households and to better inform the debate on the affordability of housing in Luxembourg, the Ministry of Housing commissioned two socio-economic studies* from the Housing Observatory. The indicator presented here is from the first study on changes of the household housing affordability ratio since 2010 by tenure status (owner-occupiers and tenants).
In 2018, over a third (36%) of households were owner-occupied with a mortgage or loan and 25% were tenants paying a rent at the normal rate. In total, this makes 6 in 10 Luxembourg households that are repaying a mortgage or paying rent. These two categories of households are subject to higher housing costs than other household categories, and these costs can take up an increasingly large proportion of their budget. The affordability ratio is an indicator of the ability to access and remain in housing, which provides an insight into changes to these costs. It measures the ratio between households’ expenditure on housing costs and their disposable income. The cost of housing is equivalent to the mortgage repayment or rent plus the normal household running costs (electricity, heating, etc.). Disposable income is what is available for households to consume and save, i.e. after taxes and social security contributions.
The analysis of the net affordability ratio of households resident in Luxembourg by tenure status shows that owner-occupied households with no outstanding mortgage or housing loan have the lowest affordability ratio (under 10%), as their housing costs are limited to normal household running costs. However, owner-occupiers with a mortgage or loan and tenants are the two groups of households whose affordability ratio has increased the most over the entire period. Nevertheless, the increase in affordability ratios has been more significant for tenants. Both starting at a figure of around 30% in 2010, it rose to 32.6% in 2018 for owner-occupiers with a mortgage or loan (+5.7% over the period) and 36.7% for tenants (+23.3%). While tenants are 45 years old on average, as are owner-occupiers with a mortgage or loan, they also have lower disposable income and lower equivalised disposable income. After refining the analysis, it also becomes clear that the proportion of tenant households whose affordability ratio exceeded 40% also increased more quickly than for owner-occupied households with a mortgage or loan. In total, 32.5% of tenant households spent more than 40% of their income on the cost of their housing in 2018 (26.5% among owner-occupiers with mortgages or loans), while this figure was less than 20% in 2010 (25.2% in 2010). Banks’ regulation of mortgage lending explains the stability experienced by recent homebuyers. While rents are also regulated, landlords have in all likelihood adjusted rents to reflect market values given the increase in property prices in recent years. Tenants’ incomes have increased less quickly than their counterparts who are owner-occupiers with mortgages or loans and than property prices, and as such more and more tenants are spending a significant proportion of their budget on housing.
Analysing the affordability ratio, which highlights the financial difficulties households may experience in accessing and remaining in housing, shows that these difficulties appear to be on the rise in Luxembourg. An increase in the average affordability ratio can be seen for all households over the 2010-2018 period. This increase is even slightly more marked for tenants.
* The main results were presented during the Ministry of Housing’s press conference: The Housing Observatory notes the increasingly urgent need for ‘affordable’ housing for low-income households, 2.07.2020 (link)
All private households and their current members residing in Luxembourg at the time of the data collection, except tenants renting at a reduced price or free.
EU-SILC, 2010-2018, transversal data, version of March 2020
A break in series took place in 2016. It influenced the housing data in the sense that the calculation of housing expenses has changed. In 2015 and previous years, variables for housing expenses that specifically concern housing insurance, several taxes, garbage removal, water, gas, electricity and home maintenance costs were fully imputed. From 2016, the method of imputation of all these variables changed and the amount + rhythm of each of the housing expenses began to be surveyed. Since the amounts are requested, the amount of housing expenses are more accurate from 2016
In 2018, tenants (renting at the market prices) recorded an affordability ration of 36.7%, while for owner-occupied no outstanding mortgage or housing loan the rate was 7.5%.