Luxembourg is one of the countries with the highest property prices in the EU , Source: Depositphotos

Luxembourg’s landmark housing reform – here to break a vicious cycle

Luxembourg’s landmark housing reform – here to break a vicious cycle

After years of struggling through an extreme housing crisis, the Grand Duchy of Luxembourg may have finally turned the tide

At the end of last week, the Luxembourgish government passed a series of laws amending land taxes, vacant housing taxation and housing registration laws. The package has been hailed by the Grand Duchy as a turning point for the housing crisis by making the ownership of multiple properties a luxury, according to Minister for Housing, Henri Kox.

In fact, when the current government formed a coalition in 2018, a centrepiece of the political agreement was to push for housing reform. This was because of Luxembourg’s eye-watering housing prices, as the small country frequently tops the EU’s charts for most expensive rents and property.

Moreover, the situation has gotten so hostile, that Luxembourgers have started flocking to neighbouring Belgium, France and Germany as ‘housing refugees’ with almost half of salaried jobs being done by cross-border commuting workers. This, however, has led to housing prices rising in the regions bordering Luxembourg while pushing away locals in what can be described as a ‘housing crisis spill-over’.

Owning excess property, now a luxury

Luxembourg’s new policy package for housing acts on multiple levels simultaneously and uses taxation as a primary lever to discourage land hoarding and vacant housing. It does so by raising taxes on vacant housing and buildable land while lowering taxes on property ownership.

Curiously enough, some of the laws that the government had to amend are as old as 1941 and represent some of the oldest on the books in the Grand Duchy. Taxes on the properties should go down as the government has introduced a new calculation model.

At the same time, the Land Mobilisation Tax (IMOB) is supposed to encourage the development of land designated for housing. According to a government statement, the effective implementation of this tax, however, was dependent on developing a national land register.

Authorities completed the register back in December of 2021. While collecting data, the government found out that more than half of the buildable land in the country was owned by around 0.5% of the population.

Although the tax aims to target undeveloped land zoned for the construction of housing, the taxation system will make a distinction between plots that have amenities like roads and utilities and those that do not.

Taina Bofferding, Minister for Home Affairs, was quoted in an official statement, explaining that it is unacceptable for owners to not build housing on their land, even though it is intended for this purpose, while more and more people, young people, families, can no longer afford to live in Luxembourg.

She continued by pointing out that these policies were definitely not a means of generating more income for the government. Instead, they are a means to re-balance a system rife with injustice.

Taxing vacant housing

When it comes to vacant housing, the Luxembourg government plans to introduce a 3,000-euro tax per dwelling per year. However, after the first year, that number will increase by 900 euros annually to a maximum of 7,500 per year.

Additionally, a vacant dwelling is considered one that does not have anyone registered on it for more than six months, yet, authorities will have to verify its status before implementing the tax.

According to Minister for Housing, Henri Kox, renting out a property would not be an issue as the Grand Duchy has a robust Social Rental Management system, connecting landlords and tenants, with more than 1,000 active contracts under its belt.

Finally, in order to be able to manage housing policy more precisely, the government wants to introduce a National Register for Buildings and Dwellings. This would see every liveable dwelling and housing unit (meaning subdivisions of an apartment or building) have a unique registration number.

This would allow authorities to have accurate data on occupancy and pinpoint precision on the situation on a national level.



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