How the Lack of Housing Affordability Harms Europe’s Citizens

Yves here. Note that this article originally had the unduly anodyne headline, “Housing affordability is reshaping Europe’s social fabric.” What is surprising is that that authors tell us that few studies have been made of how unduly costly housing hurts the public. So this analysis is more important that it might seem.

By Jean-Jacques Hallaert, Senior Economist International Monetary Fund, and Iglika Vassileva, Senior Economist International Monetary Fund. Originally published at VoxEU

Housing affordability has moved to the forefront of Europe’s policy debate. While the economic literature has mostly focused on the drivers of housing unaffordability, this column examines its consequences in the EU. The authors find that increases in housing cost burdens have large adverse impacts on housing adequacy, with noticeable impacts on poverty and health. The effects on fertility and labour force participation are smaller.

Housing affordability has moved to the forefront of Europe’s policy debate. Surveys, press reports, and protests across the EU suggest that housing is increasingly seen not only as an economic concern, but also as a threat to social cohesion. For example, in its European Affordable Housing Plan, the European Commission states: “What Europe is facing is more than a housing crisis. It is a social crisis” (European Commission 2025a).

Yet, most economic research has focused on why housing has become less affordable and on its distributional impacts across groups and regions, and much less attention has been paid to its consequences (European Commission 2025b).1 In recent work (Hallaert and Vassileva 2026), we show that rising housing cost burdens are not merely a symptom of broader pressures; they also have important consequences for individual wellbeing as well as for the economic, demographic, and social situation.2 Importantly, our analysis considers the impact of housing affordability on multiple outcomes for the same period (2010-2023) and the same geographical area (the EU27 countries).

Three Channels  Through Which Housing Costs Matter

We estimate how high housing costs affect individuals and societies through three main mechanisms.

First, high housing costs reduce housing adequacy, forcing households into smaller, lower-quality, or poorly located dwellings. This is an issue that is particularly severe for the young (European Commission 2025b, Eurofound 2023). We capture this mechanism by estimating the impact of rising housing cost burdens on housing overcrowding and severe housing deprivation rates.3

Second, high housing costs results in lost opportunities. They make it difficult for individuals to move closer to employment and education opportunities. Turning down opportunities may increase poverty and contribute to lower labour force participation and inefficient spatial allocation of labour, which all affect wellbeing as well as productivity and economic growth (Glaeser and Gyourko 2018, Nguyen et al. 2026). We assess the importance of this mechanism by estimating the impact of an increase in housing cost burdens on the at-risk-of-poverty rate and labour force participation.4

Third, high housing costs constrain non-housing consumption. When a larger share of income is devoted to housing, some households may need to cut other spending. This can reduce access to healthcare, nutrition, and education, and affect childbearing decisions. We illustrate this mechanism by estimating the impact of housing affordability on fertility.

The impact on health shows that the channels can be interconnected: poor housing conditions can affect physical and mental health directly, but health status may also deteriorate if an individual reduces healthcare spending.

Using Machine Learning to Estimate the Consequences of Housing Affordability

Measuring the consequences of housing cost burdens is challenging because the forces that shape housing affordability also drive the outcomes we care about. In a relatively short panel, the list of factors that could plausibly matter is long relative to the number of years available. A textbook two-stage least squares approach struggles in this setting. We therefore adopt a double machine-learning approach with instrumental variables (DML-IV),5 which allows us to include a rich set of controls, while letting the relationships be non-linear and allowing the impact of housing costs to differ across countries and over time.

Figure 1 summarises the results.6 Each coefficient is best interpreted as an elasticity. For example, a coefficient of 2.3 on the overcrowding rate implies that a country where housing costs as a share of disposable income are 1% above the EU average tends to have an overcrowding rate about 2.3% above the EU average, all else equal.

Figure 1 Estimated impact and significance of a 1% deviation in housing costs (as a share of disposable income) from the EU average

Note: The whiskers report statistical significance at the 10% threshold.Source: Author’s calculations.

The Largest Impact of Housing Affordability Is on Housing Conditions

Higher housing costs quickly translate into a tangible decline in living standards. Figure 2 shows that even a small increase of 1% in the share of housing costs in disposable income relative to the EU average triggers a 2.3% increase in the overcrowding rate and a 1.4% increase in the severe housing deprivation rate relative to the EU average. We do not find evidence that the inability to find affordable independent housing delays young people’s departure from the parental house. Therefore, it is not a meaningful channel for the deterioration of housing conditions or other dimensions.

Broader Economic and Social Consequences: Jobs, Poverty, Demographics, and Health

We estimate that when the housing cost burden is 1% higher than the EU average, labour force participation is lower than the EU average by about 0.55% (0.4 percentage points) for both overall and female population (Figure 2).

Lower labour force participation along with forgone job or education opportunities due to housing costs reduce individual income and can thereby increase the poverty rate. We estimate that a 1% higher housing cost burden than the EU average increases the at-risk-of-poverty rate by 0.9% (equivalent to 0.15 percentage points) relative to the EU average of 16.8% (Figure 2). Thus, housing affordability problems do not merely reflect poverty; they also contribute to it (Desmond, 2016)

The impact on fertility is present but small, operating in part through delayed parenthood (Kearney and Levine 2025, van Doornik et al. 2025). We estimate that when housing cost burdens are 1% higher than the EU average, women would have their first child on average less than a month later than the EU average and that the fertility rate would be 0.1 lower than the EU average of 1.51 (Figure 2).

Consistent with the medical literature, we find that housing costs also affect health outcomes. A housing cost in disposable income ratio 1% higher than the EU average is associated with a 1% increase in the share of population reporting “bad” or “very bad” health relative to the EU average of 9.17%. This is another channel through which housing affordability affects the well-being of individuals (including children’s physical and emotional development; see Hallaert et al. 2023) and, by affecting a key component of human capital, again impacts productivity and potential growth.

Figure 2 Estimated impact of a 1% deviation of the housing costs in disposable impact from the EU average<

Note: The EU average housing cost in disposable income was 20.8% during the period considered. The chart reports the impact of a ratio 1 percent higher (21.0%) on all the variables on the horizontal axis. EU27 reports the average value of each variable during the period.Source: Author’s calculations.

Conclusion

By influencing where and how people live, their access to work and education, their consumption choices, and even their decisions to have children, housing affordability is reshaping Europe’s social fabric and affecting economic prospects. While we have presented average effects across the EU, the DML-IV framework also produces country- and year-specific estimates, revealing substantial cross-country variations and that the adverse impacts of housing affordability eased after the pandemic. This may in part reflect the expansion of remote work, which can alleviate housing-related constraints, but this warrants further investigation.

Authors’ note: The views expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management.

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