Affordable Rental Housing: Making It Part of Europe’s Recovery

Many European economies have faced pressure from rental housing affordability that has widened social and economic divergence. While significant country and regional differences exist, this departmental paper finds that in many advanced European economies a large and rising share of low-income renters, the young, and those living in cities is overburdened. In several locations, middle-income groups also increasingly face rental affordability issues. These groups have experienced particularly slow income growth amid rising rental prices. Disparities between renters and homeowners have widened over the past decade in an environment of low interest rates and housing policies that tend to be regressive and favor home ownership. Rental housing support for the segment of tenants most in need has often not kept pace with affordability pressures. These trends will likely intensify after the disproportionate COVID-induced contraction of contact-intensive service sectors, wherein many renters are employed, as well as the need to flexibly relocate to locations in which sectors are expanding. Apart from analyzing rental housing affordability across households' income groups, location, and age cohorts in advanced European economies, this paper identifies key drivers of affordability in recent years. It also reviews experiences with policies in support of rental affordability. The paper argues that a post-pandemic economic strategy in Europe that aims to reverse heightened disparities must include more efforts to expand affordable rental housing. Targeted higher housing allowances, more social rental housing, and regulatory and financial incentives that raise rental housing supply across locations would not only tackle