Why aren’t people investing in housing anymore?
Several factors are at play. First, there is a deep crisis of confidence: some developers have gone bankrupt without being able to deliver the homes they sold, and the completion guarantee has proven to be largely theoretical. In reality, it mainly allows buyers to recover part of the value of the vacant land—roughly half the initial price. Buyers have suffered considerable losses. At Félix Giorgetti, we continue to sell homes—admittedly fewer than before—but confidence remains intact because clients know that a solid group of 2,800 people in Luxembourg stands behind every project. Second, the tax system heavily discourages real estate investment. A saver who deposits money in a bank pays 20% tax on the interest earned. An investor who buys stocks and holds them for six months pays nothing. In contrast, someone who collects rent on multiple properties is taxed at 47%. All government subsidies have disappeared, registration fees are a heavy burden, and the 36 billion euros in cash sitting idle in Luxembourg’s banks are not accompanied by any incentive mechanisms to channel them into the real economy. Real estate is simply no longer treated as a full-fledged asset class.
80% of developers are in intensive care.
What regulations are holding back construction?
Regulatory complexity has reached levels that are difficult to achieve. For example, regarding ecology, on some construction sites, workers must manually relocate lizards, wait for bats to leave on their own, or even build tunnels for frogs at a cost of 150 euros each. These requirements, inspired by European directives with laudable intentions, result in studies costing several hundred thousand euros and delays that turn every project into a financial race against time. For a group like ours, these costs remain manageable. For a small developer who has recently purchased land at a high price and is paying variable-rate interest, simply waiting can lead to bankruptcy. These rules automatically reduce competition and concentrate the market around two or three major players, which is not beneficial to either the sector’s growth or homebuyers. The result is clear: approximately 800 housing units are currently under construction in Luxembourg, while annual demand stands at between 4,000 and 5,000 units. The cumulative shortfall since the post-COVID crisis is approaching 30,000 housing units.
We need to gather all stakeholders around one table to deliver a concrete plan.
How can we reestablish effective collaboration between the public and private sectors?
The government and local authorities own land on which two million square meters could be built. Nothing prevents a municipality from issuing a design-and-build call for bids, having housing built at cost, and renting it out at a reasonable rate, since the land is already financed by taxpayers. The city of Luxembourg is already successfully implementing this approach. Furthermore, a business owner who builds 50 housing units for their employees and wishes to rent them out at cost is hindered by the concept of “benefits in kind,” which generates additional social security contributions. Instead of spending public funds, the government could simply remove these tax barriers and let the private sector take action. The solution will not come from developers alone, nor from ministers alone, nor from cities alone. We need to recapture the spirit of the 1980s, when all stakeholders would gather around a table for hours and emerge with a concrete plan. Interest rates are rising, and growth is stagnating at around 0.5%, whereas we need four to four and a half percent to finance our social model. The time for half-measures is over.