The housing affordability crisis is currently one of the European Union’s greatest economic and social challenges. Unaffordable housing prices have become an obstacle to mobility, access to employment and education, as well as to economic development and competitiveness ‒ and this crisis has spread across various Member States.
In this context, competent national authorities have been adopting ‒ each taking into account the specific situation in their territory ‒ restrictive measures aimed at preserving housing for long-term use and easing pressures on housing affordability and availability. These measures have focused, among other things, on short-term rental activity and other forms of using residential property for non-primary housing purposes.
However, local approaches, which differ both in the measures adopted and in the mechanisms used to identify housing pressure, have been negatively affecting the functioning of the Union’s internal market by reducing legal certainty for economic operators active within it ‒ namely hosts who make properties available in several Member States and cross-border buyers and investors.
Taking this fragmentation into account, but also recognizing that housing markets are inherently local and require responses tailored to the realities of each territory, the European Commission presented, on 9 September, the Affordable Housing Act: a proposal for a regulation aimed at providing Member States with a common legal and procedural framework for adopting restrictive measures that protect the affordability and availability of housing in areas under housing pressure.
The Commission does not intend to harmonize housing policies among Member States, nor does it intend to require local authorities to adopt specific housing market policies. On the contrary, its goal is to create a common framework governing the assessment, review, and transparency of the justification and proportionality of measures adopted at national level, ensuring greater predictability and transparency, thereby contributing to the better functioning of the Union’s internal market.
The proposed Regulation provides that Member States may adopt two types of measures to safeguard the affordability and availability of housing:
- Restrictions on access to short-term rental services, or on the provision of such services in residential properties that are not the host’s primary residence; and,
- Restrictions on the acquisition or use of land and residential properties for purposes other than primary residence.
These measures must comply with requirements of non-discrimination, necessity, and proportionality, and may only be adopted in areas under housing pressure.
The concept of an “area under housing pressure” is central to this proposed Regulation, being essential to harmonize it for the purposes of implementing the final regulation. To define an area as being under housing pressure, national authorities must verify compliance with the following criteria:
- The price-to-income ratio must be equal to or greater than 8 (corresponding to 8 years of per capita disposable income required to purchase an average-sized home);
- The price-to-income ratio must have shown an upward trend over the past 10 years. When this ratio reaches or exceeds 10, proof of this upward trend is not required;
- It must be demonstrated that housing pressure is unlikely to ease over the next 3 years, based on an assessment of demographic trends and the evolution of housing supply and demand in the area.
Once housing pressure has been demonstrated, any restrictive measure may be adopted under this proposed Regulation only if the authority proves that the activity in question has had a significant adverse effect on the affordability or availability of housing prices for at least 3 years prior to the adoption of the measure.
The proposal also stipulates that any measure to be enacted under the approved Regulation will always be temporary and may be adopted for a maximum period of 5 years, unless an extension is justified following its review.
It is important to note that the criteria set forth in this proposed Regulation is only applicable to the restrictions mentioned above, and only when these are intended to safeguard the affordability and availability of housing in areas experiencing housing pressure. Other measures aimed at promoting housing, as well as restrictions adopted for reasons of public interest other than safeguarding affordable prices and the availability of housing, are therefore outside the scope of the proposed Regulation.
This proposal will now proceed to the European Parliament and the Council for discussion. Given the relevance of this matter, developers and investors should consider the possibility of facing restrictions on the acquisition of real estate for non-residential purposes, or on their use of such properties, and adjust their investment strategies accordingly.
CCSL will closely monitor the progress of this legislative initiative. For further information or clarification, please contact us at jlp@ccsllegal.com.
[Photograph by: Maria Ziegler, available at unsplash.com]