Renting and Buying in Times of Scarcity: A New Direction for the Housing Market

Rents are rising by more than 6.5% in just one year, while affordable housing seems to be becoming increasingly scarce. What is driving these rapid changes? And more importantly, how can we address the growing challenges of the real estate market? Koen Hoste, strategic and managing partner at Living Stone, will explore with you the creative solutions and new perspectives the housing market has to offer in an era of scarcity. From the rising average age at which people buy a home to innovative initiatives such as co-housing and Tiny Houses. 

Rents rose by more than 6.5% last year. Apartments under 800 euros a month and townhouses under 900 euros a month are almost impossible to find. It is clear that inflation in recent years has certainly played a role here.

But there's more to it than that. 

The Changing Landscape of Home Buying

We’ve noticed that the average age at which people buy a home continues to rise year after year. On the one hand, this is due to the harsh reality that banks require a 20% down payment —a threshold that is simply too high for many young people. As if that weren’t enough, ever-rising home prices and the inevitable renovation costs make it even harder to save enough money for that long-awaited purchase.

On the other hand, there are other factors at play. There are more and more single people in their twenties and thirties for whom a traditional apartment or house designed for couples or families with children is simply not affordable. Moreover, many young people today are in no hurry to settle down at a young age. They crave freedom and flexibility, even if they are already in a relationship.

Nevertheless, it has been repeatedly shown that owning a fully paid-off home in later life makes it easier to get by on a modest pension. It also makes our citizens wealthier than those in neighboring countries, where many people pay rent their entire lives. And as the saying goes: a good start is half the battle.

By 2030, our population will have grown by nearly 600,000 people—a change that our housing market is clearly unable to handle at this time. It is becoming increasingly crucial to move away from traditional approaches and seek innovative, out-of-the-box solutions that go beyond the beaten path.

The rental market: a challenge in balance

Investing in the future

It is naive to believe that we can provide everyone with an affordable home to buy in the long term. Although we can influence the market, we can never completely halt the forces of supply and demand. Nor would that be wise.

People who bought their own home at a young age will have capital available in middle age to potentially make further investments in real estate. Think of an apartment by the sea or a rental property in a city center. Encouraging this investment-minded middle class can help address the shortage of quality rental housing. It is clear that building social housing alone will not be enough.

If you can offer a competitive rental yield and ensure that purchase costs do not change with every legislative cycle (such as VAT and registration fees), while also keeping these costs reasonable (a 21% VAT rate is not appropriate here!), this will foster a stable investment climate in the local real estate market. 

Rent subsidies and quality housing

By offering vulnerable groups, such as single parents, the opportunity to rent quality housing outside the social housing market, we can create a larger supply more quickly while simultaneously reducing stigma. Rent subsidies can bridge the gap between market prices and the financial means of this group. Such a system enables the government, in collaboration with the investing middle class, to address the housing shortage while simultaneously contributing to retirement savings.

Encouraging this collaboration to address the need for affordable, high-quality housing is a much more positive story than the perception that social housing policies have created over the past few decades. Moreover, this is likely to save the government money in terms of resources, personnel, and property management—areas where it has so far had little success.

Social rental agencies also play a role in this, and some developers have recently begun to see the benefits of developing and reserving a portion of their inventory for the growing rental market. It is clear that a social rental policy must take a comprehensive approach in order to achieve its objectives more quickly and effectively.

The housing market: new perspectives

For young people who are fortunate enough to have parents or grandparents who can help them buy a home, the path to homeownership is often open. Unfortunately, for an increasing number of young people, this is becoming an unattainable goal. For them, the rental market often remains the only realistic option, unless innovative alternatives are devised. This calls for a creative approach to limited space and a reevaluation of entrenched rules regarding urban planning.

Community Land Trust models

There are already several initiatives in the housing market aimed at promoting affordability. One example is the Community Land Trust model, in which you purchase only the structure of the home, while the land remains the property of the Land Trust.

Additional floors for affordable housing

Another potential initiative is for the government, as the licensing authority, to allow project developers to add additional stories at specific locations, on the condition that they charge only the construction cost for those residential units. This could provide low-income families with a significant discount of approximately 25%–35% on the purchase price of the land. However, it is crucial that this discount be substantial enough; otherwise, the affordability problem will not be significantly addressed.

Unexpected locations for new homes

Another approach could be to build housing in less obvious locations. Consider, for example, industrial and school sites, where the government could allow additional stories for residential use to offset the land value. An added benefit of this is that a sense of community could develop in these areas, so they no longer feel deserted and abandoned during the evenings and on weekends. Moreover, even supermarkets or retail parks could be eligible for such developments, enabling a more versatile use of the space and creating new opportunities for affordable housing.

Cohousing: An Alternative to Traditional Housing

Although there is a growing number of cohousing initiatives , many of these projects do not appear to be significantly cheaper, unless the participating individuals themselves take on the entire process—from permitting and financing through to construction. These projects often focus on medium-sized and large apartment buildings and traditional families, making them less attractive to young people and less affluent prospective residents.

These projects have little in common with the growing popularity of cohousing in the rental market. In this context, young people move in together in a house. They do this to reduce rental costs, but certainly also for the social aspect. In many cities, this form of cohousing is discouraged because authorities want to reserve these homes as much as possible for families with children. Nevertheless, cohousing is attracting interest among young first-time renters.  

Since individual student rooms are already being sold, the same approach could be applied to individual cohousing units. Imagine this: in a new-build home or a building to be renovated with a living area between 175 and 200 square meters, 4 or 5 individual living units of approximately 25 square meters each could be created, complete with private bathrooms. The remaining space could then be for communal use, such as a shared kitchen, living room, storage area, bike shed, and a shared outdoor space like a courtyard or garden. This concept offers young first-time buyers the opportunity to purchase their first home for a cost of 135,000 to 175,000 euros (just 1/4 to 1/5 of the total cost for land and construction on a lot of 2 to 5 acres). When you consider that the rent for each unit would be between 650 and 850 euros per month, this is undoubtedly a wise investment.

Tiny Houses: A New Trend in Affordable Housing

Another trend is the rise of tiny houses. Provided there is a clear legal framework, these affordable homes could also offer a quick path to homeownership for singles and small families.   

A forward-thinking housing policy must take into account the rise of non-traditional family and living arrangements, which have different housing needs. Purchasing a small, sustainable, and affordable home early in one’s “housing journey” can be a wise choice, providing greater financial flexibility later on to purchase a family home.

The government should develop a framework to encourage affluent citizens to invest in local and sustainable projects for the residential rental market as part of their retirement planning. This requires a tax policy that encourages rather than discourages investment in local real estate.