Policy Note 30: Aligning housing policy effectively

Rents are rising, especially in major cities such as Vienna, Berlin, London and Paris. This has once again triggered a debate about affordable housing. "The fact that rents are rising is primarily the result of increasing demand and a lack of corresponding growth in supply: increasing urbanization, higher life expectancy and immigration as well as changing lifestyles and concepts towards single-person households are the driving forces behind this development," says Tobias Thomas, Director of the economic research institute EcoAustria.

"Various housing policy measures do not address the causes of rising rents and can even exacerbate the problem of housing shortages," explains Thomas. For example, direct rent regulation leads to higher demand for housing, reduced incentives for investment and therefore less supply. This will exacerbate the housing shortage. More than 70 percent of tenancies in Austria are already subject to rent regulation. Tenants in existing tenancies in particular will benefit from a reduction in VAT. However, rents for new tenants, e.g. young people looking for their first home or families who need a larger apartment, will not fall to the extent of the VAT reduction. In addition, it hardly has a long-term effect, as the example of Germany shows: There, renting out housing to private individuals is exempt from VAT, yet rents in cities such as Hamburg or Munich are high and rising sharply. Social housing plays a special role in Austria. Around 20 percent of all Austrians and 45 percent of Viennese already live in council or cooperative housing. However, a lack of needs assessments for existing tenancies means that this instrument only has a limited effect on the target group.

If rents are not to rise further in the face of growing demand, there must be a corresponding increase in available housing. Housing policy measures should start here: Improvements in housing subsidies, building regulations and building permits as well as improved
-building regulations and permits as well as improved integration of the city and surrounding areas. Tenants and landlords would benefit from this, according to the conclusion of a newly published EcoAustria policy note.