The EU’s emerging strategy for housing affordability centres on boosting new supply, attracting private capital, and cutting red tape. However, this approach misses the core issue: the financialization of housing. The easy availability of money fuels demand, fundamentally skewing supply-and-demand dynamics and resulting in disproportionately high housing prices.
This article was initially published on 26 March 2026 on the Good Lobby blog.
Over the last 15 years, house prices increased by over 60% and rents by nearly 30%. That is about 10% faster than household incomes between 2014 and 2025, representing a massive erosion of purchasing power for ordinary citizens. In response to growing public and political outcry, the European Commission has announced an action plan on affordable housing in December and on 10 March 2026, the European Parliament adopted a report on this issue.
However the Parliament’s report, led by right-wing Spanish MEP Borja Gimenez-Larraz, has been heavily criticized from the Greens and Left MEPs for favouring the interest of property owners and speculators.
The EPP-led report misdiagnoses the problem from the start. Its prevailing belief is that high housing prices stem from a shortage of housing, due to excessive regulation such as permitting processes. In a market economy, the idea that high prices reflect an imbalance of between demand and supply seem logical at first sight. But is it?
Evidence strikingly suggests it is not. During the mid-2000s, Ireland and Spain experienced the biggest construction booms in Europe, yet they simultaneously saw house prices still soared by roughly 300% in both countries between the mid-1990s and 2007 (Byrne, 2020). In 2020, analysis by the Dutch central bank (where housing prices increased 2.5 times faster than incomes) concluded that house prices are more closely linked to the financing capacity of buyers than to shortages in the housing market.
Financialisation of housing: the unaffordability engine
The prevailing narrative surrounding the “housing supply shortage” overlooks a crucial part of the equation: the role of the financial system in driving up housing prices. For decades, experts have highlighted the “financialisation” of housing—a shift rooted in the evolution of the financial sector. Historically, banks primarily financed productive business investments. However, following financial deregulation in the 1970s and 1980s, banks fundamentally altered their operating model. Today, bank lending in advanced economies is increasingly directed toward existing residential and commercial real estate. Because a house is secured by a fixed piece of land, it serves as ideal collateral for banks. This transformation has turned housing from a basic necessity (shelter) into a financial asset, which is being used for speculative wealth accumulation.
Limitless money supply vs. scarce land
Financialization fundamentally shifts housing from essential social infrastructure or a basic human right to a lucrative asset class. Properties are increasingly bought in bulk, often without physical improvement, solely to extract profit from higher rents or from resale. Recent research from the European Central Bank evidences that in regions with active large-scale real estate investors, housing prices tend to increase by approximately 30% beyond economic fundamentals.
The dynamics at play has been acutely analysed by Josh Ryan-Collins and colleagues in their seminal book, “Rethinking the Economics of Land and Housing.” They explain that housing prices are driven by the “elastic” nature of money, which allows the supply of credit to increase rapidly in response to growing demand for mortgages. At the same time, the availability of land and dwellings is inherently inelastic due to their scarcity and the low pace of construction. When a limitless supply of bank money meets a fixed supply of land, the inevitable result is asset price inflation.
As Ryan-Collins warned during a parliament hearing in July, “we can never build homes at a fast enough pace to match the pace at which banks can make loans to enable people to compete to purchase existing homes.”
No solution without taxation and financial regulation
In spite of the broad range of evidence on the systemic consequences of housing financialisation provided to the Parliament’s housing committee over 10 months of expert hearings, the EPP-led report clearly overlooks this issue. This stands in stark contrast to the Commission’s advisory board on housing whose first recommendation calls for “a paradigm shift, so housing is seen as essential social as well as economic infrastructure and discourage the ‘financialisation’ of housing, where it is valued as a speculative asset rather than someone’s long term home.”
Acknowledging the crucial role of finance in driving housing unaffordability obviously implies a broader range of policy interventions. For instance, Professor Martijn Van der Linden suggests that prudential rules should be adjusted to differentiate between individual homeowners and owners of multiple properties. Reducing the loan-to-value cap for banks is a far more efficient method of moderating house prices than increasing housing supply alone. A study by Dutch researchers finds that a small loan-to-value cap reduction (from 96.9% to 93.3%) could lower peak house prices by 10% while achieving the same result only increasing supply would require building an estimated 420,000 extra homes.
Macroprudential are most effective when used in tandem and coordinated with government taxation policies. Progressive property taxes, for example in the form of a Land Value Tax can curb speculation, discouraging unearned land rents and vacant properties. Indeed, even the European Commission’s own analysis recognises that property taxation must be improved, in particular by shifting away from transaction taxes toward property taxes, such as land value taxes, or taxing vacant properties.
Ultimately, the question revolves around what can the EU do best to tackle the housing crisis. While many housing policy aspects—like zoning rules, permitting and taxation—are of local or national competence, financial regulation however is undeniably an EU-level policy, highly regulated by EU authorities.
The Parliament’s report represents both a fundamental conceptual misunderstanding of the problem’s root cause, and a strategic error because it fails to identify financial regulation as the EU’s most crucial policy leverage. It is time for Brussels to act where it actually has power. Financial regulation alone won’t fix everything. But nothing gets fixed while desperately needed financial reforms stay off the table.