Eve, here. Please note that this article originally had the unfairly offensive headline: “Housing affordability is reshaping Europe’s social fabric.” What is surprising is that the authors note that little research has been done on how unreasonably expensive housing harms the public. Therefore, this analysis is more important than you might think.
By Jean-Jacques Harahert, Senior Economist, International Monetary Fund, and Igrika Vasileva, Senior Economist, International Monetary Fund. Originally published on VoxEU
Housing affordability has moved to the forefront of European policy discussions. While the economic literature has mainly focused on the drivers of housing affordability, this column considers its implications for the EU. The authors found that increased housing costs had a significant negative impact on housing affordability, with significant effects on poverty and health. The impact on birth rates and labor force participation rates is small.
Housing affordability has moved to the forefront of European policy discussions. Research, reporting and protests across the EU suggest that housing is increasingly seen as not just an economic concern, but also a threat to social cohesion. For example, in its European Affordable Housing Plan, the European Commission states: “Europe is facing more than a housing crisis; it is a social crisis” (European Commission 2025a).
However, most economic studies have focused on why housing has become less affordable and the impact of how housing is distributed across groups and regions, with less attention paid to the consequences (European Commission 2025b). 1 Recent research (Hallaert and Vassileva 2026) shows that rising housing costs are not simply a symptom of broader pressures. It also has important implications not only for individual well-being, but also for economic, demographic, and social conditions. 2 Importantly, our analysis considers the impact of housing affordability on multiple outcomes over the same period (2010–2023) and in the same geographic region (EU27).
Three channels where housing costs matter
We estimate how rising housing costs affect individuals and society through three main mechanisms.
First, rising housing costs reduce housing affordability, forcing households to live in smaller, lower-quality or poorly located housing. This is a particularly serious problem for young people (European Commission 2025b, Eurofound 2023). We capture this mechanism by estimating the impact of rising housing cost burdens on housing overcrowding and severe housing deprivation rates3.
Second, rising housing costs create opportunity costs. These make it difficult for individuals to access employment and educational opportunities. Turning down opportunities can increase poverty and lead to lower labor force participation rates and inefficient spatial distribution of labor, all of which affect not only welfare but also productivity and economic growth (Glaeser and Gyourko 2018, Nguyen et al. 2026). We assess the importance of this mechanism by estimating the impact of increased housing costs on the proportion at risk of poverty and labor force participation4.
Third, rising housing costs will suppress non-housing consumption. Once a large portion of income is spent on housing, some households may need to cut back on other expenses. This can reduce access to health care, nutrition, and education, and affect childbirth decisions. We explain this mechanism by estimating the effect of housing affordability on fertility.
Health effects indicate that these channels may be interrelated. Poor housing conditions can have a direct impact on physical and mental health, but health outcomes can also deteriorate as individuals cut back on health care costs.
Estimate the impact of housing affordability using machine learning
Measuring the impact of housing cost burdens is difficult. Because the forces shaping housing affordability also influence the outcomes we care about. For relatively short panels, the list of potentially important factors is long compared to the number of years available. The textbook two-stage least squares approach is difficult in this situation. Therefore, we adopt a dual machine learning approach with instrumental variables (DML-IV)5. This allows us to include a rich set of controls while making the relationship nonlinear and allowing the impact of housing costs to vary across countries and over time.
Figure 1 summarizes the results. 6 Each coefficient is best interpreted as an elasticity. For example, a factor of 2.3 for the overcrowding rate means that a country where housing costs as a share of disposable income is 1% higher than the EU average will tend to have an overcrowding rate around 2.3% higher than the EU average, all else being equal.
Figure 1 Estimated impact and significance of a 1% deviation in housing costs (as a percentage of disposable income) from the EU average
Note: Whiskey reports statistical significance at a 10% threshold.
Source: Author’s calculations.
The biggest impact of housing affordability is on housing conditions.
Rising housing costs quickly lead to a measurable decline in living standards. Figure 2 shows that a small increase of 1% in the share of disposable income spent on housing compared to the EU average leads to a 2.3% increase in overcrowding and a 1.4% increase in severe housing deprivation compared to the EU average. We find no evidence that the inability to find affordable independent housing delays young people’s departure from their parents’ homes. Therefore, it is not a meaningful pathway for the deterioration of housing conditions and other aspects.
Broader economic and social impacts: employment, poverty, demographics, health
We estimate that if the housing cost burden is 1 percentage point higher than the EU average, the labor force participation rate will be around 0.55 percentage points (0.4 percentage points) lower than the EU average for both the total population and the female population (Figure 2).
Lower labor force participation rates due to housing costs and foregone job and education opportunities can reduce individual incomes, thereby increasing poverty rates. We estimate that a housing cost burden of 1% higher than the EU average increases the poverty risk rate by 0.9% (equivalent to 0.15 percentage points) compared to the EU average of 16.8% (Figure 2). Therefore, housing affordability issues do not simply reflect poverty. They also contribute to it (Desmond, 2016)
Effects on fertility exist but are small and are partially influenced by delayed parenting (Kearney and Levine 2025, van Doornik et al. 2025). We estimate that if housing costs were 1% higher than the EU average, women would have their first child on average less than a month later than the EU average, and the birth rate would be 0.1 lower than the EU average of 1.51 (Figure 2).
Consistent with the medical literature, housing costs have also been found to influence health outcomes. A 1% higher share of disposable income spent on housing than the EU average is associated with a 1% increase in the proportion of the population reporting poor or very poor health compared to the EU average of 9.17%. This is another channel through which housing affordability affects individual well-being (including the physical and emotional development of children; see Halaert et al. 2023), which in turn influences productivity and growth potential by affecting key components of human capital.
Figure 2 Estimated impact of a 1% deviation on the disposable impact of housing costs from the EU average
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Note: Average EU housing costs as a percentage of disposable income were 20.8% during the period under review. This graph reports the impact of a 1 percent higher proportion (21.0%) on all variables on the horizontal axis. EU27 reports the average value of each variable over the period.
Source: Author’s calculations.
conclusion
Housing affordability is reshaping Europe’s social fabric and influencing its economic outlook by influencing where and how people live, their access to work and education, their consumption choices and even their decisions about whether to have children. Although we presented the average impact across the EU, the DML-IV framework also produces country- and year-specific estimates, revealing significant cross-country variation and a mitigation of the negative impact on housing affordability after the pandemic. This may partially reflect the expansion of remote work, which can alleviate housing-related constraints, but requires further investigation.
Author’s Note: The views expressed here are those of the author and are not attributable to the IMF, its Board of Directors, or its management.
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