Yves here. This article’s original headline, “Housing affordability is reshaping Europe’s social fabric,” might have understated its significance. The authors highlight a notable gap in research regarding how excessively high housing costs negatively impact communities, emphasizing the importance of this analysis.
By Jean-Jacques Hallaert, Senior Economist International Monetary Fund, and Iglika Vassileva, Senior Economist International Monetary Fund. Originally published at VoxEU
Housing affordability has emerged as a central theme in Europe’s policy discussions. While past economic literature has largely concentrated on the causes of housing unaffordability, this column delves into its broader repercussions within the EU. The authors discover that rising housing costs significantly diminish the quality of housing and have notable effects on poverty and health, with some influence on fertility and labor force participation.
Housing affordability is increasingly recognized as more than just an economic issue; it poses a risk to social stability across Europe. Widespread surveys, media coverage, and public protests indicate that citizens view housing costs as a pressing concern. The European Commission, in its European Affordable Housing Plan, states: “What Europe is facing is more than a housing crisis. It is a social crisis” (European Commission 2025a).
Despite this urgency, most academic research has focused on why housing has become so unaffordable, often overlooking its far-reaching implications (European Commission 2025b). In our recent study (Hallaert and Vassileva 2026), we demonstrate that escalating housing costs are not simply symptoms of larger socio-economic pressures; they also exert significant consequences on individual well-being and influence the economic, demographic, and social landscape. Our analysis examines housing affordability impacts over a set period (2010-2023) and across the EU27 countries.
Three Key Mechanisms by Which Housing Costs Matter
We identify three primary pathways through which elevated housing costs affect individuals and societies.
First, high housing expenses compromise housing adequacy, forcing families into cramped, substandard, or poorly situated homes. This issue is particularly pronounced among younger populations (European Commission 2025b, Eurofound 2023). We quantify this effect by assessing the rise in housing overcrowding and severe deprivation rates related to increasing housing burdens.3
Second, high housing costs lead to lost opportunities. Families may struggle to relocate for jobs and educational pursuits due to affordability issues. This reluctance can foster increased poverty rates and lower labor force participation, further impacting well-being, productivity, and economic growth (Glaeser and Gyourko 2018, Nguyen et al. 2026). We evaluate this factor by looking at the correlation between rising housing costs and poverty risk and workforce involvement.4
Third, elevated housing costs restrict spending on non-housing needs. When housing absorbs a larger share of income, households may have to forgo essential expenditures, impacting access to healthcare, nutritious food, and education, and even influencing decisions regarding childbearing. We illustrate this effect by analyzing the connection between housing affordability and fertility rates.
The relationship between housing conditions and health demonstrates the interconnectedness of these channels; inadequate housing can adversely affect both physical and mental health. Furthermore, an individual’s health may decline if they cut costs on healthcare due to high housing expenses.
Employing Machine Learning to Understand the Impacts of Housing Affordability
Evaluating the repercussions of housing cost burdens can be complex, as multiple factors influencing housing affordability also affect the outcomes we care about. In a limited timeframe, numerous potential variables can complicate analysis. Traditional statistical approaches struggle to address this complexity. Therefore, we utilize a double machine-learning approach with instrumental variables (DML-IV),5 which facilitates a detailed control set, captures non-linear relationships, and allows for variations in housing cost effects across different countries and over time.
Figure 1 summarizes our findings.6 Each coefficient can be interpreted as an elasticity. For instance, a coefficient of 2.3 for the overcrowding rate indicates that in a country where housing costs as a proportion of disposable income are 1% above the EU average, the overcrowding rate is likely to be about 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 share of disposable income) from the EU average
Note: The whiskers indicate statistical significance at the 10% threshold.
Source: Author’s calculations.
The Most Profound Impact of Housing Affordability: Housing Conditions
Higher housing expenses quickly lead to a noticeable decline in living standards. Figure 2 illustrates that a mere 1% rise in the share of housing costs in disposable income, compared to the EU average, results in a 2.3% uptick in the overcrowding rate and a 1.4% increase in severe housing deprivation rates relative to the EU average. Interestingly, we do not observe any significant evidence suggesting that the challenge of securing affordable independent housing delays young adults from moving out of their parental homes, indicating this is not a significant factor in worsening housing conditions.
Wider Economic and Social Consequences: Employment, Poverty, Demographics, and Health
Our estimates indicate that when housing cost burdens exceed the EU average by 1%, labor force participation decreases by approximately 0.55% (or 0.4 percentage points) for both the overall and female populations (Figure 2).
Reduced labor force participation and missed job or educational opportunities due to housing costs can diminish individual incomes, thereby increasing poverty rates. We estimate that a 1% increase in housing cost burdens translates to a 0.9% rise in the at-risk-of-poverty rate, equating to 0.15 percentage points in relation to the EU average of 16.8% (Figure 2). Thus, challenges related to housing affordability do not simply reflect existing poverty; they actively contribute to it (Desmond, 2016).
While the impact on fertility is observed, it is relatively minor, partly manifesting as delayed parenthood (Kearney and Levine 2025, van Doornik et al. 2025). We find that when housing burdens are 1% higher than the EU average, women tend to have their first child nearly a month later than average, resulting in a fertility rate that is 0.1 lower than the EU average of 1.51 (Figure 2).
Consistent with medical literature, we find that housing costs also influence health outcomes. A 1% increase in housing costs, relative to the EU average in disposable income, correlates with a 1% rise in the proportion of the population reporting “bad” or “very bad” health in comparison to the EU average of 9.17%. This underscores another avenue through which housing affordability affects individual well-being, impacting crucial elements of human capital and consequently affecting productivity and potential economic growth.
Figure 2 Estimated impact of a 1% deviation of housing costs in disposable income from the EU average
Note: During the period considered, the EU’s average housing cost as a share of disposable income was 20.8%. The chart depicts the effects of a 1% higher ratio (21.0%) on all the variables shown on the horizontal axis. EU27 represents the average value for each variable during that time frame.
Source: Author’s calculations.
Conclusion
Housing affordability significantly influences lifestyle choices, access to employment and education, consumption habits, and even family planning decisions. This, in turn, is reshaping Europe’s social landscape and economic trajectory. While we’ve highlighted average effects across the EU, the DML-IV framework also allows for specific country- and year-wise evaluations, revealing considerable disparities among nations. Notably, the negative impacts of housing affordability seem to have eased following the pandemic, potentially due to the rise of remote work, which may alleviate some housing-related limitations—a topic worthy of further exploration.
Authors’ note: The opinions expressed here are those of the authors and do not necessarily reflect the views of the IMF, its Executive Board, or its management.
For references, see the original post.
