When finance drives house prices: a policy agenda for affordable housing in Europe

The draft report of the Special Committee on the Housing Crisis of the European Parliament posits that high house prices are caused by the imbalance between housing demand and supply, and cautions against the implementation of stringent market interventions. This commentary explains that price dynamics in Europe’s housing markets are predominantly determined by the financing capacity of buyers and money creation by private banks. To restore housing affordability, Europe should seriously consider breaking the housing–finance cycle via three structural measures. Without such demand-side measures, increasing housing supply will primarily result in additional investment objects rather than genuinely affordable homes.