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Continued housing shortage will place upwards pressure on rents
While pressure has been steadily alleviating for the most financially burdened households, continued supply shortages will lead to rent increases.
Pressure will be further amplified by the increasing mismatch in housing stock and demand. Average household sizes continue to decline, driving demand for smaller units, while the current stock of housing remains unsuitable, with an over-supply of 3&4+ bedroom accommodation in a number of markets. In 2024, it was estimated that a third of the European population lived in accommodation too large for its household size. This fundamental mismatch will most likely reduce ramp-up periods and leasing voids in assets with strong single occupancy options.
Despite this, the housing cost overburden rate in many European countries is expected to either stabilise or continue to decline, suggesting alleviating pressure for the most financially stretched households. This is due to i) real wage growth, ii) rent regulation changes and caps in several jurisdictions, iii) landlords’ improvement of tenant selection processes, and iv) smaller unit sizes with more appropriate single and dual occupancy stock coming to market. The overall picture remains one of a severe housing shortage, which will place further upward pressure on rents. Under our baseline forecast, we expect rents to increase by 2.4% at a European level this year. Our upside and downside scenarios, explored in the Economy section, see growth of 2.7% and 2.1% respectively.
Figure 3: Housing cost overburden rate (%)
Note: the housing cost overburden rate is defined as the percentage of the population living in households where total housing costs represent more than 40% of disposable income.
Trends to watch
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Household size
Due to a structural imbalance between the type of housing stock present in most European markets, and that demanded by the market, demand for alternative housing solutions will increase. Most European markets are experiencing an oversupply of larger homes (3–5 bedrooms) alongside a persistent shortage of smaller units (1–2 bedrooms). This misalignment is reflected in occupancy patterns. Around one-third of the EU population lives in under-occupied homes, with figures exceeding 50% in countries such as Spain and the Netherlands. Solutions include flex living, co-living models, and conversions from other asset classes, such as offices and hotels, to cater to single and dual occupiers.
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Affordability
Housing cost overburden rates are on a downwards path for market-rent properties, suggesting alleviating pressure on the most financially stretched households. However, subsidised housing demand is rising, signalling continued pressure on lower-income segments.
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Emerging technologies
Digital leasing platforms, AI-driven tenant screening, and smart building technologies are becoming standard, improving operational efficiency and tenant experience. We expect increased uptake of these technologies by operators this year.