Luxembourg should stop subsidising scarcity and tax idle land properly

Luxembourg has become too comfortable treating housing as a purchasing-power problem. When prices rise, politics reaches for tax credits, grants, guarantees and temporary support for buyers. Some of those measures help individual households at the margin. But if they are not matched by more homes and more buildable land actually reaching the market, they mostly help people bid against each other for the same scarce asset.

The uncomfortable truth is that Luxembourg’s housing crisis is also a land-use crisis. The Housing Observatory exists because the country needs hard data on selling prices, advertised rents, housing offers, land potential, land used for new dwellings and the density of new construction. That list is a useful map of the problem: affordability is not only about income or interest rates; it is about how much usable land becomes housing, where it is, and how slowly it moves.

The government’s own land-tax dossier admits the weakness of the current system. Luxembourg’s land tax still rests on foundations dating back to the 1930s and values that have not kept pace with reality. The proposed reform aims to create a fairer valuation model, reduce the burden on owner-occupied main homes, introduce a national tax on land mobilisation and tax housing that remains unoccupied. Those are not side issues. They are the core of whether the market rewards building or waiting.

This matters because idle buildable land is not passive. It imposes costs on everyone else. It pushes households farther from work, raises pressure on rents, increases commuting, wastes infrastructure and makes every demand subsidy more expensive. If the state helps buyers without changing the incentive to hold land back, public money risks becoming a bridge between private scarcity and higher prices.

The OECD diagnosis reported in Luxembourg media is blunt: housing affordability remains a serious issue, residents spend an unusually large share of household budgets on accommodation, and policy should accelerate planning approvals while raising taxes on vacant plots to deter hoarding and speculation. That is not radical language. It is the basic economics of a constrained market.

A better housing policy would start with three principles. First, protect the main residence, because ordinary households should not be punished for living in their home. Second, make non-use expensive where land is already zoned and serviced for housing. Third, make planning decisions faster and more predictable, because a tax on idle land works only if building is administratively possible.

None of this means every field should become apartments or every village should become Kirchberg. Spatial planning still matters. Infrastructure capacity still matters. But a small country cannot afford a system in which scarcity is profitable, delay is cheap and public subsidies chase a supply problem from behind. If Luxembourg wants housing to become more affordable, it has to stop subsidising scarcity and start taxing it.