From The Baltic To The Med, Investors Search For Solutions To Europe's Intractable Housing Crisis

From Madrid to Manchester, Copenhagen to Dublin, European housing has been hit by a perfect storm of rising costs, planning paralysis and retreating developers. A shortfall of affordable homes has turned into a full-blown crisis. 

Every city, every country, thinks its housing crisis is unique. But the same story is on repeat across a continent that has failed to build during the good economic times and the bad.

“We, as a civilisation, haven't figured out how to build enough homes for the people that live in our communities,” Gensler Global Director of Cities and Urban Design Ian Mulcahey said. 

Just to keep pace with demand, Europe needs approximately 2 million new homes every year, according to the European Commission. Only 1.5 million were built in 2024, data from Euroconstruct showed, and the number is falling, not rising.

The question is no longer whether Europe has a problem. It is whether anyone dares to make the tough calls to fix it.

For some governments, the approach has been to regulate. For others, it has been to hope that market dynamics will step up to the plate. Right now, many legislators are looking to the continent’s north and south in Finland, Denmark and Spain, hoping they might have the formula to kick-start development and keep cash-strapped renters happy.

The demographic trends driving the housing crisis in cities are only going to get worse over the coming decades. The European Commission's report put the crisis down to disproportionately high demand in the least affordable metropolitan cities, smaller average households and the cumulative impact of long-term construction shortfalls.

While around half the global population lives in cities, by 2050, that figure is expected to rise to 70%, according to a UN-Habitat analysis. 

“What we have on one side of the coin is the 2.8 billion people in inadequate housing and the 300 million who are homeless. On the other is the real estate industry, and it is about bringing them together,” said Anacláudia Rossbach, United Nations under-secretary-general and executive director of UN-Habitat. “The city is key, but we need to develop housing that recognises climate change, heat, flooding, the health and wellness of the people, their efficiency and productivity, and the need to densify housing and to create compact cities.”

That is a high bar for an industry where investment in residential is erratic. Investors want to put money into residential because of the strong demographic support the sector exhibits, but it has been hit by rising interest rates and falling values like every real estate asset class.

Investment in multifamily housing and purpose-built student accommodation across Europe reached €13.2B in the first quarter, down 21% from the same period in 2025. However, if a €7B UK government housing purchase last year is excluded, transactional volumes rose 37%, with private sector investment rising 43%, amid strengthened sentiment and larger deals, according to JLL.

Nuveen Head of Strategic Insights, Real Assets Abigail Dean said one of the “fundamental difficulties is delivering affordable housing while also delivering returns for investors, so the private sector needs to work with the public sector on this.”

The real estate industry often focuses on regulation as the root cause of the problem, but it is impossible to ignore that combination of falling values and rising costs, which have made it fundamentally unviable in many cases to build new housing.

The cost of building new homes in the EU surged by 56% from 2010 to 2024, with a record 12% jump in 2022 alone, according to the European Commission. In the UK, building costs are forecast to increase by 14% over the next five years, according to Building Cost Information Service’s latest construction forecast data, published in March. 

That said, to regulate or not to regulate has become the divide between political policymakers and real estate investors.

“The markets where there have been fewer issues have been the completely deregulated ones such as Finland and, up until recently, the UK, and they just responded with rent levels,” JLL Head of EMEA Living Investment Gemma Kendall said. “So obviously, when demand was much stronger than supply, the rent grew. Supply then fed through because the viability worked.” 

Finland undertook one of Europe’s most sweeping rental market reforms in the 1990s, dismantling decades of rent controls in an effort to revive housing supply by liberalising the private rental market.

This led to a sharp expansion in rental supply, and institutional investors and private landlords returned to the market, particularly in urban areas such as Helsinki, which now has an oversupply of apartments.

Rents initially rose, but the increase in housing supply, combined with relatively generous housing allowances and a sizeable social housing sector, cushioned lower-income households from rapid increases.

House prices have generally remained lower relative to incomes than in other European cities. This year, further reforms have seen several domestic pension funds reduce their exposure to low-yield core residential assets, but foreign investors like Storebrand and Apollo have stepped in.

Conversely, London’s build-to-rent development pipeline juddered to a halt after the introduction of the Building Safety Regulator, a centrepiece of the post-Grenfell Tower fire regulatory settlement, which caused major delays. There were just 613 BTR starts in London in 2025, down 80% on 2024, according to fourth-quarter figures compiled by the British Property Federation and Savills.

Since then, the government has acted to simplify the approval process, and data shows the backlog is being cleared.

While market forces play a huge role in determining whether developers build, in marginal situations, regulation can have the impact of choking off new supply, one major investor in European residential said. 

“Capital is mobile and has a choice,” M&G Real Estate Global Head of Living Alex Greaves said of the decision by many investors to move money from the UK to other residential markets. “The London BTR market is right on the edge of viability again. But the line between viability and nonviability is wafer-thin.”

The UK Treasury is now pushing for the imposition of a one-year freeze on private sector residential rents or a rental cap, against opposition from the prime minister's office. The move was met with horror by the real estate industry, which argued it would cut new development even further. 

Ireland, which has faced an existential housing supply crisis for years, earlier this year took the shackles off its yearly cap on rent rises in Dublin and Cork, as data from Daft showed supply has hit its lowest level in 20 years.

And there have been early signs that the private rented investment sector is responding, with new acquisitions and deals announced.

“Dublin is a perfect example of the opposite approach [to Finland], where it put in regulations and development just stopped,” JLL's Kendall said.

She also pointed to different approaches in Canada, where the government opted to provide more grants to help increase supply, or Madrid and Germany, which also provide subsidies or low-cost land.

“Investors like it because financial subsidies shore up viability, the occupation is typically really high, and rents are inflation-linked,” she said. “They also like the whole social positioning [of providing affordable homes] as well. Your build costs are significantly reduced, making it viable, but you are linked to a capped rent for a certain period of time.”

But approaches differ across the continent. While Dublin is deregulating, Berlin is adding more constraints. And while investors aren't against regulation per se, uncertainty over regulation has a chilling effect on money coming into European residential

“[Berlin] seems to be not learning from the lessons past,” Kendall said. “That’s a challenge for lots of investors coming into Europe to understand not just the current regulations in place but what's happening in the political environment and how regulations could change.”

The Dutch housing market has also undergone a major adjustment. For years, Amsterdam and other major cities were among the most attractive BTR markets in Europe. Then, in 2023, the Dutch government implemented the Affordable Rent Act, which brought an estimated 300,000 previously midmarket rental homes under rent regulation almost overnight. The result was a reduction in supply as new development slowed sharply, but taxes and costs are reducing to try and reverse those unintended consequences.

There are some pointers from Southern Europe. Madrid Mayor José Luis Martínez-Almeida was at MIPIM earlier this year, making the case for global investment to back his city's housing ambitions, trumpeting 200,000 new homes over the next decade and a promise of legal certainty and low taxes.

“If you reflect on the future of cities, then the difference between them is talent. If we want talent to come to Madrid and live here, then without affordable houses, there is no way that will happen,” Martínez-Almeida said.

In part, this has been achieved by expanding Madrid's suburbs and improved public transport, thanks to a local government that is trying to be proactive, especially around the complexities of zoning. As a result, the number of operational flex and coliving units is expected to more than double between 2024 and 2027, from 11,885 to more than 26,700, according to DLA Piper.

In Spain generally, not everything is perfect, of course. The country needs an estimated 600,000 new homes to meet demand, according to the Spanish Mortgage Association, and it faces challenging bureaucratic delays, restrictive land use rules and a hangover from the 2008 financial crisis that gutted Spain's construction capacity.

BTR has emerged as the living sector that investors are betting on to plug the gap between supply and demand.

The living sector led real estate investment in Spain in 2025, with a record volume of €5.4B transacted in the final quarter, according to CBRE. The multifamily segment was one of the major drivers, with €2.2B invested, of which €1.7B related to BTR and €516M to the private rented sector, representing 41% of the total residential market.

International investors include Aviva Investors, which earlier this year made its sixth BTR investment in Valencia and has a platform that has now funded the development of more than 1,100 apartments with a gross development value of more than €350M since launching in 2022.

Greystar has also been active in the BTR and student accommodation sectors, and in early 2026, it reportedly received bids worth around €530M for a 1,900-home rental portfolio, highlighting continued investor appetite for stabilised BTR assets.

Meanwhile, M&G Real Estate committed €239M to nearly 1,000 new homes in Madrid and Barcelona in 2026.

Azora remains Spain’s best-known domestic BTR investor through its Nestar platform and Brisa development vehicle. The company manages thousands of rental homes and has partnered with global capital to develop up to 8,000 additional units across major Spanish cities. Other active Spanish players include Grupo Lar, Aedas Homes and Culmia.

Denmark is another progressive market that the UK and Irish governments have taken a look at.

“Denmark's probably leading the way at the moment. It's not perfect, but it's much better than many other countries,” Kendall said.

The country has regulations in place related to older stock, so owners can't raise rents above a certain amount on such assets. But past a certain date, if an owner has refurbished a property, it can go back up to market rents.

“You're encouraging capex and investors and landlords to keep maintaining properties,” Kendall said. 

Yet European governments and local authorities continue to deploy fragmented strategies. While the supply and demand imbalance is widely acknowledged, without more public-private relationships, there remains a funding gap, and viability is still the biggest challenge. 

“You always see these projected forecasts of how much is in the pipeline, but what will be built is usually a small proportion of that,” Kendall said. “The planning timelines are too long. Investors can't just put money into something and then get nothing from it for years to come.”