EU free to start building housing for its staff, says Meisch

Luxembourg Times: Developers love selling yet-to-be-built apartments (VEFAs), but buyers often run into trouble, be it delays or construction faults, after the contracts are signed and the money has flowed. These people feel left alone. What’s your response?

Claude Meisch: First of all, we have encouraged banks to be more lenient with capital requirements, so that developers can start building sooner. It is often the case that people buy something and sign the contracts, but developers will only start construction on projects when 80% of all units within that building are sold, because that’s when they get a loan from the banks. Banks have now put together an investment vehicle that has less strict conditions to free up funds and will even takeover the building project should the developer not be able to finance it. That’s an interesting initiative. Secondly, I think we need to update the legal framework of VEFAs. We will put together a working group with the justice ministry to work out how we can modernise the legislation to improve consumer protection. It should be a safety net for buyers when there are delays in construction or when they need to go to court to get guarantees that the project will be finished. The buyer is often at a disadvantage and needs to be protected. We also need to look at building guarantees (garantie d'achèvement) to make sure that failed construction projects of bankrupt developers nevertheless get finished in an acceptable timeframe. We need to make sure that buyers have faith that when they buy a real estate project, it will get finished. Otherwise the property market crumbles.

Luxembourg Times: Luxembourg was a paradise for developers for a very long time, yielding high returns, but with record interest rates the pendulum swung violently and quickly in the other direction, with bankruptcies in the construction sector. How do you explain that?

Claude Meisch: That is a European-wide phenomenon. The pendulum may have swung very heavily in one direction in Luxembourg and has now gone the other way more violently compared to, say Germany. But building permit numbers also dropped significantly there. They, as we do, pin our hopes on lower interest rates. It’s not like there is no demand for properties in Luxembourg. There are still people who want to move to Luxembourg. But if banks won't lend them the money due to high rates, then it becomes tricky. We also had a situation where prices were high and then interest rates suddenly became very high. Prices had to go down. There are developers who are banking land and are waiting for prices to rise again, but there are also those who have lowered prices because they understood that people need a roof over their head.

Luxembourg Times: The previous government wanted to force big property owners' hands by slapping taxes on empty constructible land and empty dwellings. Where is that project at?

Claude Meisch: This is currently with the home affairs ministry. The coalition programme says that we will pursue that policy. We agree with the spirit of that law to force those who hold onto constructible land or empty flats for speculative purposes to either make them available, or to pay higher taxes for keeping them empty. I say that as a liberal, who subscribes to the belief that the right to property is inalienable, but that doesn't apply here. It is about an essential good for the population, and property owners have a responsibility. They must not escape it.

Luxembourg Times: What’s holding back that law?

Claude Meisch: There are some legal issues, but the biggest obstacles are of a technical nature. I think we will have made progress by the autumn. One such issue is a minister's executive powers (remembrement ministeriel) that they could use to avoid a situation where one person who does not want to sell their property in a big public project can hold up that project or make it unnecessarily complicated to build around their property. This draft law should be put up for a vote in the autumn. But we also need a property register, so the government knows who owns what in order to tax empty constructible land or dwellings. Those are technical problems.

Luxembourg Times: Should Luxembourg make it harder for foreign investors to buy up properties they just hold because the market has been growing at double digit rates?

Claude Meisch: It’s a valid question. I don't know to what extent that is a real problem though. I am not sure it is the right solution to restrict this. The truth is we need foreign, private investments to create more housing. Public money alone won't be enough. Luxembourg needs private people who invest their savings into properties, but also bigger institutional investors to make property investments. What is true though - and what we need to avoid - is that private capital increases demand on the Luxembourg property market and supply does not match that. Then prices would go up once again. Its fundamentally about increasingly supply, and we need foreign players to do that.

Luxembourg Times: Taking a look at renting, readers complain that they wait too long to receive housing subsidies and that they often get contradictory advice from your ministry, which extends waiting times. What are you going to do about that?

Claude Meisch: I cannot comment on individual cases, but I know that we have three big challenges. One is speed. Long waiting times are frustrating but often have to do with the incompleteness of the files. We try to take account of individual circumstances, be it the family or financial situation, and when you try to do that you need up-to-date information and that is often missing. Another issue is the complexity of the files, which makes it harder for the civil service to approve aids. That’s not the fault of the civil service. We might have to go back to the drawing board to make the system easier to handle for benefit seekers. A third issue is digitalisation. A lot of paperwork is actually still done on paper. You have to remember when it comes to housing aid we often deal with vulnerable people who might not be used to filling in forms digitally. In general, another challenge is that 80% of eligible people do not request the subsidies. A lot of people wrongly think that aid is only for the poorest in society, but it also concerns people with higher revenues. That’s a phenomenon that applies to all kinds of benefits. I want better cooperation with the family ministry and with the country's social welfare offices to better identify people that are eligible for aids and help them put together their applications. That is a big undertaking, but it is my ambition that in a few years we will have become more reactive and identify people that are entitled to help.

Luxembourg Times: Particularly foreign newcomers often don't know what aid exists and that they are eligible. Wouldn't it be a neat solution to give them that information when they register at the council, which they all have to do?

Claude Meisch: We have run information campaigns on this to reach those very people. Our website provides documentation in several languages. I think media outlets have to bridge that gap too to an extent, especially foreign-language outlets like yours, which can reach people that Luxembourg-language stations might not. Some people come to Luxembourg from countries where such subsidies don't exist or where not the state, but perhaps the local council pays them. Working together with local councils is definitely an idea to reach new residents. There is room for improvement. EU workers often complain about Luxembourg's high property prices, which makes the country less attractive than Brussels for example. What does the government intend to do about that? The Luxembourg state doesn't build properties for its own civil servants, it would be strange if it started doing it for EU employees. We generally know that private employers are looking to build their own housing and rent it out to their employees. There are some tricky legal and technical considerations in this matter to encourage this. For example, big employers will need an NGO to build the properties, they are not allowed to make a profit off those activities, and only employees on lower wages should qualify. But that is moving forward. For now, there have been no discussions whether that mechanism is an option for EU employees. The initiative is not going to come from the Luxembourg state. But in principle the European Commission or any other EU institution could build their own affordable housing for employees on low salaries.

Luxembourg Times: The recent rental reforms kicked in on 1 August. Do they go far enough?

Claude Meisch: We excluded a big chunk from that law, in particular the cap on returns on investment that a rental unit can yield. This is a very difficult matter. We have to be very careful where to set that number. On the one hand, we need private investors who will only pour their money into rentals if the return is attractive compared to other assets with a similar risk. On the other hand, we know it cannot be that the tenant has to pay every rent increase because he needs an accommodation and therefore will spend an ever bigger chunk of their revenue on housing. We need to find a balance and I think a law always needs to protect the tenant, because they are the weakest actor on the market. However, the draft law from the previous government satisfied no one. We need to find a happy medium for the maximum rent increase that is acceptable to both the landlord and the tenant. We need both. If no one invests in property anymore, the tenant won't be happy. And if no one can afford the rent anymore, the investor won't be happy either. I said we should do this when we have a bit more predictability on the market, when we're not going through an acute crisis in the construction sector.

Luxembourg Times: You're also education minister. What mark would you give yourself as housing minister so far?

Claude Meisch: Politicians should not grade themselves. That is the task of the people and of the press. Eventually, we get a mark from the voter every five years. So far, as far as it concerns my education portfolio, they have continued to have trust in me, whether it'll be the same for the housing department, we will see.