A market left alone, millions left without homes

Even though centuries separate them, seventeenth-century France and twenty-first-century Europe are confronted with the same question: should society place its faith in laissez-faire policies, or should the state intervene when faced with a macroeconomic problem? Across time, it seems the economy repeatedly falls into the same dilemma. In detail, throughout the 17th century, France, under the reign of Louis XIV, was involved in decades of continuous warfare, including the Thirty Years’ War (1618–1648). These conflicts were extremely costly, requiring large armies, long campaigns across Europe, and heavily draining the royal treasury. Additionally, the French industry was weak compared to the Dutch or the English.

To address these problems, Jean-Baptiste Colbert, the Controller-General of Finances, implemented mercantilist policies, later known as Colbertism. These policies included high tariffs on imported goods, state subsidies for key industries, and strict controls over colonial trade, all aimed at strengthening France’s economy through state intervention. However, these measures did not resolve the issue at all. Therefore, Colbert decided to meet with a group of French businessmen in 1681 to discuss how the state could support commerce. In response, the businessmen replied simply: “Laissez-nous faire” (“Let us do [it]”), signalling their preference for minimal state intervention. 

This dilemma that took place in seventeenth-century France — state-led versus market-led approaches to economic problems — has reemerged in Europe in the face of the ongoing housing crisis. In this context, this article will analyze the situation in Barcelona and Austria, two cities that have taken very different approaches to the problem, and will argue that, with the right state intervention, the housing crisis can be mitigated.

Numbers speak louder than words

In the 17th century, the French government faced a drained royal treasury and an underdeveloped industry. Today, however, Europe faces a different problem: a housing crisis. One clear piece of evidence is the continuous increase in housing prices. In Q1 2025, rental prices rose in 48 out of 59 cities across 16 countries, pushing the European average rent to €20.02 per sqm per month, up 2.4% since Q3 2024. Major cities are reaching extreme levels, with Dublin (€40.00/sqm) and London (€39.30/sqm) among the most expensive rental markets. Beyond rent levels alone, a clearer indicator of the housing crisis is the share of income spent on housing, which reveals the immense financial pressure on residents. In cities such as Rome, London, and Dublin, residents spend around 55% of their income on housing. The situation is even more severe elsewhere, with housing costs consuming 74% of salaries in Barcelona and an alarming 95% in Lisbon. As a result, households have little income left for other essential needs, let alone leisure activities, which has a negative impact on well-being and quality of life.

Percentage of Salary Spent on Renting. Source: Affordability Analysis by Jure Taraš

This trend also carries serious ethical consequences, most notably the sharp rise in overcrowded housing. Across the EU, the share of renters living in overcrowded homes increased from 20.4% in 2014 to 24.4% in 2024, with particularly severe increases in countries such as Belgium (+9.0 percentage points), Spain (+8.0 pp), and Ireland (+7.9 pp).

Spanish house crisis

Fernando Trias de Bes, an economist who regularly contributes to major Spanish newspapers such as El Diario and La Vanguardia, recently participated in a fascinating debate on Spain’s housing market. He explored the country’s complex housing problem and highlighted a critical point: in Spain, the issue is primarily one of supply.

Building on this idea, demand in cities such as Barcelona is high while housing supply remains low. As a result, prices increase sharply. In this sense, it is important to clarify that this price surge does not indicate a housing bubble. Unlike a bubble driven by speculation -where people buy homes quickly to resell at a profit- the current demand reflects genuine housing needs.

This raises an important question: if demand is high, why is supply not increasing? In a well-functioning market, high demand should naturally lead to increased housing construction. The fact that this is not happening points to shortcomings in the public sector stemming from two main issues and, historically, from a lack of long-term urban planning:

1. Fiscal pressure on homeowners, which reduces incentives to provide housing.

2. Excessive bureaucracy, which has prevented new construction.

Focusing on the first cause, rent controls and restrictions on the prices homeowners can charge have pushed much of the available housing toward other, more profitable sectors, such as tourism, instead of meeting local residential demand. While rent controls may make housing more affordable for some, they have also reduced the overall supply of rental units by approximately 15% compared to last year.

Returning to the old debate about state intervention, in front of this scenario, some might argue that the government has little to do with the housing market. In this sense, Fernando Trias de Bes emphasises that the state plays a crucial role in addressing Spain’s housing issues. However, he argues that the problem cannot be solved with short-term measures that focus solely on lowering prices. 

Instead, structural, long-term policies are needed, such as large-scale housing construction programs, as successfully implemented in cities like Vienna. Another state intervention should be to redirect housing supply back to residential use through incentives rather than coercion. In other words, not only protecting renters through rent controls but also supporting homeowners, for example, by having the state step in if a tenant fails to pay. 

Vienna's utopia

Vienna is often seen as a model for housing affordability, and the numbers speak for themselves. In Barcelona, the price per square meter is €21.3, while in Vienna it is only €8.66. Residents in Vienna spend approximately 30% of their income on housing, compared to 74% in Barcelona. This striking difference raises an important question: what has Vienna done differently? 

To address this, it is helpful to examine the city’s historical context. After World War I and the dissolution of the Austro-Hungarian Empire, Austria faced a severe housing crisis, with 25% of the population homeless. The Social Democratic Party (SDAP) rejected laissez-faire solutions and implemented full government intervention in housing. Between 1918 and 1934, the government built 60,000 housing units. Construction paused during World War II but resumed afterwards, laying the foundation for Vienna’s current housing system.

Today, roughly 60% of Viennese residents live in public housing, either in one of the 220,000 municipally owned units or in the 200,000 units subsidised by the city. Overall, about 25% of Austrians live in public housing. For those interested in how this system is funded, Vienna relies on a 1% housing tax, paid jointly by employees and employers based on their gross salaries. This generates approximately €250 million per year, which is used not only for the construction of new subsidised housing but also for the rehabilitation of the existing social housing stock. 

In practice, the city invests around €450 million annually. This higher level of investment is possible because subsidies for new housing are not direct grants but low-interest loans, allowing the municipality to raise additional funds.

On the other hand, another fundamental pillar of the state’s successful intervention in preventing a housing crisis is its pricing policy. In Vienna, rental prices are regulated by law and are currently set at €6.67 per square meter. This applies to subsidised housing, municipally owned units, and private properties built before 1945. Properties built after 1945 are exempt, implying that owners set market prices freely. However, because the public housing sector controls roughly 50% of the rental market, residents have real alternatives, which helps prevent excessive rent increases in the private sector.

Finally, another successful aspect of the Vienna model is its social and ethical dimension. This is achieved through eligibility rules for public housing, which require applicants to be at least 18 years old, be Austrian citizens or EU residents, and have a net monthly income of no more than €3,900. These income limits allow approximately 75–80% of Vienna’s population to access public housing. As a result, the policy benefits not only low-income residents but also the middle class, promoting social diversity and preventing the stigmatisation often associated with subsidised housing.

Alterlaa, one of Viennas most famous social housing complexes. © Photo by Nick Night on Unsplash

Comparing Vienna and Barcelona

In response to the critical situation, Barcelona is looking to address the problem by adopting policies similar to those used in Vienna, including the development of a strong public housing sector. However, the lack of substantial state intervention remains evident.

• Vienna: Each year, 25,000 new residents arrive, but only 10,000 new housing units are built. This means that for every new housing unit, 2.5 new residents compete for it.

• Barcelona: Each year, 33,000 new residents arrive, but only 500 new housing units are added. This means that for every new housing unit,  66 new residents compete for it, highlighting a significant housing deficit. It is important to note that public housing in Spain currently accounts for only 2.5% of the housing stock, compared to 25% in Austria.

This stark contrast highlights the consequences of minimal government intervention in Barcelona, where the lack of regulation contributes to skyrocketing housing costs. 

In conclusion, returning to the longstanding debate between laissez-faire policies and government intervention, this article demonstrates that state involvement can address macroeconomic problems by guiding the market to better meet the needs of city residents, as seen in Vienna.

Although the article does not imply that all countries can solve the housing problem in the same way as Vienna—for example, in the Netherlands, where 30% of housing is social housing (25% Austria), residents still spend 47% of their salaries on housing—it shows that, with the right governmental approach, housing challenges can be mitigated. Solutions must therefore be tailored to each country’s specific context.

In this regard, a key challenge for government intervention is implementing structural, long-lasting policies. Frequent changes in government make it difficult to maintain continuity, yet critical issues—such as housing affordability—require laws and interventions that remain stable over time despite political turnover.

Therefore, the central question is not whether the state should intervene in the housing market, but rather what type of intervention is appropriate.