Forget affordability. Europe has an affordability crisis . Strict regulation is largely to blame, writes The Economist
It has become fashionable to claim that much of the rich world is suffering from an affordability crisis. The evidence presented ranges from the high prices of eggs in the US and rice in Japan, to expensive housing almost everywhere.
Europe has not been immune to these concerns either. In May, respondents from across Europe told Eurobarometer, the official European Union poll, that tackling inflation should be the European Parliament's priority, ranking it more important than protection, poverty and employment.
At first glance, Europeans have reason to worry about affordability. Economic growth is much faster in the US.
And, unlike its fossil-fuel-rich ally, the old continent saw energy costs rise sharply after Russia's invasion of Ukraine, as natural gas became much more expensive.
However, even in Europe, complaints about affordability are overblown. After a period of decline, real wages are rising, including for the poorest.
In fact, the continent's problem increasingly seems to be not affordability, but availability.
In its highly regulated markets, prices cannot adjust to balance supply and demand. Instead, rationing is taking over.
Europe's energy shock has undoubtedly had lasting effects. When the Eurozone inflation rate peaked at 10.6% in October 2022, energy prices alone contributed 3.8 percentage points.
Supply chain problems and strong consumer demand following the lifting of pandemic restrictions also played a role. Inflation has since moderated, falling to 2.1% in November, but energy and food prices remain much higher than before (see chart 1).
In other words, prices for families have increased. And after incomes are adjusted for these prices, they are lower than in 2021.
But affordability is best assessed by looking at people's ability to purchase a wide range of goods: clothing, electronics, vehicles, and more, in addition to food and energy.
Although calculations suggest that wages in the Eurozone, adjusted according to the Harmonized Index of Consumer Prices, suffered a 4% shock from mid-2021 to the end of 2022, they have since recovered (see Chart 2).
By the third quarter of 2025, they had returned to pre-conflict levels in Ukraine.
In many countries, the wages of the poorest have risen significantly. The Economist calculates that, since the first half of 2021, the real minimum wage has increased by 30% in Poland and by 11% in Germany.
Fewer families say they can't afford a vacation than a decade ago. In fact, this indicator has continued to fall in most countries even as inflation has risen sharply.
What about housing, often cited as an indicator of the affordability problem? It is true that rents have risen across the Eurozone: they are now rising at an annual rate of 3%, more than double the average pace of the 2010s. Higher interest rates have also made mortgage loans more expensive.
However, as a percentage of household income, housing costs remain surprisingly stable. In Germany, France and Italy, the average household spends 15–20% of income on housing, about the same as a decade ago.
Homeowners with mortgages are paying less than they used to. The share of households spending more than 40% of their disposable income on housing has fallen since 2021.
The real difficulty is finding an apartment. In many large cities, including Berlin and Paris, where housing markets are heavily regulated, rents are often well below market rates. When an apartment becomes available, it can attract hundreds of applications.
The boom in short-term rentals for tourists in places like Amsterdam or Lisbon exacerbates the situation; more housing cannot be built overnight.
Booming Madrid, where rents are also regulated, is attracting immigrants from Latin America at a faster pace than it can build housing for them.
Even if Europeans on average are not spending more on housing, they may not be living where they would like.
Such an availability problem goes beyond housing. In healthcare, another regulated market, a doctor's visit can be difficult to secure.
About 57% of American patients say they managed to see a specialist within a month, compared to 35% of French patients. Plumbers may not have time when families need them.
European authorities have identified shortages of cooks, electricians and nurses. And availability is likely to worsen as Europe's largest generation of workers retires.
European shoppers have more purchasing power than they might think. But with services in short supply, their dissatisfaction is likely to only grow.
