Housing and inequality: The case of Luxembourg and its cross-border workers

The rate of homeownership in Luxembourg is close to the OECD average. However, strong house price increases, mainly driven by population growth and limited housing supply, reduce housing affordability, in particular for the young, and contribute to the net wealth gap between homeowners and renters. As in many OECD countries, housing is the main asset of the middle class. However, at the top of the wealth distribution housing is less prominent and accounts for a smaller share of wealth than in most OECD countries. Mortgage market participation in Luxembourg is higher than in neighbouring countries and households in the middle income quintile are almost as likely to have a mortgage as those in the top income quintile. Among non-resident commuters (who cross the border every day to work in Luxembourg), homeownership is higher than the average for the country in which they live, mainly reflecting their higher income. Still, commuters often identify high real estate prices as the reason for not moving to Luxembourg. Among Luxembourg residents, a third are renters, often citing high real estate prices and insufficient own funds as obstacles to homeownership. Even controlling for other household characteristics, there is a substantial gap in net wealth between renters and homeowners. The data also indicates that median net wealth among Luxembourg residents is significantly higher than among cross-border commuters. For Luxembourg employed residents and cross-border workers from different countries, the empirical analysis confirms that higher education and income play an important role in explaining wealth differences between households.