Luxembourg is no longer "lux"

Aleksandra WisniewskaOctober 1, 2024, 07:33

Luxembourg has the highest GDP per capita in the world. At around $140,000, it’s more than twice the European Union average. Yet poverty is rising in one of the world’s richest countries. In December 2023, Luxembourg’s at-risk-of-poverty rate hit a record high of 18.8 percent. That’s a 1.5 percent increase from a year earlier. We visited the country to see that the myth of a wealthy Luxembourg is just gold.

Andrzej Wiśniewski / Private archive

• Luxembourg has the highest GDP per capita in the world, more than twice the European Union average
• Despite the high GDP, poverty is growing; many citizens, like Claude, are experiencing financial difficulties
• Claude receives a low pension and government assistance, and is concerned about maintaining his apartment due to high rent costs and limited availability of affordable housing.
• Real estate in Luxembourg is managed in a way that maintains its high value, but at the same time reduces the availability of housing for citizens, due to the specific market situation of the country
• You can find more articles like this on the Onet home page

Claude is 65 years old, has impeccable manners, a soft voice and a warm, slightly shy smile that immediately wins sympathy. For the Luxembourger, money is not the biggest problem. Despite his pension being 820 euros and the rent for the rented apartment 600.

Claude finished 12 years of school, but he has no professional certificate . The lack of any document was a problem for employers. Claude knew the periods of unemployment very well, interspersed with occasional and temporary work, most often in restaurants.

Already towards the end of his professional life, fortune smiled upon Claude. For several years he worked on transcriptions of handwritten censuses, which are now being analyzed by the University of Luxembourg. The smile of fortune was radiant, but short-lived.

— Just three years before retirement I had to apply for benefits, which I had never done before in my life, he says in an interview with Onet.

Claude receives additional government support on top of his pension – 320 euros. REVIS (Social Inclusion Income) aims to support low-income households and provide basic living conditions to everyone who qualifies.

Andrzej Wiśniewski / Private archiveClaude

"My pension and the extra government assistance are enough for me. Money isn't a problem for me because I don't spend much. I'm more worried about the future. About whether I'll be able to keep my apartment ," Claude says.

He shares the apartment with his brother. Each contributes equally to the rent of 1,200 euros. They have a one-year lease. Up until now, the landlord has always extended it. Will this not change? Claude doesn't know.

She worries about herself, her brother, and others in a similar situation.

Claude's best friend lives in his neighborhood. She rents a small place owned by an NGO and is now considering selling it. If they go through with it, they won't renew her lease. Instead, she'll get a 3-month notice and little chance of finding anything else during that time. If at all.

— Private rentals are expensive and affordable housing is rare, says Claude.

Why this is happening is explained by Antoine Paccoud, researcher at the Luxembourg Institute for Social and Economic Research (LISER), specialising in real estate development in Luxembourg, in the area of ​​Urban Development and Mobility.

— Luxembourg is a very dynamic economy open to migration. Many people move here every year. The population is growing very quickly, but the number of apartments is not.

The Grand Duchy of Luxembourg has an area of ​​just over 2,500 square kilometers. 50 percent of the land suitable for housing development is privately owned. It belongs to about 3,000 families, which is only 0.5 percent of the country's population .

Andrzej Wiśniewski / Private archiveLuxembourg

“There is no inheritance tax in Luxembourg if you pass your property on to your children. So families pass on land from generation to generation,” Antoine says.

Year after year, the plots of land are gaining in value, which is why their owners are in no hurry to sell. And if they do decide to, they sell a small part to the same local developers. Over the years, these companies have accumulated huge reserves of land and manage them in the same way as private owners. They carry out individual projects at a steadily slow pace, so as not to flood the market with a large number of apartments and maintain their high value.

“In a way, the country is being held hostage by a few families and companies,” Antoine says. But he adds that for Luxembourgers themselves, the situation is not as bleak.

The Grand Duchy has a population of around 670,000, of which citizens make up just over half. Of these, around 70% own their own land and homes. Among foreigners, 40-50% own real estate. The rest rent on the private market and are the most affected by the situation on the real estate market.

“Only Luxembourg citizens can vote in national elections,” Antoine explains. “So the government that should solve everyone’s problems is in fact elected by those who benefit the most from the current situation.”

And yes, the government offers tax breaks to those investing in new rental apartments. Among other things, they have the option of deducting 6% of the apartment's value from income tax for the first six years. They can also take advantage of mortgage interest relief.

From the developers' perspective, it is more profitable to sell premises to investors than to those who want to have them for themselves . Investors usually have the funds for several premises, they buy them in one transaction, faster and more efficiently.

Andrzej Wiśniewski / Private archiveLuxembourg

“Ordinary people cannot afford this and this mechanism contributes to growing inequality in the real estate market,” says Antoine.

Low property taxes and tax breaks for investors were the answer to the stagnant construction market. The government wanted to create demand that would encourage developers to build on a larger scale. However, instead of increasing supply, developers turned to a new customer, investors. Over the past 10 years, about 50 percent of all new apartments have gone to them.

This has been the case since 2002. For years, Luxembourgers have tried to change it. They were supported by organizations such as the International Monetary Fund, the Organization for Economic Co-operation and Development, and even the European Commission. It was not until 2020 that the government decided to make changes. It reduced the 6% tax relief to 4% with an additional restriction – it could be used only twice.

“But now with the new construction crisis, the new government has brought it all back,” says Antoine.

At first glance, there is no sign of a construction crisis, at least in Luxembourg City. Wherever you look, there are construction sites . New constructions are shooting up into the sky left and right. At every turn, fences are plastered with large posters encouraging people to buy new luxury developer apartments. However, according to Luxembourg's national statistics institute STATEC, in the third quarter of 2023, the number of housing transactions fell by 38.2%, home sales by 47.3%, and activity on the development land market decreased by 56.4% compared to the same period in 2022.

— The rise in interest rates made other products more interesting for investors than apartments. So investors left and developers were left with projects that ordinary people simply cannot afford, explains Antoine.

Just two years ago, interest rates were very low. People took out mortgages for expensive apartments and houses, knowing that they would be able to pay them off in 10-15 years. Today, the situation is completely different. Interest rates have risen, reaching levels of 3-4 percent in 2023. Banks have become more cautious in granting loans. Although property prices remain relatively stable, higher interest rates and increased caution of banks affect the difficulties in accessing credit.

"With the rise in interest rates, people have lost about 30 percent of their purchasing power. Today, the ability to buy real estate is reserved for a very small population with very high salaries," Antoine comments.

As it is difficult to buy a property, more and more people are turning to renting. High demand is driving up rent prices. The average rent for an apartment in Luxembourg is 1,500-2,000 euros. The minimum wage is 2,400 euros gross for an unskilled worker and 2,900 euros for a skilled worker. In search of cheaper accommodation, people are increasingly moving to neighbouring countries – France, Belgium, Germany – from where they commute to work in Luxembourg. It is estimated that the number of cross-border workers is 200,000. Antoine emphasises, however, that not everyone can afford such a solution.

Andrzej Wiśniewski / Private archiveA street in Luxembourg

— Many lower-income migrants come from outside the European Union. Because of their visas, they have no way of crossing the border to find cheaper housing. These people are really trapped in Luxembourg, he says.

One solution to the problem, Antoine sees, is to increase the number of social and affordable housing units. But at the moment, only 2% of public sector properties are rent-controlled, kept low. The rest are on the private market, which people like Claude can't afford to rent.

And the government simply has nowhere to build affordable housing or social housing. The only land in the state reserves is brownfields – areas of former steelworks. Developing them involves huge costs. They must be cleaned of pollution that has been accumulating for decades, including heavy metals.

According to Antoine, a much faster and more effective solution is the reform of the property tax, which the government is currently debating. One idea is to tax private land for construction that is not developed. The tax would be progressive - the longer the land is held, the higher the tax.

"It's a good solution, but the problem is that the government has given landowners a very long window to comply. In my opinion, the best solution would be to take over strategic plots. The state defines it as a strategic plot, buys it for this much and that much, and then builds social housing," says Antoine, adding quickly, "But that's not going to happen. In Luxembourg, private property rights are extremely protected. That's why introducing a tax is the second best option."

Meanwhile, the housing crisis is deepening social inequalities. The number of homeless people is growing. In 2023, the homelessness rate in Luxembourg was 9.8 per 10,000 inhabitants, an increase of 52% over the past 10 years.

Andrzej Wiśniewski / Private archiveA street in Luxembourg

— There are 47 people on our waiting list for an apartment in the Immo Stëmm program, says Alexandra Oxacelay, director of the charity Stëmm vun der Stross (Voice of the Street), which supports people who are socially excluded or at risk of exclusion.

The Immo Stëmm program helps people with low incomes to find stable housing. Another 15 people are accommodated in the Stëmm post-therapeutic center in Schoenfels, which supports adults after completing drug or alcohol addiction treatment. In addition to the possibility of temporary accommodation, the center guarantees them further medical, social and educational support.

— Our main goal is social and professional reintegration not only in Schoenfels – says Alexandra and adds – We already have 365 people working in professional reintegration programs in 9 Stëmm facilities. We operate according to the motto: "Excluded people, for excluded people".

At the Stëmm headquarters in Hollerich, Luxembourg, the organization's goals are focused like a lens. Most of the employees here are people in professional reintegration. They include a laundry, the editorial office of the bimonthly "Stëmm vun der Strooss", a social restaurant and a second-hand clothes shop "Kleederstuff".

Andrzej Wiśniewski / Private archiveAlexandra Oxacelay

The Kleederstuff is adjoined to a canteen where toiletries and body care products are dispensed. In Stëmm, people in need can take a free shower. However, they must reserve a queue beforehand. Now a raised voice of an angry man can be heard from outside the canteen. Alexandra reacts immediately. The man shouts something back in French but walks away .

— He wanted to take a shower without queuing. It doesn't work that way here. We keep order and teach it to others — explains Alexandra. — But I understand him — she adds — he spent his life on the street. There are no queuing there. On the street, it's whoever comes first, whoever is stronger.

However, the director emphasizes once again that anyone who wants to use Stëmm's services must strictly adhere to the rules. Mutual respect is essential. There is no tolerance for verbal and physical attacks. Alcohol consumption is strictly prohibited. As is the use of drugs. To prevent this, blue light bulbs have been installed in the showers and toilets.

— It’s hard to find veins in this light, explains Director Alexandra.

A brief argument turns out to be the exception.

— No, nothing much happens here. It's mostly quiet. We call the police maybe 2-3 times a month — says a young security guard. His shift in Stëmm ends when the centre closes at 3:30 p.m. Then he starts his second shift — at the train station.

Andrzej Wiśniewski / Private archiveStëmm, entrance

Once a week, a doctor comes to Stëmm to see patients for free. And once a week, a corner of the editorial office is transformed into a free hair salon. While a volunteer hairdresser brings in a tall mirror and adjusts the chair, Anny, an administrative employee, looks for clients with appointments.

— I've been working here since January of this year and I'll be honest, I'm scared by what I see — says Anny . — More and more families with small children come to us, single mothers with babies in their arms. There are more and more people on the streets, at the train station. They live in tents because the homeless shelters are full.

Anna’s words are confirmed by the crowd at the Stëmm social restaurant. Volunteers at the reception hand out colourful tokens to people waiting in a queue that spills out onto the street in front of the building. The tokens are worth 50 euro cents for a meal and 25 euro cents for drinks. Those who can’t even afford that much will get free soup, coffee or tea.

— Last year we served almost 200 thousand meals. That's an increase of over 50% compared to 2022. But it's still not enough. These numbers are still growing - Alexandra is excited.

Alexandra would like to open more social restaurants. She would like to help more people. She emphasizes that helping those in need is not only a moral issue, but also an economic one.

Andrzej Wiśniewski / Private archiveStëmm, restaurant

"If we serve meals, people come off the street. They are not on the street, so they do not commit crimes, they do not end up in prisons, in hospitals. They do not cost the state that much," he explains.

But there is still a lack of funds to open new facilities. Stëmm does receive money from the government. This year alone, it was over 8 million euros. The organization receives 10 percent of its money from donations. But even that is not enough.

— The problem is growing. Solutions are coming too slowly – comments Alexandra, adding – Luxembourg’s biggest problem has become that we can no longer hide poverty .

The director of Stëmm tells how, ten years ago, people affected by poverty, the homeless, and beggars were concentrated only around the train station. But every year more were added. In addition, the COVID-19 pandemic brought a new group of needy people – the "working poor", who, despite being employed, are unable to support themselves. In 2022, Luxembourg was in first place in the eurozone in terms of the risk of poverty among full-time employees.

— We were already sounding the alarm. We said that the problem was growing. At that time, politicians didn't care, because the needy weren't so visible. Now they are on the streets of the old town, they are in Kirchberg, where all the financial institutions, the European ones, are located. Where the European Court of Justice is located. And now that it is visible, poverty has become a problem , says Alexandra bitterly.

Andrzej Wiśniewski / Private archiveStëmm, laundry

He adds that Luxembourgish society is pressuring local authorities to do something about it. And they have responded. In December 2023, they introduced a ban on begging. It covers parks and public squares across the city and some districts, including the Ville Haute (old town), where the ban is in force between 7 a.m. and 10 p.m. The Minister of the Interior, Léon Gloden, stressed that the aim of the ban is to combat “aggressive, organized begging.”

Amensty International Luxembourg, however, draws attention to an additional factor.

— Luxembourg city officials claim that they are only dealing with "organized begging gangs and aggressive begging." In practice, however, the ban covers all forms of begging without distinction, representatives of the organization say.

They explain that the ban was introduced for "public health" reasons, in response to complaints from residents and shop owners about "disturbing public order" caused by beggars.

Alexandra talks about her experiences with this:

— People call Stëmm and say: " Can you come? I have a beggar in front of my shop and customers are afraid to come in ." They treat us like street cleaners!

Amnesty International stresses that the ban comes at the expense of fundamental human rights.

— The ban does not solve any problems and only stigmatizes an already vulnerable population, representatives of the organization say.

Alexandra adds:

— You can't punish someone for being poor. Everyone can be on the street as long as they don't harm anyone. The street belongs to everyone.

Amnesty International Luxembourg points out that while municipal councils can adopt political regulations, their content cannot be contrary to human rights law or national law. The European Court of Human Rights recently ruled that a general ban on begging would not be in line with the European Convention on Human Rights. Furthermore, in June 2024, the Cellule scientifique Chambre des deputes (Scientific Panel of the Chamber of Deputies) will find that a municipal regulation banning all forms of begging is “probably” contrary to the Luxembourg Constitution.

Andrzej Wiśniewski / Private archiveStëmm, restaurant

The ban was criticized not only for its human rights violations but also for economic reasons. After it came into effect, the interior minister, responsible for the police, decided to send a significant number of officers to the capital. This move was met with sharp criticism from the political opposition and the procurator general, who noted that it would cause delays in other, more important police tasks.

Society is also protesting.

— Following the introduction of the ban, many public demonstrations were held to express solidarity with those affected. A public petition was launched to authorize “ordinary” begging, Amnesty International Luxembourg said.

The petition reached the required number of signatures and was debated in the Chamber of Deputies in May 2024. During the debate, the Minister of Justice stated that a ban on "ordinary" begging would not be introduced into Luxembourg law.

— Instead of banning begging, we should "banning" poverty, says the Stëmm director. — For me, it is unacceptable that someone has to beg at all. That someone has to sleep outside. It is simply not acceptable in a rich country like Luxembourg. It is not normal.

Amnesty International recognises that the Luxembourg government is already taking various actions to help people who are socially excluded or at risk of exclusion. It offers housing subsidies to help people pay their rent, and operates an agency to help people on low incomes find affordable rental accommodation. There are income support programmes that help with living costs, maintenance and raising children. Vouchers are provided to enable low-income people to buy food in grocery stores and families to use childcare services.

At the same time, the organization points to the need for further state intervention, especially in the intensification of projects aimed at the professional integration of people forced to beg. Intensification of language courses, professional training or pilot projects in companies is, according to them, crucial.

Alexandra, on the other hand, points to the importance of social integration.

— At Stëmm vun der Strooss we try to sensitize people. We try to show that even if someone is poor, old, doesn't have a diploma, doesn't speak our language, has or had addiction problems, it doesn't mean they're a bad person. And in Luxembourg the mentality is changing. There are more and more people who want to help.

The Gare district around the train station is chaotic. There is rubbish on the sidewalks. Used syringes between them. On the corners, at bus stops, in front of pharmacies, shops – beggars. Men, women, sober, under the influence of alcohol, drugs. It only takes 20 minutes to cross the stone Pont Adolphe bridge and find yourself in another world. To find yourself in Ville Haute. Cleanliness. Neatness. Elegant tourists in chic restaurants. Renowned shops, banks, real estate agencies. And despite the fact that it is the middle of the day, and despite the ban, a man kneels in front of a sparkling clean and exclusive shop window . Head down. Gaze fixed on the ground. Hands stretched out in a pleading gesture, clutching a paper cup. A young man passing by stops without thinking. He throws a handful of change into the cup.

monnaie dans la tasse.