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Housing shortages in Europe’s cities are driving a rise in tenant protections such as rent control, but that needn’t be a bad thing for investors.

Europe’s best cities are booming. With their active environments, dynamic economies and attractive employment opportunities, people across the continent are flocking to nest in these urban hot spots. Yet the rapid growth poses a challenge: are they providing enough affordable housing for their eager new inhabitants?

In response to this, some cities are turning to rent control as the solution, which is causing alarm among investors. The growth in demand for housing is driven by urbanisation: as cities succeed, they attract more people. The reasons for housing supply not keeping pace with demand are, however, more complex. They include limited availability of land, slow or obstructive planning approval processes, high building costs and practical constraints on construction capacity. With the level of new development failing to match the growth in housing demand, house prices and residential rents have reached levels that people on average salaries are struggling to afford.

Politicians and urban authorities need to avoid cities becoming places where only the rich can live. The rising cost of housing is leading to the exodus of many of the workers essential to a city’s basic functioning – police officers, firefighters, teachers and nurses, to name a few. No longer able to afford to live in the city, they are becoming regional commuters.