Housing Rights: Budapest’s challenges and solutions

Can a municipality effectively implement all the necessary measures to tackle problem such as the housing crisis and climate change without EU funds?

Like other European cities, Budapest strives to meet the climate target by 2050. However, this ambitious goal faces additional challenges due to tensions between the EU and the Hungarian Prime Minister Viktor Orbán over ongoing breaches of the rule of law, which have led to the suspension of EU money transfers.

A major issue linked to both the green transition and increasing tourism is the housing crisis. The lack of EU funds means, for example, no public buildings under construction, while growing tourist demand is reducing the already limited rental supply.

 We asked Ada Ámon (AA), Executive Director of the Budapest Climate Agency, and Bálint Misetics (BM), Senior Advisor to the Mayor on Housing and Social Policy, to shed some light on the current situation.

Is Budapest experiencing a housing and/or energy crisis?

BM: Housing prices and rents have increased significantly more than incomes over the past decade. Between 2018 and 2023, house prices in Budapest rose more than in any other capital city in the region, and – considering the average wages – rents are higher here than in most cities across the EU.  Since most public housing was privatised in the early 1990s, the affordable rental sector remains very small. The government’s housing policy exclusively supports homeownership, primarily benefiting families in better financial situations.

Regarding energy bills, household energy affordability has been less of an issue due to the government’s utility price cap scheme. However, this short-term affordability focus is not a viable long-term policy strategy.

AÁ: Households are the largest source of GHG emissions in Budapest. A recent survey shows that many homeowners in Budapest believe their homes are in good condition regarding energy performance. However, this perception is largely inaccurate, as three-quarters of households consume two to three times more energy than their Viennese counterparts. The utility price cap fails to send the right financial signals to consumers, leading to low awareness, and insufficient savings.

Decarbonisation of the city is not possible without a well-facilitated and managed transition process, good communication, the involvement of the owners and housing cooperatives and well-targeted financial incentives. We advocate for energy efficiency to be part of the energy and the building infrastructure. It requires (local) governmental care, coordinated actions and financial input. The Budapest Climate Agency was set up to provide this service, to boost a socially-minded energy efficiency renovation wave.

Budapest is a popular tourist destination, with 2.5 million tourists registered between January and July 2024. Does tourism contribute to the housing crisis?

BM: It is a problem that a high proportion of housing units are either empty or being used for non-residential purposes, such as offices or short-term rentals. The “cannibalization” of the housing stock by the tourism industry does contribute to the housing crisis. Currently, the prevalence of short-term rentals is higher in Budapest than in any other capital city in the region. Given that the private rental sector is relatively small, the upward pressure that the tourist use of housing units places on rents is very high.

What measures are you adopting to tackle the housing crisis?

BM: The municipality’s more ambitious housing programmes were planned to be financed through EU structural funds. However, the withholding of EU funds due to violations of the rule of law principles and the government’s reluctance to advance funds has halted their implementation. We have allocated funds for repurposing unused municipally owned non-residential buildings into new public housing units and for the renovation of public low-quality and energy-inefficient housing stock. While this is not at the scale that would be necessary, it is still the largest municipal project in the past few decades. We have also planned an extensive rent-subsidy programme for homeless households, as well as a programme to include privately owned (unused or underutilised) housing units in the affordable rental sector through the housing agency model. The municipality has a housing agency, but EU funds are essential for its expansion.

AÁ: When we convert an old school into municipal housing estates, we need to ensure they are future- and climate-proof. Therefore, the Climate Department and the newly established Budapest Climate Agency are supporting these social projects with plans and conceptual frameworks—such as positive energy districts—that will make the maintenance and cost of living in these apartments low and easily manageable. At the same time, we have started designing the new pilot project Green Panel Building Programme. The city will double its commitment to energy districts and renovate a few thousand Soviet-era apartments. We hope to learn from the first projects and scale up the programme for the entire city soon. Additionally, we aim to support those with very low chances of securing financing.

Will new public or residential buildings have to be designed differently in the future?

AÁ: The EU requirements regarding public buildings are ambitious; they must comply with future-proof standards, and the required renovation rate for this building stock is also high. Due to a lack of funds, I am afraid no new public buildings are currently under construction in the city. It is important to note that municipal buildings contribute only 2% of Budapest’s total greenhouse gas emissions, but with the current national restrictions, even the basic operation of the municipality is in jeopardy.

What is the main consequence of too-high rents and a lack of social housing?

BM: The decreasing affordability of housing in Budapest has contributed to a decline in the city’s population. People are moving to suburban areas, a shift that is unsustainable due to the growing demand for transportation infrastructure, environmental burden, and public health issues. Unfortunately, without a wholesale reform of the government’s housing policy, the municipality itself has very limited means to counteract this trend. This is why access to EU funds for affordable housing development is essential for Budapest.

How do the housing projects Budapest is carrying out meet the energy and climate objectives?

ÁA: Energy efficiency and renewable investments are not only climate mitigation measures; they also help protect buildings from overheating in the summer, so people can sleep better and use less energy for cooling. Additionally, citizens can use locally generated power. We also want to encourage housing communities to reconnect or connect to the district heating system for a much cleaner and more efficient service.

In Budapest, we have strategies to address both the housing crisis and the climate crisis, and we have the administrative capacity by newly established agencies to efficiently channel funding to support a socially just climate transition. However, to deliver on these strategies, we need targeted EU funds to reach cities directly—both in the coming years, aligned with the priorities of the new Commission, and in the next post-2027 EU budget, which is currently under preparation – Gergely Karácsony, Mayor of Budapest

A new EU Commissioner for Energy and Housing has been appointed. What should he include in the affordable and sustainable housing plan to support cities like Budapest?

ÁA: I believe it is now clear that there is a financial problem here, rooted in a political vendetta. Budapest is home to a quarter of Hungary’s households, operates the largest municipal public utilities, serves 3 million people every working day, and provides nearly 40% of the country’s GDP. Yet, it has no access to funds that would support the development of these services, including social services, climate plans, and environmental performance. Additional taxes and other financial burdens have exacerbated an already severe budgetary situation. We have a very detailed climate investment plan, backed by scientific data, and new agencies have been set up to channel structural and cohesion funds. As Mayor Karácsony has stressed many times since taking office in 2019, cities need direct access to this financial support to implement well-defined programmes. A socially minded climate transition deserves high-level European support.

MB: The main priority should be providing support for the development and provision of social housing. Long-term housing affordability can most effectively be ensured through large-scale investment in the social rental sector, which is a key precondition for both social inclusion and the sustainable development of cities.

Please note that the general allocation principle – i.e., the preferential treatment of less developed regions – is not suitable for this goal, as the severity of the housing crisis follows a different geographic pattern, with the most developed metropolitan areas facing the most acute shortage of affordable housing. Furthermore, adequate attention and resources should be directed toward homelessness, the most severe form of housing deprivation, which is also the subject of several European Parliament resolutions. Since affordable housing is the only viable solution to homelessness, dedicated resources for expanding the affordable rental sector would be key to addressing this critical social issue.

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Do you want to learn more about the housing crisis in Europe? Read this article!

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