Europe needs two million homes a year, and most of the money is private.

A market note from Watson AM, Basel

On 16 December 2025 the European Commission published its first European Affordable Housing Plan, and put a figure on the shortage. According to the Commission's Joint Research Centre, as of December 2025, Europe needs more than two million new homes a year to 2035 to meet demand, around 650'000 above the roughly 1'600'000 it builds now, and the shortfall compounds to about 7'140'000 dwellings by the end of the decade. Three months later, on 10 March 2026, the European Parliament adopted its first report on the housing crisis, by 367 votes to 166 with 84 abstentions, calling for simpler, digital permitting and a 60-day deadline for granting permits. Between them the two documents fix the target and the process. Here is what the plan sets out, why the binding constraint is capital rather than consent, and where a secured lender sits in that gap.

What the plan sets out to do

The Affordable Housing Plan is built around four pillars: boosting housing supply, triggering investment and reforms, addressing short-term rentals in areas under housing stress, and supporting the people the shortage hits hardest. Alongside it the Commission proposed a European Strategy for Housing Construction and a revision of state-aid rules so member states can support affordable and social housing more directly. The framing is that the shortage is structural, not a passing cycle: too few homes built for too long, against demand that keeps rising.

The Parliament's report puts the same case in blunter terms. It describes Europe as short some 10 million homes, with rents up by more than 30% over the past decade, and its rapporteur, Borja Giménez Larraz, opened the debate with a line that travelled: "A generation that cannot afford a home cannot build a future." The proposed answer on supply is to clear the administrative friction, digital permit procedures, modern building methods, and that 60-day cap on how long a permit can take to grant. On the diagnosis and on the process, the plan is well aimed. A permit that takes two months instead of two years is a real gain for anyone trying to build.

The number the plan turns on is the investment gap

Supply and permitting are the visible half of the plan. The load-bearing figure sits in the financing pillar. The Commission's Joint Research Centre puts the additional investment needed to close the gap at about EUR 150bn a year, roughly EUR 1'680bn in total by 2035. That is the sum required, on top of what is already being spent, to get from 1'600'000 homes a year to more than two million.

Set the public envelope against it and the arithmetic is plain. The Commission counts at least EUR 43bn of housing-related investment mobilised under the current EU budget, across cohesion funds, InvestEU and other programmes, with a further EUR 10bn earmarked through InvestEU for 2026 and 2027. The European Investment Bank Group, the largest single contributor, is doubling its housing financing to EUR 6bn in 2026 from around EUR 5bn in 2025, and has committed more than EUR 75bn over three years. Even that headline figure is roughly EUR 25bn a year of financing capacity against an annual need the Commission's own researchers put near EUR 150bn.

The Commission knows the sums don't meet in the middle, and its response says so. In 2026 it is launching a Pan-European Investment Platform for Affordable and Sustainable Housing, working with the EIB and national promotional banks, whose stated purpose is to pool public authorities and private investors and scale up housing investment across the EU. A platform built to attract private money is an admission of where the money has to come from: public capital is the lever, private capital is the load it is trying to move.

Faster permits move the bottleneck; they don't remove it

Here is our read. A 60-day permit clears friction at the front of the process, but it doesn't fund the build. A project with consent in hand still has to raise the debt to break ground, and the market that supplies that debt to mid-market residential developers has been tightening, not loosening. Since 1 January 2025 the final Basel III rules, transposed in the EU through CRR3, have raised the capital a bank holds against exactly the development and income-producing loans these projects need, and banks have been re-sorting toward their simplest, lowest-charge exposures. We wrote about that shift in what the new Basel III rules mean for European property borrowers.

So the plan can clear the permit queue and still leave a scheme stalled one stage further on, at the point where it needs financing. That is the pattern we described in Europe's approved-but-not-built pipeline: consent granted, ground not broken, because the money to build wasn't there on workable terms. Of the three constraints the plan is trying to relax, demand, process and capital, the one it can influence least directly is the one its own numbers make largest. Capital priced and structured deal by deal is what turns a permitted project into a built one, and most of it will be private.

Where Watson AM fits

Honesty about scale matters here. Watson AM is a secured lender in Basel, not a EUR 150bn actor, so the connection is one of category rather than size. But the category is precisely the one the plan is trying to enlarge: private capital lent against European residential real estate on a secured basis, in the mid-market band that banks are stepping back from. That is the ground the plan's investment platform is being built to cover, and it is the ground we already work.

The mechanism is deliberate. We lend across eleven European markets, funded by investor and lending-partner capital rather than a regulated bank balance sheet, with each facility secured against real estate through a package built deal by deal, which can include a first-rank mortgage registered before any money moves, a personal guarantee, or a bank guarantee, and taken through a published nine-step diligence process. The published deal box is wide, from EUR 1M to EUR 1bn at up to 80% loan-to-value, with indicative terms within 72 hours, because a developer with consent and a schedule needs a fast, firm answer, not a slow maybe.

The plan's Pan-European platform is the public version of a simple idea: pool capital and route it to the housing that has to be built. The deal-level version is the work of reading a mid-market residential file a retrenching bank has passed on, structuring the security so private money can fund it, and closing on terms that hold. The EUR 150bn a year the plan cannot supply from the public purse is the gap secured private lending exists to help fill. Investor and borrower material is available on request.

Common questions

How many homes does the EU need to build each year?

The European Commission's Affordable Housing Plan, published on 16 December 2025, and its Joint Research Centre estimate that Europe needs more than two million new homes a year to 2035 to meet demand, around 650'000 more than the roughly 1'600'000 it builds now. The cumulative shortfall reaches about 7'140'000 dwellings by 2035.

What is the EU's housing investment gap?

The Commission's Joint Research Centre puts the additional annual investment need at about EUR 150bn, or roughly EUR 1'680bn cumulatively by 2035. Public commitments so far, including EUR 43bn mobilised under the current EU budget and the EIB Group's more than EUR 75bn of housing financing over three years, cover a fraction of that, so most of the funding has to come from private capital.

What is the 60-day permit rule in the EU housing plan?

In its report adopted on 10 March 2026, the European Parliament called for simpler, digital permitting and a 60-day deadline for granting housing permits, to cut the administrative delay that holds up construction. It is a recommendation to member states, not binding law.

Watson AM, Basel. This article is general market commentary for professional and qualified investors and for real-estate developers. It isn't investment, legal, or tax advice, or an offer of any financial product.

Sources

• European Commission, The European Affordable Housing Plan, COM(2025) 1025 final, 16 December 2025 (housing.ec.europa.eu), on the four pillars, the European Strategy for Housing Construction, permitting simplification, the EUR 43bn mobilised under the current budget, and the EUR 10bn earmarked through InvestEU for 2026 to 2027.
• European Commission, Joint Research Centre, Housing in the EU: more than 2 million new homes per year needed by 2035 to meet demand, 16 December 2025, for the two-million-homes and 7'140'000-dwelling estimates, the roughly EUR 150bn additional annual investment need, and the roughly EUR 1'680bn total by 2035.
• European Parliament, "Tax incentives, renovation and less red tape to tackle the EU's housing crisis", press release, 10 March 2026, on the report adopted by 367 votes to 166 with 84 abstentions, the 60-day permit deadline, the roughly 10 million-home shortfall and the rapporteur Borja Giménez Larraz's remarks.
• European Investment Bank, "EIB Group doubles its financing to EUR 6 billion for homes contributing to the European Commission's Affordable Housing Plan", December 2025, and the EIB Group and European Commission announcement of the Pan-European Investment Platform for Affordable and Sustainable Housing (launch 2026), on the EUR 6bn 2026 figure, the more than EUR 75bn over three years, and the public-private platform.

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