The latest analysis of housing affordability in Lithuania shows that by saving for 10 years, residents can on average afford to purchase an apartment of up to 39.3 sq. m, while those wishing to buy a newly built apartment in the regions are unlikely to succeed — virtually all new construction is concentrated in three major cities. The business sector is proposing measures to address the problem, including incentives for developers working on projects in smaller towns and the establishment of an unused residential property fund that would allow long-neglected or abandoned housing to be brought back into use.
“Although the situation varies across different regions, the common challenge is related to insufficient supply and housing that is unaffordable for part of the population. In major cities, especially Vilnius, due to the limited availability of free land plots, high territorial planning and construction technical requirements, and lengthy bureaucratic processes, housing sometimes becomes almost a luxury good. In smaller towns, the problem manifests differently — there is typically a shortage of housing supply itself, as developers are uncertain about sufficient demand for new housing and the viability of affordability,” says Mindaugas Statulevičius, President of the Lithuanian Real Estate Development Association (LNTPA).
Forgotten Regions
The consulting and research firm Smart Continent Management Institute, commissioned by the Lithuanian Ministry of Environment and in cooperation with LNTPA and other social partners, is preparing a Housing Affordability Measures Study. The presentation of interim review results once again confirmed that in Lithuania’s major cities and resort towns, housing prices significantly exceed the national average, meaning housing affordability there remains relatively low. This is particularly reflected in the long saving periods required to purchase housing and in high transaction prices.
The time required to purchase an average-sized (70.7 sq. m) individual house (calculated at 40% of average income) stands at 77 months nationally and ranges from 16 to 376 months across municipalities. To purchase an apartment of the same size would take an average of 216 months, with this figure ranging from 22 to 603 months across municipalities. The longest periods are recorded in Neringa, Palanga, major cities, and their surrounding municipalities.
One of the reasons for this is that in the largest cities, housing is often purchased as an investment, while in resort towns, investment demand is particularly distorted by second homes and short-term rentals. In smaller municipalities, this problem is insignificant.
For example, in as many as 31 municipalities across the country, not a single newly built apartment in a multi-apartment building was constructed over the past five years, and as much as 91.5% of all apartment construction was concentrated in the cities and districts of Vilnius, Kaunas, and Klaipėda.
“Where the most construction projects take place, administrative processes such as territorial planning, permitting, and infrastructure coordination become a significant constraint on development. In major cities and their surrounding municipalities, the scale of construction is greatest, so these processes have the greatest impact on the pace of supply,” the review states.
Major cities also record greater demand for social housing, and the overall need for social housing fluctuated around 22,000 between 2017 and 2024, while the number of such units in use in 2024 reached only 12,100.
Hidden Market Potential
According to LNTPA’s assessment, housing development in major cities is most hindered by lengthy building permit issuance processes — as evidenced by data published publicly by the SSVA agency since last year — along with excessive requirements and procedures and high infrastructure costs, while growing demand, driven by both internal migration and incoming foreigners, adds further pressure to the market.
In smaller towns, the main challenge is a lack of investment and demand. Although municipalities often strive to attract investors and create favorable conditions for development, developers face the risk that the housing they build will not be sold.
“Construction costs in the regions are essentially no different from those in major cities, but the purchasing power of residents is lower, making the viability of projects uncertain. Public-private partnerships, in which municipalities would guarantee the purchase or rental of a certain share of housing from developers, would reduce risk for investors and encourage new projects, while also expanding the municipal housing stock,” says M. Statulevičius.
Research shows that the amount of housing in the country may be considerably greater than what is actually available on the market. This is because a portion of residential real estate is abandoned or unused due to owner passivity, emigration, or other reasons.
“We propose creating mechanisms that would encourage this property to be returned to the market. One possible direction could be specially managed professional funds in which owners could register unused housing, and with the help of professional property managers, it could be rented out, sold, or otherwise put to its most effective use. At the same time, incentive measures could be considered, such as higher taxes on the long-term and unjustified non-use of property,” says the LNTPA President.
Greater housing affordability is also supported by the recently launched public disclosure of data on building permit issuance timelines, which encourages municipalities to act more efficiently and meet deadlines, while allowing businesses to begin housing construction more quickly, adds M. Statulevičius.
In June 2023, the Organisation for Economic Co-operation and Development (OECD) recommended that Lithuania develop a long-term housing policy strategy to ensure housing affordability and accelerate programs for the renovation of Lithuania’s building stock. The Ministry of Environment of the Republic of Lithuania plans to submit a final report on housing affordability measures by the end of this year.