Housing affordability is not equally pressing across the EU. In some cities, islands and tourist destinations, a significant share of housing is not used as a primary residence, putting pressure on both prices and availability.
A shortage of affordable homes in areas where people need them most affects workers' ability to live near their jobs, makes it harder for young people to leave the family home and limits labour mobility and access to education.
Some member states have already introduced measures to ease these pressures but faced legal challenges over their compatibility with EU law.
Short-term rental platforms such as Airbnb can challenge measures on grounds including the freedom to provide services or property rights.
Energy and Housing Commissioner Dan Jørgensen said some countries had banned homes from being left vacant, requiring owners either to live in them or rent them out. The proposed legislation would provide greater legal certainty for such measures.
"We are facing a severe crisis that is putting housing out of reach for many citizens. When the market fails to provide something as fundamental as an affordable home, public authorities have a responsibility to act," Commission Executive Vice-President Teresa Ribera said.
The Affordable Housing Act would help authorities identify areas facing the greatest housing pressures and introduce proportionate, targeted measures to make more homes available and affordable.
19% of homes in Zagreb vacant
Short-term rentals have grown strongly in recent years. In Madrid, for example, there are around 40 short-term rentals for every 100 homes in the long-term rental market.
The Commission also cites Zagreb, where 19% of homes are vacant.
Short-term rentals are increasingly attractive to investors. In Malta, more than 60% of short-term rental properties are owned by people with two or more homes available for rent.
In some areas, particularly cities and tourist destinations, stronger competition for limited housing stock has pushed prices beyond the reach of local residents.
The Affordable Housing Act proposes a common methodology based on objective and transparent evidence to help authorities introduce measures that comply with single market rules.
The methodology includes an assessment of the house price-to-income ratio to determine whether housing is becoming less affordable relative to incomes, followed by a detailed analysis of local property market conditions, including housing supply and demand and relevant demographic trends.
If authorities decide to restrict short-term rentals in a particular area, they would have to demonstrate that such measures are necessary because of an unfavourable price-to-income ratio and that the large number of short-term rentals is limiting the supply of affordable housing.
The Commission stressed that it would not determine which areas are under "housing stress". That would remain the responsibility of national, regional or local authorities.
Any assessment would have to be evidence-based, geographically targeted, transparent and regularly reviewed, taking local property market conditions into account.
The Affordable Housing Act neither bans nor mandates or recommends restrictions on short-term rentals, which the Commission says can also bring benefits, including additional household income and incentives to renovate properties.
Where authorities decide action is needed to protect housing affordability and availability, they would have to show that short-term rentals are having a significant negative impact on the local housing market.
The proposal will now be considered by EU member states and the European Parliament, which will take the final decision.