The future of EU cities: challenges and opportunities

Europe’s cities are at a critical point, with population stagnation, weakened industrial competitiveness, and acute housing crises weighing heavily on economic prospects. The EU’s Agenda for Cities update and first-ever Housing Affordability Plan are therefore arriving at a crucial moment, offering much-needed guidance for cities navigating these challenges.

Demographics will be a key focus for the EU. Although populations have been expanding, cities are now at an inflection point: we estimate that working-age populations will have declined in nearly 60% of major cities by 2050. Southern and eastern markets will suffer the most pronounced falls, straining labour supply and weakening competitiveness at a time when EU policymakers are seeking to upskill workers for the green and digital transitions.

Europe’s weakened competitive position is perhaps most evident in manufacturing, shaped by rising costs, policy shifts, and global pressures. Germany’s southern automotive hubs—long a bellwether of Europe’s industrial health—have come under strain, as have related supply chains across parts of Slovakia and Hungary. China’s move further up the value chain and the persistence of tariff-focused US policy in 2025 have worsened the situation.

However, all is not lost in Europe’s industrial bases. Targeted German defence spending offers some medium-term upside, while resilience in Catalonia and Emilia Romagna’s large industrial hubs is encouraging, as is Eindhoven’s strength as an advanced manufacturing specialist.

Housing affordability has also rapidly ascended the policy agenda. Chronic under-delivery, high construction costs, and planning restrictions have exacerbated the problem, though cases such as Helsinki offer useful case studies where supply-side constraints are less apparent. Addressing these issues will be key for labour mobility, investment, and social cohesion.