Contemporary public housing debates generally focus on affordability, while overlooking inequalities in housing quality, such as living space. Using longitudinal survey data from Germany (1985–2022), a country with tenant majority, this study examines household overcrowding and underoccupation. We find that the risk of overcrowding (currently 11%) is highly uneven, driven primarily by sociodemographic factors—such as having children, migration background, marital status, and education—rather than income. Families with children, low-skilled individuals and migrants are most vulnerable, whereas high-skilled, childless, native-born individuals face a relatively low risk. Underoccupation, which affects up to 39% of households, is similarly shaped by sociodemographic factors as well as homeownership. Our longitudinal analysis further shows that life-course events, including childbirth and changes in marital status, play a key role in transitions into both overcrowded and underoccupied conditions. We also document a substantial gap between objective and subjective measures of living space, highlighting widespread misperceptions. Our findings have clear policy implications. Policies should target high-risk groups to reduce overcrowding and leverage underoccupation to improve housing efficiency through downsizing incentives, intergenerational housing, or underoccupancy taxes, complemented by awareness campaigns.