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How the Dutch housing market recovery pushes people into trouble

Amsterdam, the Dutch capital, can be found in the top 10 of many lists. One might wonder what kind of lists we are dealing with. The answer is simple, the annual price development of the owner-occupied housing market. Amsterdam saw an astonishing 14% increase in owner-occupied housing prices over the year 2017, according to Statistics Netherlands. Their figures show an increase of 7.6% for The Netherlands as a whole. The Dutch housing market is doing seemingly well, but is this the full picture?

At first glance, these figures seem worrisome. Are we dealing with an American like housing bubble? The answer is “No”. A report of the Dutch Central Bank concluded that the steep increase of the Dutch housing market prices, isn’t driven by a credit bubble. The real reason for the inflated housing prices is the increase in demand and the shortfall of supply. But this certainly doesn’t mean that the Dutch housing market is doing fine. The large shortfall of supply is present in both the owner-occupied housing market as well as the private and housing association owned rental properties markets. I will now turn to the explanation of the current situation and its consequences.

The strong recovery of the Dutch economy has brought increased confidence to people. Where during the Financial Crisis the housing prices and transactions plummeted, increased confidence leads to a reversal of this. Dutch housing prices are on the way back to its pre-crisis level of 2008. Some regions of The Netherlands have reached this level already a long time ago. Especially, the large cities in the Randstad have been facing steep increases for some years in sequence. And even the rural areas are catching up with their pre-crisis price levels. This, however, is only one side of the picture. The steep increases in housing prices are not only caused by an increasing demand. The supply side should also be blamed. The Financial Crisis, with its collapse of the housing market, caused a large drop in new housing projects. Now the Crisis is over, the origination of new projects is lagging. It takes time to decide how many and what kind of houses to build. Moreover, the granting of building permits is not following the trend in housing demand. But also local and state governments have contributed more to this problem than they admit.

Unfortunately, a scenario has originated wherein more and more people cannot afford it anymore to buy a house. First time buyers and low-to-middle-income households cannot get a high enough mortgage from the bank. They are, in particular, hit by newly imposed regulation. For example, a reduction in the Loan-to-Value limit to 100%, limiting mortgage tax deductibility and a reduction in the maximum maturity of mortgages to 30 years. The alternative for these groups is the rental market consisting of private rental properties and housing association owned rental properties (a large part of their portfolio are social security rental houses). Another issue arises.

The rental market is also dealing with a shortage of supply. This market can’t accommodate the increase in demand and the unregulated private rental property market keeps imposing rent increases. First time buyers and low-to-middle income households often have no other option then to choose a rental house with high rents. They are stuck in this market. A second problem is called in Dutch “Scheefwonen”. Social security housing is a well-developed market in The Netherlands, especially focussing on the lowest-income households in society. This rental market is regulated and rents are capped at a maximum well below the current rents on the private market. People living in these homes can’t be forced to leave their home and move to the owner-occupied housing or private rental properties market. Over the years a part of the people living in these homes don’t qualify for these homes anymore. They are earning too much. But the current situation leads to a disruption of the natural flow to a larger and more expensive home. The result is a long waiting list for social security homes.

The recovery of the Dutch housing market seems nice, but some real issues can be pointed out. The owner-occupied housing market as well as the rental properties market is dealing with, respectively, increasing prices and rents. Both markets face a shortage not solved on a short notice. Some parties even claim a further worsening of these issues, which are disastrous for the groups in society being “stuck in the middle”. One thing should be clear by now, some of the growth numbers on the housing market might look satisfying, but others displaying the issues described in this article shouldn’t be ignored.

 

 

 

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