Overheated housing market: DNB offers solutions

Escalating house prices, a lack of housing, negative social consequences and public demonstrations highlighting the urgency of the problem: the country seems fed up with the overheated housing market. Now, De Nederlandsche Bank (DNB) has offered solutions. Its ‘four ingredients’ analysis should help create a more balanced housing market. Yes, more houses need to be build, but according to the bank’s experts, there’s more to it than that.

House prices in the Netherlands have kept on rising, and more so than the European average. For example, in the second quarter of 2021, transaction prices of Dutch owner-occupied homes, both new and existing, showed an average 12.8 percent increase compared to a year earlier. According to Statistics Netherlands (CBS), figures have revealed the largest increase since measurements began in 2015.

Although increasing house prices are a European-wide issue, and the Financial Times for instance wrote how “social disquiet about housing costs is growing across Europe,” the situation is said to be particularly extreme in the Netherlands. The FT called the Dutch situation a “burning political issue,” and various media have pointed to estimates from global forecaster Oxford Economics, who has ranked the Netherlands as the “riskiest housing market of any developed economy.” According to estimations by economists at ABN AMRO, a million more houses need be built in the next decade to make up for the current estimated shortage. Dutch media such as the NOS have called the housing shortage “the largest since the Second World War”.

Now, in response to the escalating situation, DNB has presented its four ingredients for a more balanced housing market. The analysis, which was published on 15 October, calls for a multi-layered approach, because, as the bank’s experts claim, it is a multi-layered issue. According to the bank, accessibility to housing is deteriorating due to the sharply rising house prices, and it considers the increasing risky borrowing home-buying behaviour a particular key factor, especially by first-time buyers in the Netherlands.

Social consequences
When demonstrators took to the streets of Amsterdam in September, there were reports on exploding house prices, rising rents in the private sector and a shortage of social housing. Reporting on the social consequences, Dutch media such as NOS have stressed that less wealthy buyers have little chance to buy a property, meaning that the housing crisis is “one of the biggest social problems of our time”. People with low-paid jobs often have to wait more than 15 years to be granted a place in social housing; until then, they are stuck in undesirable, overcrowded places. Delft University of Technology professor Peter Boelhouwer labels the current housing policy an “engine for social inequality”, and points out that it has led to “sharp divisions and instability in society, in social, political and economic terms”.

Moving forward
The DNB considers the country’s household debt “one of the main systemic risks for the Netherlands”. Recent housing market policies, such as special loans and the abolition of transfer tax for first-time buyers, have increased the spending scope of homebuyers, and improved the accessibility of the owner-occupied market, whilst major tax differences between renting and buying have also led to an increased demand for owner-occupied homes, it claims. But, with increased debt and risk come economic peaks and troughs, say the bank’s experts.

Since the issue is complex, the DNB analysis calls for a broad approach. So whilst the building of new homes is proposed, the bank suggests that the national government should take more control over this process. It should focus on what the bank calls building “in the right segments” and in “the right places”. Construction of homes for the elderly, for example, should go hand in hand with promoting mobility in the housing market. In addition, policies that further increase spending limits should be avoided, and tax benefits for home ownership should be gradually phased out.

Written by Femke van Iperen