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Housing corporations could reduce current expenditures by about 30 percent

Merger wave of the last years seems to have made corporations inefficiently large
07 September 2016
Jacob Veenstra

One third of all dwellings in the Netherlands is owned by housing corporations. These are privately governed institutions executing a public task (social housing). Recently, corporations have received negative attention due to various incidents (such as fraud and excessive risk-taking). This put pressure on their position. In his dissertation Jacob Veenstra focuses on three important issues for corporations: efficiency, mutual solidarity and rent setting.

Because corporations cannot appropriate profits, they lack an incentive to operate efficiently. Also, the ties between corporations and the government have loosened in recent decades and competition among corporations is limited. Veenstra finds that – on average – corporations could reduce current expenditures by about 30 percent. Also, the merger wave of the last years seems to have made corporations inefficiently large.

Bailout clause still functions

Although corporations do not receive subsidies anymore, they can still borrow under guarantee of a bailout clause. Despite the risk that this may lead to moral hazard, the clause still functions. Veenstra finds that it yields yearly benefits of about 0.7-1 billion euros in reduced interest. This clearly outweighs the annual payments of 68 million euros (between 1990 and 2012) to rescue corporations.

A corporation’s rent (increase) is legally constrained by nation-wide maximum rates. A rent increase above the maximum rate is only allowed in case of new tenants or quality improvement. However, Veenstra finds that the rent/quality ratio decreases if quality is improved. Thus, quality improvements are not used to obtain extra revenues. Finally, he finds that rent increases partly depend on rent increases of neighboring corporations.

More information

Contact: Jacob Veenstra

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