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Housing bubble: hunting season has begun – Opinion Dirk Bezemer

02 November 2017
Dirk Bezemer
Dirk Bezemer

Is the overheated housing market in Amsterdam, Utrecht and Groningen becoming a problem? Rabobank expects house prices in the Netherlands to increase by an average of 7.6 percent in 2017. Is the Netherlands at risk of a housing bubble? The policymakers think so, and are thus following an international trend. At least, these are the signs coming from The Hague, Amsterdam, Beijing and Brussels.

Three days after the coalition partners had leaked news of the accelerated reduction of deductible mortgage interest, President of De Nederlandsche Bank Klaas Knot warned about the large number of interest-only mortgages – which, as the name suggests, only cover the interest: at the end of their 25-year or 30-year term, you still owe the full amount borrowed. This is not usually an amount you can pay back in one go from your pension, hence the worries of the DNB president. The majority of these interest-only mortgages were taken out during the last bubble – just 10-15 years ago – and they are causing policymakers to fear that we may just be in the next bubble.


The timing of the troubling reports is interesting. Knot spoke following the publication of the report Overview of Financial Stability. But he has undoubtedly recently been updating the coalition partners, and we know what they think about the Dutch mortgage mountain and house prices. It cannot be a coincidence that the same signs are coming from politicians and the bank president within days of each other.

Knot has been warning about high levels of household debt for years, so his words are no surprise. What is surprising is that his counterpart at China’s central bank, Zhou Xiaochuan, said much the same last week, this time about Chinese businesses that he believes are in too much debt. The Chinese central bank is not independent, so Zhou had consulted his boss, Chinese President Xi Jinping, about this. And once again last week, Xi himself gave a nervously awaited speech at the nineteenth party congress of the People’s Republic.

Houses for living in, not for speculating on

Beijing watchers believe that after five years in the highest office, Xi is in a strong enough position for him to take unpopular but necessary measures. At the top of the list is bursting the credit bubble. Enormous at 250% of the GNP, and coincidentally as high as in the Netherlands. Anyone who is anyone in China has become rich on the back of this in recent years, much like the Netherlands in the 1990s. Another similarity: this is becoming an increasing threat to the economy. In his three-and-a-half-hour speech, Xi said several times that ‘houses are for living in, not for speculating on.’ Another politician and bank president with the same message in a short space of time.

This month a study was published by Brussels think tank Bruegel. First sentence: ‘Rapidly increasing house prices are a well-known form of financial instability.’ As if they were already privy to Xi’s speech, the interview with Knot and the plans of the coalition partners. In the report, Rotterdam professor Dirk Schoenmaker and his two co-authors identify the problems that can arise if local prices rise rapidly (usually in capital cities), while average house prices remain more stable. This can cause debt problems and financial vulnerability below the surface of the national statistics in the six countries studied. We are in the study too: I learned that since 1995 the greatest increase in property prices in Amsterdam was as much as 30%, compared with 20% in the rest of the country. Of the countries studied, the contrast is greater only in Denmark.

Bursting bubbles

It is in the air, so we are going to have to get used to it: think tanks and policymakers out to burst bubbles. In the short term, this will be at the expense of our pleasing growth figures. However, if the policy is actually implemented and pursued after 2020, our economy will become a great deal more stable in the longer term.

Further information

Contact: Dirk Bezemer , Professor of Economics of International Financial Development

This column was previously published in De Groene Amsterdammer en Dagblad van het Noorden.

Last modified:29 February 2024 10.02 a.m.
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