The Dutch housing market is stagnant and there are hardly any instruments available to get things moving. It’s not only homeowners and banks that have their backs to the wall but government as well, according to Arno van der Vlist, professor of real estate development at the University of Groningen. ‘It’s slowly dawning on us that real estate does not just increase in value. For years we have profited from rising real estate prices but now we must reserve for write-off and depreciation. The declining consumption will harm the economy.’
In June the Cabinet lowered the transfer tax from 6 to 2 percent. Although the temporary decrease has had hardly any effect on the housing market, there are now Dutch Senate members calling for the tax on buying a house to be permanently lowered. This is a good illustration of how little politics can do and the gravity of the situation on the housing market. ‘There are certainly no short-term solutions,’ says Professor Van der Vlist. ‘The housing market has run adrift of the trade winds. We’ll just have to paddle along until we can set full sail ahead again.’
The increase in lending capacity played an important role in the housing market problems arising, Van der Vlist explains. Until 1992 mortgages were a maximum of 3.5 times the gross salary of the main wage earner. From then onwards the second household income was included and up to five times the gross annual income could be borrowed, even rising to seven times in some instances in 2008. The increase in funds in the market led to house prices rising. In order to profit from tax benefits, many buyers decided not to pay off their mortgages. Van der Vlist: ‘This went well as long as house prices continued to rise. But now that the lending capacity is decreasing and house prices are falling, many homebuyers have discovered that they have unwittingly taken out an advance on their pensions.’
There are also imbalances in the rental sector that are paralyzing the housing market, says Van der Vlist. So-called ‘scheefwoners’, those earning more than their housing corporation rent warrants, are hanging on to homes meant for low-income groups and postponing switching to buying. ‘Rents should rise along with income until they’re at open market level. Only a complete overhaul of the rental system, including the current system of rent allowances, will have any influence on the housing market,’ according to the professor.
Otherwise the government has few instruments to jumpstart the housing market, says Van der Vlist. ‘You can only limit the mortgage interest relief when the economy is booming. If you were to do it now, too many people would end up in financial straits.’ It now seems quite clear that lowering the transfer tax has hardly any effect, and Van der Vlist does not expect that curbing maximum value mortgages and encouraging new building projects will help much either. ‘It’s slowly dawning on us that real estate does not just go up in value, that’s the gist of it. We’ve been living beyond our means for years and now we finally must adjust our consumption pattern. Households would be wise to reserve funds for write-off and depreciation. And yes, the declining consumption will harm the economy.’
Local government perhaps has more influence these days on the housing market than national government has, Van der Vlist thinks. ‘The high land prices are stopping property development. Municipal development companies are looking into changing their policies but because municipalities are now being made to take over responsibilities formerly assigned to national government and are receiving less funds to do so, this is a problem in many places.’ The important thing is that municipalities consult with their neighbours on development projects, Van der Vlist says. ‘There may not be a market for three projects in neighbouring municipalities, but perhaps one would be viable. They would need to look into that together.’
Prof. Arno van der Vlist (Hardinxveld, 1971) studied Agricultural Economics in Wageningen. After gaining his PhD at VU University Amsterdam in 2001, he worked in real estate for a few years and as university lecturer at Wageningen University. He has been Professor of Real Estate Development at the Faculty of Spatial Sciences at the University of Groningen since late 2008. His research focuses on the spatial-economic aspects of the real estate market and on construction and real estate tenders.
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