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Oct 15, 2015

Dutch house prices recovering - at last!

by Lalaine C. Delmendo

Netherlands house price chartThe change in mood and in numbers in the Netherlands has been dramatic.  After almost five years of continuous house price falls, property transactions are increasing strongly, and house prices are rising modestly.  

The average house price in the Netherlands rose by 4.23% (3.38% inflation-adjusted) during the year to Q3 2015 to €224,000 (US$254,753), according to the Dutch Association of Real Estate Agents (NVM). House prices were unchanged in Q3 2015 from the previous quarter.

All property types showed house price growth during the year to end-Q3 2015, according to the NVM.

  • Detached houses recorded the biggest price increase of 5.2%, to an average of €352,000
  • Apartment prices rose by 4.4%, to an average of €175,000
  • Terraced house prices also rose by 4.1%, to an average of €197,000
  • Semi-detached house prices also increased 3.8%, to an average of €264,000
  • Corner houses saw a price increase of 3.3%, to an average of €216,000

After a housing boom lasting almost 15 years, the Dutch housing market started to weaken in 2008, mainly due to the global financial meltdown. Based on NVM’s figures:

  • In 2008, house prices fell by 5.33% (-7.55% in real terms)
  • In 2009, house prices dropped by 1.5% (-2.4% in real terms)
  • In 2010, house prices rose by a meager 0.96% by dropped 0.65% in real terms
  • In 2011, house prices dropped by 3.63% (-6.06% in real terms)
  • In 2012, house prices fell by 6.7% (-9.54% in real terms)
  • In 2013, house prices increased by 0.24%, but dropped 1.25% in real terms
  • In 2014, the housing market started to recover, with house prices rising by 3.65% (2.7% in real terms)

Demand strengthened strongly in 2014. The number of property transactions rose 39.4% to 153,511 units in 2014, the highest level since 2008, according to Statistics Netherlands (CBS). Dwellings sales rose in all major cities and municipalities.

“The recovery in the housing market is no longer limited to urban areas, and home sales are also improving outside the cities,” according to NVM Chairman Ger Hukker.

During the first eight months of 2015, property transactions rose by 23% to 109,534 units compared to the same period last year.

The Netherland’s economy expanded by 0.9% in 2014, after declines of 0.7% in 2013 and 1.6% in 2012, according to the International Monetary Fund (IMF). During the second quarter of 2015, the economy grew by an annualized 1.8%, down from the y-o-y growth of 2.5% in Q1 2015, according to the CBS. Economic growth is expected at 2% this year.

Positive housing market outlook

The Dutch housing market is expected to continue to strengthen in the coming months, thanks to low interest rates, increased consumer confidence, and improving economic conditions. Rabobank expects average house prices to increased 1.5% - 3.5% in 2015, and property sales are expected to reach between 160,000 units and 180,000 units.

“As more homes are now being sold in the more expensive segment, the average price paid is also increasing accordingly,” said Hukker.

Recovery in all cities and provinces

Netherlands house price index

House prices rose in all provinces and cities during the year to end-Q2 2015.  Based on figures from Statistics Netherlands:

  • In Amsterdam, the price of existing homes rose by 8.1% during the year to Q2 2015, a considerable improvement from 3.6% y-o-y increase in Q2 2014. House prices increased 0.9% from the previous quarter.
  • In Rotterdam, house prices increased by 3.3% y-o-y in Q2 2015, its fifth consecutive quarter of annual increases but slightly down from the y-o-y rise of 4.1% in a year earlier. House prices increased 1.5% q-o-q in Q2 2015.
  • In Groningen, the price of existing homes rose by 2.6% during the year to Q2 2015, in contrast with the y-o-y decline of 0.1% in Q2 2014. House prices increased 1.2% q-o-q in Q2 2015.
  • In The Hague, the price of existing homes rose by 4.4% during the year to Q2 2015, higher than the meager y-o-y rise of 1.5% seen in a year ago and the biggest annual increase in more than 7 years. House prices increased 1.4% during the latest quarter.
  • In Utrecht, house prices rose by 3.2% during the year to Q2 2015, up from an annual increase of 1.6% in Q2 2014. House prices increased slightly by 0.1% q-o-q in Q2 2015.

For the country’s major provinces:

  • In Zuid-Holland, the country’s most populous province, house prices rose by 2.4% y-o-y in Q2 2015, the fifth quarter of annual price increases after almost five years of decline. House prices in the area increased 0.9% q-o-q in Q2 2015.
  • In Noord-Holland house prices rose by 5.4% during the year to Q2 2015, an improvement from the y-o-y rise of 2.3% in the previous year. Quarter-on-quarter, house prices increased 1.8% in Q2 2015.
  • In Noord-Brabant the price of existing homes rose by 2% during the year to Q2 2015, up from the y-o-y rise of just 0.5% in the previous year. Despite the modest growth, it was rather a progress from a 21-quarter y-o-y price declines from Q1 2009 to Q1 2014. House prices increased 0.7% q-o-q in Q2 2015.
  • In Gelderland house prices rose by 1.3% y-o-y in Q2 2015, after annual rises of 1.8% in Q1 2015, 1.3% in Q4 2014, and 0.1% in both Q2 and Q3 2014. House prices fell slightly by 0.1% in Q2 2015 from the previous quarter.

Housing boom and bust

The Netherlands’ house price boom lasted from 1992 to 2007, with median house prices rising 80.8% (59% in real terms) from Q1 1996 to Q2 2001. Amsterdam house prices rose 111% (86% in real terms) during this period.

National house prices rose by an average of 11% (8.4% in real terms) annually from 1996-2001. The economy grew 3.7% annually. During this period real private sector wages rose by 3.6% annually while inflation was only 2.4%, leading to significant increases in purchasing power.

Despite slower economic growth of 0.9% annually from 2001 to 2004, house prices rose by an average of 3.9% (1.2% in real terms) annually from 2001 to 2004.


Netherlands   80.8  2.4 14.0 3.1 -19.5  3.2
Amsterdam 111.4 -1.5   9.8 5.4 -16.7 10.9
The Hague  76.0 -2.0 17.5 7.3 -16.7  3.9
Rotterdam  79.1  0.3   9.8 1.2 -11.4  5.5
Utrecht  69.3  0.9 14.9 6.9 -18.7  4.2
Source: NVM, CBS

By Q2 2006, house prices in Netherlands had risen 14% (9% in real terms) on three years earlier, with strong increases in The Hague (17.5% nominal and 12.5% in real terms) and in Utrecht (15% nominal and 10% real).

Despite a political crisis, house prices in the Netherlands still rose by 3.1% from Q3 2006 to Q3 2007, propelled by economic growth of 4% in 2006 and 2007. The Hague registered the highest house price increase of 7.3%, followed by Utrecht’s 6.9% house price increase.

The bust began in 2008

However with the global financial crisis the housing market went into a tailspin, with modestly falling prices and significant falls in sales volumes.

House prices fell by 5.33% (-7.55% in real terms) in 2008, and by 1.5% (-2.4% in real terms) in 2009, as GDP growth slowed to 2% in 2008, and contracted by 3.3% in 2009.

Despite a modest economic recovery in 2010-11 with average GDP growth of 1.4%, the Dutch housing market remained depressed, with house prices rising by a meagre 0.96% (-0.65% in real terms) in 2010 and falling by 3.63% (-6.06% in real terms) in 2011 and by 6.7% (-9.54% in real terms) in 2012, though with a slight increase of 0.24% (-1.25% in real terms) in 2013. The economy contracted by 1.6% in 2012 and by another 0.7% in 2013.

By 2013 things were so bad that the total number of dwellings sold in Netherlands had dwindled by almost half, to around 110,094 units, compared to an average of 206,000 dwellings sold annually from 2005 to 2007.

House sales are rising strongly

However in 2014, the Dutch housing market started to recover, as economic conditions improved. From Q1 2014 to Q2 2015, house prices in the Netherlands rose by 3.2%, with strong increases in Amsterdam (10.9%) and in Rotterdam (5.5%). As the recovery continues, the Dutch housing market is expected to rise more strongly in the coming months.

Netherlands dwellings sold

The number of property transactions rose by 39.4% y-o-y to 153,511 units, the highest level since 2008, according to Statistics Netherlands (CBS). West-Nederland accounted for a little more than 50% of all property transactions last year, followed by Zuid-Nederland (20%), Oost-Nederland (19%), and Noord-Nederland (9%).

During the first eight months of 2015, property transactions rose by 23% to 109,534 units compared to the same period last year. The number of dwellings sold rose in all of the country’s major cities and municipalities.

Mortgage interest rates continue to fall

Housing loan rates as of August 2015 were as follows:

  • Floating rate and interest rate fixation (IRF) up to 1 yr: 2.46%, down from 2.75% a year earlier
  • IRF 1-5 yrs: 2.68%, down from 3.1% in the previous year
  • IRF 5-10 yrs: 2.91%, down from 3.69% in the previous year
  • IRF 10 yrs or more: 3.24%, down from 4.16% in a year earlier
  • Average interest rate for housing loans: 2.9%, down from 3.33% in a year earlier

Netherlands interest rates housing loans

The average mortgage interest rate was 2.9% in August 2015, down from 3.33% in August last year and 3.65% two years ago. The 12-month Euribor rate is down to a record low of 0.15% in August 2015, from an average of 0.45% in 2014 and 0.54% in 2013, 1.01% in 2012, and 2.03% in 2011.

When the global financial crisis exploded in Q3 2008, the ECB slashed the key 12-month Euribor rate from 4.81% in 2008 to 1.35% in 2010. However mortgage interest rates did not fully respond, falling only to 4.86% in 2009, and 4.52% in 2010.

Free market yields are good; new regulations pushing up social rents

Netherlands hpi vs cpi

Gross rental yields in the small up-market decontrolled sector are good. The returns on investment are not princely - but beat those in many other countries, especially given the excellent security of the Netherlands, its stability, rule of law, generally vibrant economy, and good long-term prospects.

In Amsterdam, yields on apartments range from 4.7% to 5.8%.

In The Hague, yields in range from 6.1% to 7.1%. In both areas, smaller apartments return higher yields than larger.

The Hague is a less expensive city to buy in, and has a huge potential since it is the seat of government and most foreign embassies and international organizations in the country are located in The Hague. In addition, several large international businesses have their headquarters in The Hague, including Shell, the world´s second largest company in terms of revenue. This means that there is an ideal group of expatriate tenants to whom owners can rent their apartments, as 26% of the jobs in The Hague are either offered by the Dutch government or by international institutions. In addition, for those interested in the short-term rental market, tourism is important, with 1.2 million tourists a year.

In “free market” sector, which is 8% of the rental stock, rent increases can only occur once per year (applies only to basic rent), but otherwise it depends on clauses in the contract. Usually, the annual rent increase is based on the price index number, or around inflation. Some contracts may also include a clause stating that rent will be increased to market value every five years. In 2015, the rent increase for dwellings (including rent harmonization) in the Netherlands was 2.4%. In Amsterdam, the rent increase was 3.1% while it was 2.1% in The Hague.

Netherlands rent increase

In the social housing market, the maximum basic rent in Netherlands for rent-controlled dwellings was €699.48 (US$ 922.47) in 2014, a 2.7% rise from the previous year’s rent control limit at €681.02 (US$ 898.13). Apartments with basic rents (excluding service and additional charges) less or equal to this deregulation threshold are classified as rent-controlled dwellings. About 92% of the rental stock (or almost 2.7 million rental homes) was under this category, based on ABF Research and IVBN.

The maximum income allowed to live in rent-controlled dwellings was also raised from €34,229 (US$ 45,141) in 2013 to €34,678 (US$ 45,733) in 2014. In theory, only individuals with incomes below the aforementioned limit are entitled to rent-controlled dwellings.

However in reality, a large number of high earners benefit from these rent-controlled properties. A solution to that problem was a new regulation, which makes rental rate hikes to be dependent on incomes, amended in March 2013. As of July 2013, the maximum annual rent increases for rent-controlled dwellings are as follows:

  • Households with incomes up to €33,614: ceiling of 1.5% + inflation
  • Households with incomes between €33,614 and €43,000: ceiling of 2% + inflation
  • Households with incomes above €43,000: ceiling of 4% + inflation

These percentages are computed over the basic rents.

Irresponsible policies, over-mortgaged nation

Netherlands total residential mortgages

The Dutch residential mortgage market is large, compared to other developed countries.  Over the past decade, Dutch residential mortgage debt rose from 60% of GDP in 1998 to almost 100% of GDP in 2009, the highest increase (41%) among OECD countries from 2007 to 2011.  During the past 3 years there was a slight contraction - in 2014, the residential mortgage market was 96.8% of GDP, from 98.4% of GDP in 2013, and 101.8% of GDP in 2012, based on figures from the De Nederlandsche Bank (DNB). This contraction is unlikely to last.

The rise of mortgage debt is rooted in the government’s aggressive promotion of homeownership, offering generous mortgage subsidies, since the 1980s.
The Dutch fiscal regime allows full tax deductibility of most mortgage interest payments at the marginal tax rate if:

  • The house purchased is the main residence
  • The mortgage loan has a period of a maximum of 30 years
  • The profit made on the sale of the previous houses is used to reduce the size of the mortgage on the next one

Since 1995, 90% of new mortgages have been not repayable till loan maturity, while 30% do not have to be repaid at all (“interest-only”).

Netherlands loans housing purchase

The generous Dutch mortgage tax relief, allowing homeowners to deduct the full cost of their mortgages from tax, is distorting the housing market, according to a recent IMF report. It means Dutch banks are faced with higher risks, because the large amount of tax relief encourages people to spend more on a house than they can actually afford.

To discourage excessive mortgage growth, the government made some modest changes around a decade ago:

  • In 2001 tax deductibility for mortgages used for non-housing consumption or investments and second-home purchases was removed.
  • In 2002, interest deductibility was limited to 30 years.
  • From January 2004, homeowners moving to more expensive homes have had to use their capital gains on their former house for down payment.

Starting 2013, the government implemented new reforms:

  • The maximum mortgage tax relief was reduced to 38% from 52% over the period of 28 years.
  • Mortgages must be amortized over 30 years to be eligible for mortgage interest relief. First-time buyers may have an interest-only mortgage on 50% of the property’s value, but the loan’s interest is not tax deductible.
  • The maximum loan-to-value (LTV) ratio will be trimmed slowly from 105% in 2013 (including the 2% stamp duty) to 100% in 2018.
  • Effective July 1, 2015, the mortgage guarantee (NHG) for mortgages has been reduced from €265,000 to €245,000.

Two years ago, the government agreed with the European Commission to create a mortgage institution to stabilize residential mortgage financing. However the Dutch government has now scrapped plans for the establishment of a National Mortgages Institution (NHI), with housing minister Stref Blok arguing that the recovery of the housing market made the need for an NHI far less urgent.

Mortgage approvals surge back to pre-crisis levels

In Q2 2015, new mortgage approvals rose to €25.51 billion, up by 52.8% from the same quarter the previous year and the highest level in more than eight years, according to the DNB.

Netherlands new house loans

During the first half of 2015, the total mortgage debt amounted to €400.83 billion, 2.9% higher than in the first half of 2014.

Most Dutch housing loans are fixed rate mortgages (FRM) for 5 years or more. However the shares of fixed and floating mortgages vary, depending on interest rates. When interest rates rapidly rose in 2007, households shifted to fixed rate mortgages.

As of Q2 2015, most new housing loans had 5-10 year interest rate fixations (IRFs), with a 48% share of total loans, followed by loans with 1-5 year IRFs (19%) and those with floating rate and IRF up to 1 year (19%). Loans with IRF of 10 years or more had a 14% share of the total housing loans.

The Netherlands´ inefficient housing subsidies discourage geographical mobility

Traditionally, Holland has had a large social rental housing sector. In the 1950s, owner occupants accounted for only 29% of the housing stock.

Netherlands share mortgage irf

Then the government began promoting home ownership, with remarkable results. Owner-occupancy rose to 42% by 1980, then to 55% in 2005. Now about 60% of the total housing stock is owner-occupied. But in many major cities (Amsterdam, The Hague, Rotterdam, and Utrecht), about 50% of the housing stock is social housing.

Homeowners receive favourable tax treatment. Aside from full income tax deductibility of mortgage interest payments; capital gains from rising house prices are also not taxed. However, this is partly offset by an annual imputed rental income tax, based on the property’s assessed value.

The government provides home-ownership grants to low-income households. Many renters also receive direct government subsidies to keep their rent-to-income ratio within certain limits.

The system is highly inefficient in terms of social objectives. It also reduces mobility both for owner-occupiers and renters.

Out of the 57,703 total completed dwellings in 2011 (latest figure available in CBS), about 39% were rented houses while 61% were owner occupied. A huge proportion of rented accommodation is owned and managed by housing corporations, which manage about 2.4 million dwellings.

Economy recovering

Netherlands gdp inflation

The euro crisis affected the Netherlands, sending its economy into recession in 2011. The recession continued in 2012 and 2013, with economic contractions of 1.6% and 0.7%, respectively.

In 2014, the Dutch economy started to show some improvement, with a GDP growth of 0.9%.  During the second quarter of 2015, the economy grew by an annualized 1.8%, according to the CBS. Economic growth is expected at 2% this year.

However, the national debt remains high. During the recession, the government boosted the economy through stimulus programs and bank bailouts, resulting in a budget deficit of 5.6% of GDP in 2009, 5.1% of GDP in 2010 and 4.3% in 2011. As a result, the country’s debt rose to 65.2% of GDP in 2011. In 2012, the national debt rose further to about 71% of GDP, far higher than the permissible upper limit of 60% stipulated by the EU Stability Pact. In 2014, the gross public debt remains high at 68.8% of GDP, from 68.6% in 2013. On the other hand, the public budget deficit stood at 2.3% of GDP in 2014, unchanged from a year earlier, but down from 4% in 2012. The deficit is projected to fall to 1.7% this year and to 1.2% in 2016, while the gross public debt is expected to increase slightly to 69.9% of GDP this year.

Inflation continues to slow. In September 2015, the nationwide inflation rate stood at 0.6%, down from 0.8% in August 2015, and 1% in both June and July 2015, according to CBS. In 2014, the overall inflation rate fell sharply to 0.3%, from an annual average of 2.6% from 2011 to 2013, according to the IMF.

In August 2015, the country’s unemployment rate was 6.8%, unchanged from the previous month, according to CBS. In 2014, the nationwide unemployment rate stood at 7.4%, up from 7.3% in 2013 and far higher than the average jobless rate of 4.7% in 2006 to 2012, according to the IMF. The total number of unemployed persons fell by 2.1% to 604,000 in August 2015 from three months ago.


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