The Netherlands: pandemic not enough to cool down its red-hot housing market
Lalaine C. Delmendo | May 18, 2021
The house price boom in Holland continues strong, amidst rising demand, coupled with chronic supply shortages.
In Amsterdam, the capital, the price of existing homes rose by 5.3% during 2020 (4.2% inflation-adjusted), to an average of €510,919 (US$611,057), according to Statistics Netherlands (CBS). It was the highest price ever recorded and the seventh consecutive year of annual rises. Nationally, the average house price accelerated by 8.6% (7.4% inflation-adjusted) to €334,488 (US$400,046) in 2020 from a year earlier, following a y-o-y rise of 7.2% in 2019.
All property types rose in price, nationwide, during 2020.
- Apartment prices rose by 8.2% (7% inflation-adjusted), to an average of €295,837 (US$353,820)
- Terraced house prices rose by 8.2% (7% inflation-adjusted), to an average of €306,563 (US$366,648)
- Detached house prices rose by 9.7% (8.5% inflation-adjusted), to an average of €488,251 (US$583,946)
- Semi-detached house prices increased 8.6% (7.2% inflation-adjusted), to an average of €352,301 (US$421,350)
- Corner houses saw price increases of 8.8% (7.6% inflation-adjusted), to an average of €321,147 (US$384,090)
After a housing boom lasting almost 15 years, the Dutch housing market weakened in 2008, and only began to recover in 2014. From Q1 2014 to Q4 2020, house prices rose by 52% nationwide, with Amsterdam registering spectacular price growth of almost 84%.
HOUSE PRICES, ANNUAL CHANGE (%)
|Sources: Statistics Netherlands (CBS), Global Property Guide|
During 2020, the number of dwellings sold in the country rose by 7.7% to 235,511 units from a year earlier, following steady sales in 2019, according to CBS. In contrast, completions fell 3.1% from a year earlier, to 69,322 units. This worsens the housing shortage in the Netherlands, which was estimated at about 200,000 units last year.
“The pressure on the housing stock is being exacerbated by the fact that not enough additional new homes are being built to meet housing needs. The shortage of new build homes means that people are less inclined to put their house on the market and move to a new build home,” said Rabobank Economic Research.
The Dutch housing market is expected to continue to grow strongly this year, despite the pandemic. “We expect continuing supply shortages and the low interest rate environment to keep driving up house prices,” predicts Rabobank Economic Research. “For this year we forecast robust house price growth of +8.0 percent.”
Yet the wider economy has been adversely impacted by the pandemic, with GDP contracting by 3.8% in 2020, in contrast to a 1.7% growth in 2019, mainly due to a decline in household consumption, investments and trade balance, according to CBS. It is slightly worse than the 3.7% contraction in 2009 and the biggest decline ever recorded by the CBS.
The economy is projected to grow by 1.8% this year and another 3% in 2022, according to the European Commission. The Dutch economy grew by an annual average of just 1.4% from 2010 to 2019.
Strong house price rises in most major cities and provinces!
House prices continue to rise strongly in almost all of Netherlands’ major provinces and cities during 2020. According to Statistics Netherlands:
- In Amsterdam, existing home prices rose by 5.3% during 2020 (4.2% inflation-adjusted), to an average of €510,919 (US$611,057) – the highest level ever recorded. It was the seventh consecutive year of annual rises.
- In Rotterdam, existing home prices rose strongly by 8.6% during 2020 (7.4% inflation-adjusted), to an average of €307,358 (US$367,599), following a y-o-y rise of 10.2% in 2019.
- In Groningen, existing home prices rose by 9.9% during 2020 (8.7% inflation-adjusted), to an average of €241,080 (US$288,330), following an annual rise of 7% in the prior year.
- In The Hague, existing home prices soared by 9.5% during 2020 (8.3% inflation-adjusted), to an average of €355,807 (US$425,543) – up from the prior year’s 6.5% increase.
- In Utrecht, house prices increased 6.9% during 2020 (5.7% inflation-adjusted), to an average of €405,791 (US$485,324) – its seventh consecutive year of annual rises.
The country’s major provinces:
- In Zuid-Holland, the country’s most populous province, house prices rose by 9.3% y-o-y in 2020 (8.1% inflation-adjusted), to an average of €333,763 (US$399,179) – following an 8.8% price growth in 2019.
- In Noord-Holland house prices rose by 7% during 2020 (5.9% inflation-adjusted), to an average of €424,553 (US$507,763) – following a 6.1% increase in 2019.
- In Noord-Brabant the price of existing homes rose by 8.9% during 2020 (7.7% inflation-adjusted), to an average of €337,960 (US$404,198) – higher than the previous year’s 6.8% y-o-y rise.
- In Gelderland house prices rose strongly by 9.3% during 2020 (8.1% inflation-adjusted), to an average of €323,723 (US$387,171) – following a y-o-y increase of 7.4% in 2019.
History of the Netherlands’ housing boom and bust
Median house prices in the Netherlands rose by 104% (73% inflation-adjusted) from Q1 1996 to Q2 2001, or by an average of 21% annually (14.6% inflation-adjusted). Amsterdam house prices rose by about 132% (96% inflation-adjusted) during this period.
This was a time when real private sector wages rose by 3.6% annually, leading to significant increases in purchasing power.
House prices continued to rise until Q1 2008, alternating between slow growth and rapid growth.
CHANGES IN AVERAGE HOUSE PRICES (%)
|Economic boom (Q1 96-Q2 01)||Political instability, economic downturn (Q3 01-Q1 03)||Economic recovery (Q2 03-Q2 06)||Political instability, economic growth (Q3 06-Q4 07)||Global financial crisis, Eurozone debt crisis (Q1 08-Q4 13)||Economic growth (Q1 14-Q4 20)|
|Source: Statistics Netherlands, Global Property Guide|
However with the global financial crisis the housing market went into a tailspin. By 2013 things were so bad that the total number of dwellings sold in had dwindled by almost half, to around 110,094 units, compared to an average of 206,000 dwellings sold annually from 2005 to 2007.
However in 2014 the Dutch housing market started to recover. From Q1 2014 to Q4 2020, house prices rose by about 52% nationally, with very strong increases in Amsterdam (84% growth) and Rotterdam (79% growth).
House sales are rising
During 2020, the total number of dwellings sold in The Netherlands rose by 7.7% y-o-y to 235,511 units, an improvement from an almost zero growth in 2019, according to CBS. West-Nederland accounted for about 47% of all property transactions in 2020, followed by Zuid-Nederland (21.9%), Oost-Nederland (21%), and Noord-Nederland (10.2%).
By dwelling type:
- Detached houses recorded the biggest sales growth of 11.5% y-o-y to 33,226 units in 2020
- Semi-detached sales rose by 7.4% y-o-y to 25,230 units.
- Corner house sales increased 7% y-o-y to 31,462 units.
- Apartment sales increased 6.5% y-o-y to 58,621 units.
- Terraced house sales rose by 5.7% y-o-y to 79,307 units.
The strength of the housing market continues this year, with dwelling transactions surging by almost 26% y-o-y to 41,387 units in the first two months of 2021.
“This uptick is most likely the result of the abolition of stamp duty for buyers under-35,” said Rabobank. “It appears that many young adults who exchanged contracts on a property in the second half of 2020 probably decided to delay completion until the new year to avoid having to pay stamp duty.”
Residential construction activity weak
In 2020, there were 69,322 dwelling completions in the country, down by 3.1% from a year earlier but still the highest level since 2009, according to Statistics Netherlands.
From an annual average of 76,300 units from 2000 to 2009, completions dropped sharply to an average of 58,150 units annually from 2010 to 2020 - mainly due to post-2010 changes in the planning system - which partly explains the rapid rise in house prices in recent years.
Total dwelling stock grew by 0.9% to nearly 8 million units as of end-2020.
Mortgage interest rates continue to fall
The average interest rate for new housing loans was 1.77% in February 2021, down from 1.92% a year earlier and 2.42% two years ago.
For new housing loans:
- Floating rate and interest rate fixation (IRF) up to 1 yr: 1.62% in February 2021, slightly down from 1.69% a year earlier
- IRF 1-5 yrs: 1.66% in February 2021, down from 1.74% in the previous year
- IRF 5-10 yrs: 1.67% in February 2021, down from 1.86% in the previous year
- IRF 10 yrs or more: 1.89% in February 2021, down from 2.14% in a year earlier
For outstanding housing loans, the average interest rate was 2.56% in February 2021, down from 2.85% a year earlier.
- Original maturity of less than or equal to 1 yr: 1.98% in February 2021, down from 2.09% in the previous year
- Original maturity of 1-5 yrs: 2.12% in February 2021, down from 2.24% in the previous year
- Original maturity of more than 5 yrs: 2.57% in February 2021, down from 2.86% in a year earlier
Free market yields are good
Gross rental yields in the small up-market decontrolled sector are good.
- In Amsterdam, yields on apartments range from 3.7% to 5.3%, based on research conducted by Global Property Guide.
- In The Hague, yields are around 5.6% to 6.4%.
These returns are not princely - but they beat many other countries, given the security of the Netherlands, its stability, rule of law, generally vibrant economy, and good long-term prospects.
The Hague is a less expensive city to buy in, and has 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. Before the pandemic, The Netherlands welcomes about 1.2 million tourists every year.
Rents continue to rise
The average monthly rent in the private liberalized housing sector rose by 3% in 2020 from a year earlier, from rises of 3.3% in 2019, 3.1% in 2018 and 2.3% in 2017, according to Statistics Netherlands.
Overall, the rent increase for dwellings (including rent harmonization) was 3% last year, after y-o-y increases of 2.5% in 2019, 2.3% in 2018, and 1.6% in 2017. In Amsterdam, the rent increase was 3.5% while it was 3.6% in The Hague, and 4.1% in Rotterdam.
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 depend 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 the social housing market, the maximum basic rent in Netherlands for rent-controlled dwellings is €752.32 (US$900) per month in 2021, a 2.1% rise from the previous year’s rent control limit of €737.14 (US$882). Apartments with basic rents (excluding service and additional charges) lower than or equal to this deregulation threshold are classified as rent-controlled dwellings. About 92% of the rental stock falls in this category, based on ABF Research and IVBN.
The maximum income allowed to live in rent-controlled dwellings is usually raised every year. In theory, only individuals with incomes below the limit are entitled to rent-controlled dwellings.
More specifically, housing associations are required to let 80% of their vacant social houses every year to households with income of up to €39,979 (US$47,815) – the threshold for 2021. The remaining vacant social houses may be rented to households with higher incomes.
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.
Mortgage market expands slightly
During the past decade there has been a sharp contraction in the residential mortgage market - to 65.9% of GDP in 2019, from almost 84% of GDP in 2009, based on the Global Property Guide estimates. In 2020, the size of the mortgage market as a percentage of GDP increased to 67%, partly due to the coronavirus-induced economic contraction.
The previous rise of mortgage debt - the fastest among OECD countries from 2007 to 2011 - was rooted in aggressive government promotion of homeownership since the 1980s. The Dutch fiscal regime allows full tax deductibility of most mortgage interest payments 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”).
To discourage excessive mortgage growth, the government made some modest changes around a decade ago:
- In 2001 it removed tax deductibility for mortgages used for non-housing consumption, or investments, and second-home purchases.
- 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 was slowly trimmed from 105% in 2013 (including the 2% stamp duty) to 100% in 2018 where it has stayed since.
- Effective July 1, 2015, the mortgage guarantee (NHG) for mortgages was reduced from €265,000 to €245,000, but was again increased annually in the past four years. In 2021, the maximum values are:
- €325,000 for properties without energy-saving features, and
- €344,500 for properties with energy-saving features.
In February 2021, total outstanding housing loans rose slightly by 0.5% from a year earlier at €536.14 billion (US$641.22 billion), according to DNB. But new housing loans drawn were up strongly (by 23.5%).
About 80% of new housing loans are fixed rate mortgages (FRM) of 5 years or more, despite very low interest rates.
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.
Then the government began promoting home ownership. 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.
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.
The system is highly inefficient in terms of social objectives. It also reduces mobility both for owner-occupiers and renters.
Pandemic-induced economic recession
The Dutch economy is heavily dependent on foreign trade, with exports accounting for 83% of the country’s GDP, making the economy very susceptible to external shocks. For instance the euro crisis sent the Netherlands’ economy into a recession in 2011 which continued in 2012 and 2013, with economic contractions of 1.1% and 0.2%, respectively.
Now, the COVID-19 pandemic is crippling the economy again.
The Dutch economy contracted by 3.8% in 2020, following a 1.7% growth in 2019, mainly due to a decline in household consumption, investments and trade balance, according to CBS. It is the biggest decline ever recorded by CBS.
In the first three months of 2021, the Dutch economy remained “firmly in the recession stage,” according to the CBS. As of mid-March, 8 out of the 13 macro-economic indicators in the CBS Business Cycle Tracer were below their long-term trend.
The economy is projected to grow by 1.8% this year and another 3% in 2022, according to the European Commission. The Dutch economy grew by an annual average of just 1.4% from 2010 to 2019.
The Dutch government recorded a budget deficit of around 6.2% last year, in contrast to a surplus of 1.7% of GDP in 2019 and more than twice the allowable limit under the EU rules.
Gross public debt has risen to around 58% of GDP in 2020, sharply up from 48.6% of GDP in 2019. This remains slightly below the permissible upper limit of 60% stipulated by the EU Stability Pact.
Inflation inched up to 1.9% in March 2021, the highest since December 2019, mainly due to faster increase in prices of housing and furnishings, as well as transport. Inflation is expected to increase to 1.4% this year, from just 1.1% in 2020, based on estimates released by the European Commission.
In February 2021, the nationwide unemployment rate was 3.6%, unchanged from the previous month and the lowest level since May 2020, according to the CBS.
- Biggest house price increase in almost 20 years (Statistics Netherlands): https://www.cbs.nl/en-gb/news/2021/12/biggest-house-price-increase-in-almost-20-years
- Existing own homes; purchase price indices by region 2015 = 100 (Statistics Netherlands): https://opendata.cbs.nl/#/CBS/en/dataset/83913ENG/table
- Housing shortage and low interest rates are driving up house prices (Rabobank Economic Research): https://economics.rabobank.com/publications/2021/march/housing-shortage-and-low-interest-rates-are-driving-up-house-prices/
- Kingdom of the Netherlands At a Glance (International Monetary Fund): https://www.imf.org/en/Countries/NLD
- World Economic Outlook Database, April 2021 (International Monetary Fund): https://www.imf.org/en/Publications/WEO/weo-database/2021/April/select-country-group
- Economic forecast for the Netherlands (European Commission): https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/netherlands/economic-forecast-netherlands_en
- Consumer prices; rent increase for homes from 1959 (Statistics Netherlands): https://opendata.cbs.nl/statline/#/CBS/nl/dataset/70675ned/table?ts=1591692592353
- Dwellings and non-residential stock; changes, utility function, regions (Statistics Netherlands): https://www.cbs.nl/en-gb/figures/detail/81955eng?dl=3094B
- MFI households deposits and loans, interest rates, adjusted for breaks (Month) (DeNederlandscheBank): https://www.dnb.nl/statistieken/data-zoeken/#/details/mfi-households-deposits-and-loans-interest-rates-adjusted-for-breaks-month/dataset/efba2d4e-fb53-49a8-a1fe-d5ee3263e14c/resource/fa3ecc16-6bc1-4b35-b5de-c56b13d9cd36
- Residential mortgages (DeNederlandscheBank): https://www.dnb.nl/en/statistics/dashboards/residential-mortgages/
- Rental yields remain attractive in The Hague (Global Property Guide): https://www.globalpropertyguide.com/Europe/Netherlands/Rental-Yields
- What is National Mortgage Guarantee? (NHG): https://www.nhg.nl/english-summary/
- Dutch National Mortgage Guarantee (NHG) (ABN-AMRO): https://www.abnamro.nl/en/personal/mortgages/buying-a-house/dutch-national-mortgage-guarantee/index.html#:~:text=In%202021%2C%20you%20can%20take%20out%20an%20NHG%2Dbacked%20mortgage,costs%2C%20cannot%20exceed%20%E2%82%AC%20325%2C000.
- Rent increase dwellings; type of rental (Statistics Netherlands): https://opendata.cbs.nl/statline/#/CBS/en/dataset/83163ENG/table?ts=1591879814363
- Rent increase dwellings; region (Statistics Netherlands): https://opendata.cbs.nl/statline/#/CBS/en/dataset/83162ENG/table?ts=1618381669578
- Social housing and private sector rentals (City of Amsterdam): https://www.amsterdam.nl/en/housing/rental-prices/
- What’s changing in 2021? Here’s what you need to know (DutchNews.nl): https://www.dutchnews.nl/news/2020/12/whats-changing-in-2021-heres-what-you-need-to-know/
- Restrictions on Rental Increases at Lease Contracts Under Spanish, Dutch and Turkish Laws (ADMD Law Office): http://www.admdlaw.com/restrictions-on-rental-increases-at-lease-contracts-under-spanish-dutch-and-turkish-laws/#.YHaVwkgzaCR
- Economic outlook less negative (Statistics Netherlands): https://www.cbs.nl/en-gb/news/2021/12/economic-outlook-less-negative