Dutch house price rises accelerating!
Lalaine C. Delmendo | November 02, 2018
In Amsterdam, the price of existing homes surged by 12.6% (11.2% inflation-adjusted) during the year to Q1 2018, to an average of €444,671 (US$524,290), according to Statistics Netherlands (CBS), and by 7.2% (7% inflation-adjusted) during the latest quarter. Nationally, the average house price rose by 8.2% (6.9% inflation-adjusted) to €278,159 (US$327,964) in Q1 2018 from a year earlier, and by 4.1% (3.9% inflation-adjusted) from the previous quarter.
All property types rose in price, nationwide, during the year to Q1 2018.
- Apartment prices rose by 13.5%, to an average of €236,724
- Terraced house prices rose by 7.2%, to an average of €256,284
- Detached house prices rose by 6%, to an average of €409,568
- Semi-detached house prices increased 6.9%, to an average of €300,893
- Corner houses saw price increases of 6%, to an average of €268,097
After a housing boom lasting almost 15 years, the Dutch housing market weakened in 2008, and only began to recover in 2014.
HOUSE PRICES, ANNUAL CHANGE (%)
|Source: Nederlandse Vereniging van Makelaars (NVM):|
Home sales rose by almost 13% to 241,860 units in 2017, according to the CBS. Strong demand has been fuelled by low interest rates, as well as strong economic growth. In Q1 2018, there were about 52,105 houses sold, down 6.8% from a year earlier - but the second highest sales ever recorded.
Despite robust demand, housing supply remains limited. In March 2018, only 5,986 housing permits were granted, down by 19.8% from a year earlier. Currently, there are a total of 7.76 million dwelling units in the country.
The housing shortage in the Netherlands was estimated at about 178,000 units in 2017 and is expected to reach 200,000 units this year.
Nationwide house prices are expected to rise further by about 8% this year, according to ABN Amro. The bank also forecasts a 5% decline in the number of homes offered for sale, both in 2018 and 2019.
“The housing market is under pressure. Buyers have less choice because fewer homes are coming on the market. So they are offering higher prices in an effort to buy a home,” said economist Philip Bokeloh.
The Dutch economy grew by 3.2% in 2017, the highest growth since 2007, amidst strong investments and exports, according to the CBS. The Netherlands´ GDP is expected to grow by another 3% this year and by 2.6% in 2019, according to the European Commission.
Strong house price rises in all major cities and provinces!
House prices rose in all the Netherlands’ major provinces and cities in Q1 2018. According to Statistics Netherlands:
- In Amsterdam, existing home prices surged by 12.6% during the year to Q1 2018 (11.2% inflation-adjusted), to an average of €444,671 (US$524,467). It was the seventeenth consecutive quarter of annual rises. House prices increased 7.2% during the latest quarter (7.1% inflation-adjusted).
- In Rotterdam, existing home prices rose by 8.2% during the year to Q1 2018 (6.9% inflation-adjusted), to an average of €239,001 (US$281,890). It was the twelfth consecutive quarter of y-o-y increases. House prices were steady during the latest quarter.
- In Groningen, existing home prices rose by 3.9% during the year to Q1 2018 (2.6% inflation-adjusted), to an average of €199,301 (US$235,066) – its sixteenth straight quarter of y-o-y rises. House prices increased 1.9% during the latest quarter.
- In The Hague, existing home prices rose by 13.8% during the year to Q1 2018 (12.4% inflation-adjusted), to an average of €279,876 (US$330,100), the biggest increase since Q2 2001. However, house prices dropped 1.5% during the latest quarter (-1.7% inflation-adjusted).
- In Utrecht, house prices rose by 10.6% during the year to Q1 2018 (9.2% inflation-adjusted), to an average of €327,468 (US$386,232). It was the eleventh consecutive quarter of annual rises. House prices increased by 1.6% during the latest quarter (1.5% inflation-adjusted).
The country’s major provinces:
- In Zuid-Holland, the country’s most populous province, house prices rose by 8.8% y-o-y in Q1 2018 (7.5% inflation-adjusted), to an average of €267,269 (US$315,230). It was the seventeenth consecutive quarter of y-o-y rises. House prices in the area increased 2.2% q-o-q in Q1 2018 (2.1% inflation-adjusted).
- In Noord-Holland house prices rose by 13% during the year to Q1 2018 (11.6% inflation-adjusted), to an average of €363,481 (US$428,708) – the biggest y-o-y increase in 17 years. Quarter-on-quarter, house prices increased 7.3% in Q1 2018 (7.1% inflation-adjusted).
- In Noord-Brabant the price of existing homes rose by 8.3% during the year to Q1 2018 (7% inflation-adjusted), to an average of €283,182 (US$333,999). It was its sixteenth straight quarter of y-o-y rises. House prices increased 3.3% during the latest quarter (3.2% inflation-adjusted).
- In Gelderland house prices rose by 7.1% during the year to Q1 2018 (5.8% inflation-adjusted), to an average of €268,900 (US$317,154) – its sixteenth consecutive quarter of annual increases. House prices increased 4.9% during the latest quarter (4.7% inflation-adjusted).
History of the Netherlands’ housing boom and bust
Median house prices in the Netherlands rose by 104% (73% in real terms) from Q1 1996 to Q2 2001, or by an average of 21% annually (14.6% in real terms). Amsterdam house prices rose by about 132% (96% in real terms) during this period. During this period 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, ECON. 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 – Q1 18)|
|Source: Statistics Netherlands (CBS)|
However with the global financial crisis the housing market went into a tailspin, and house price rises slowed to 1.1% (-1.3% in real terms) in 2008, and fell by 6% (-6.9% in real terms) in 2009, as GDP growth slowed to 1.7% in 2008, and contracted by 3.8% in 2009.
Despite a modest economic recovery in 2010-11 with average GDP growth of 1.5%, the Dutch housing market remained depressed, with house prices falling by 0.4% (-2% in real terms) in 2010, by 1.5% (-4% in real terms) in 2011, by 5.8% (-8.4% in real terms) in 2012, and by 2.7% (-4.2% in real terms) in 2013. The economy contracted by 1.1% in 2012 and by another 0.2% 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.
However in 2014, the Dutch housing market started to recover, as economic conditions improved. From Q1 2014 to Q1 2018, house prices rose by 29% (24.6% in real terms), with very strong increases in Amsterdam (70.6%).
As demand continues to rise strongly, Dutch house price rises are expected to accelerate further during the remainder of the year.
House sales are surging
The number of dwellings sold rose by 12.6% y-o-y to 241,860 units in 2017, the highest level ever recorded by Statistics Netherlands (CBS). West-Nederland accounted for about 48.3% of all property transactions last year, followed by Zuid-Nederland (21.1%), Oost-Nederland (20.8%), and Noord-Nederland (9.8%).
The number of dwellings sold rose in almost all of the country’s provinces and major cities.
By dwelling type:
- For detached houses, sales soared 23% y-o-y to 33,029 units in 2017
- For semi-detached houses, sales rose by 17.9% to 25,064 units over the same period
- For corner houses, sales rose by 16.2% y-o-y to 31,594 units in 2017
- For terraced houses, sales rose by 13.7% y-o-y to 79,775 units in 2017
- For apartments, sales rose by 6.2% y-o-y to 65,424 units in 2017
Mortgage interest rates remain low
The average mortgage interest rate was 2.39% in March 2018, down from 2.41% a year earlier and 2.7% two years ago. The 12-month Euribor rate was down to -0.19% in April 2018, from -0.119% in April 2017, -0.01% in April 2016, and 0.18% in April 2015.
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.
For new housing loans:
- Floating rate and interest rate fixation (IRF) up to 1 yr: 1.94% in March 2018, down from 1.97% a year earlier
- IRF 1-5 yrs: 2.16% in March 2018, down from 2.19% in the previous year
- IRF 5-10 yrs: 2.35% in March 2018, slightly up from 2.34% in the previous year
- IRF 10 yrs or more: 2.89% in March 2018, from 2.88% in a year earlier
For outstanding housing loans:
- Original maturity of less than or equal to 1 yr: 2.23% in March 2018, almost unchanged from 2.22% in the previous year
- Original maturity of 1-5 yrs: 2.42% in March 2018, down from 2.55% in the previous year
- Original maturity of more than 5 yrs: 3.28% in March 2018, down from 3.53% 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 ranged from 3.7% to 5.3% in 2017, based on research conducted by Global Property Guide.
- In The Hague, yields were around 5.6% to 6.4% in 2017.
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, with 1.2 million tourists a year.
Rents continue to rise
Nationwide, the average monthly rent in the private housing sector rose by 6% y-o-y in Q1 2018, according to housing platform Pararius. The highest rent increases were in smaller municipalities outside the four major Dutch cities (Amsterdam, The Hague, Rotterdam, and Utrecht), amidst surging prices in those four cities.
Examples: Zoetermeer, in South Holland, registered the biggest rent increase of 20.8% during the year to Q1 2018. It was followed by Apeldoorn, in Gelderland, where rents rose by 20.2% over the same period. Strong rent increases were also recorded in Almere, with rents rising by 18.8% y-o-y in Q1 2018, Amersfoort (15.4%), Roosendaal (14.1%), Tilburg (13.6%), Enschede (10.5%), and Nijmegen (8.9%).
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 2017, the rent increase for dwellings (including rent harmonization) in the Netherlands was just 1.6%, after y-o-y rises of 1.9% in 2016, 2.4% in 2015, 4.4% in 2014, and 4.7% in 2013. In Amsterdam, the rent increase was 2.5% while it was 1.7% in The Hague.
In the social housing market, the maximum basic rent in Netherlands for rent-controlled dwellings was €710.68 per month (US$834) in 2017, a 1.6% rise from the previous year’s rent control limit at €699.48 (US$821). 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 (or almost 2.7 million rental homes) falls in this category, based on ABF Research and IVBN. The rent limit of €710.68 is valid until July 2018.
The maximum income allowed to live in rent-controlled dwellings is usually raised every year, from €34,229 in 2013 to €35,739 in 2016 and to €40,349 in 2017. In theory, only individuals with incomes below the aforementioned 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 €35,739 and 10% to households with income of between €35,739 and €39,874. 10% of the 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. As of July 2015, the maximum annual rent increases for rent-controlled dwellings are as follows:
- Households with incomes up to €34,229: ceiling of 1.5% + inflation
- Households with incomes between €34,229 and €43,786: ceiling of 2% + inflation
- Households with incomes above €43,786: ceiling of 4% + inflation
These percentages are computed over the basic rents.
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 more than 103% of GDP in 2009, the highest increase (41%) among OECD countries from 2007 to 2011. During the past six years, however, there was a sharp contraction - to 90% of GDP in 2017, according to De Nederlandsche Bank (DNB).
The rise of mortgage debt is 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”).
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 was slowly trimmed 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.
As a response to strong demand, the mortgage guarantee this year was raised from €247,450 in 2017 to a maximum value of:
- €265,000 for properties without energy-saving features, and
- €280,900 for properties with energy-saving features.
New housing loans surpass pre-crisis levels
In March 2018, total outstanding housing loans increased slightly by 0.14%, to €521.29 billion in March 2018 from the same period last year.
Most Dutch housing loans are fixed rate mortgages (FRM) of 5 years or more. However very low interest rates have prompted some shift to floating rates:
In Q1 2018:
- Housing loans with floating rate and IRF up to 1 yr: up 16.5% y-o-y
- Loans with IRF of 1-5 years: down 8.6% y-o-y
- Loans with IRF of 5-10 years: down 23.3% y-o-y
- Loans with IRF of 10 years or more: down 27.3% y-o-y
As of Q1 2018, most new housing loans had 5-10 year interest rate fixations (IRFs), with a 53% share of total loans, followed by loans with IRF of 10 years or more (22%) and those with floating rate and IRF up to 1 year (15%). Loans with 1-5 year IRFs had an 9% 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.
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.
Modest economic growth, improving government finances
The Dutch economy is heavily dependent on foreign trade, with exports accounting for 83% of the country’s GDP. Because of this, the euro crisis strongly affected the Netherlands, sending its economy into a recession in 2011 which continued in 2012 and 2013, with economic contractions of 1.1% and 0.2%, respectively.
In 2017, the Dutch economy expanded by 3.2%, after GDP growth of 2.2% in 2016, 2.3% in 2015 and 1.4% in 2014
2017 was the economy´s highest growth since 2007, amidst strong investments and exports. In the first quarter of 2017, the Dutch economy grew by 2.8% from a year earlier, following annual growth rates of 2.9% in Q4 2017, 3% in Q3 2017, 3.4% in Q2 2017 and 3.3% in Q1 2017, according to CBS. It was the country’s eighteenth consecutive quarter of expansion.
The economy is projected to expand by 3% this year and by another 2.6% in 2019, according to the European Commission.
The national debt continues to decline. 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 71% of GDP in 2012, far higher than the permissible upper limit of 60% stipulated by the EU Stability Pact. In 2017, the gross public debt fell to 56.7% of GDP, from 61.8% in 2016, 65.2% in 2015, 68.8% in 2014 and 68.6% in 2013. It was the first time in six years that public debt fell below the 60% threshold.
On the other hand, the country recorded a public budget surplus of 1.1% of GDP in 2017, an improvement from a surplus of 0.4% of GDP in 2016 and in contrast to deficits of 2.1% of GDP in 2015, 2.3% in 2014, 2.4% in 2013, and 3.9% in 2012.
Netherlands is projected to record a surplus of 0.7% of GDP this year and 0.9% of GDP in 2019 while gross public debt is expected to decline further to 53.5% of GDP this year and to 50.1% of GDP in 2019, according to the European Commission.
Inflation stood at 1.7% in May 2018. Inflation is expected to be 2% this year, according to the IMF.
In April 2018, the seasonally-adjusted nationwide unemployment stood at 3.9%, down from 5.1% a year earlier and the lowest rate since February 2009.