Strong house price rises continue in The Netherlands

Lalaine C. Delmendo | June 27, 2020

The house price boom in Holland continues strong, with rising demand,and supply shortages.

Netherlands house price chart

In Amsterdam, the capital, the price of existing homes rose by 9.08% during the year to Q1 2020 (7.35% inflation-adjusted), to an average of €515,289 (US$584,418), according to Statistics Netherlands (CBS). House prices in the capital city increased 6.47% during the latest quarter (6.88% inflation-adjusted). Nationally, the average house price rose by 8.15% (6.43% inflation-adjusted) to €325,834 (US$369,546) in Q1 2020 from a year earlier, and by 4.14% (4.54% inflation-adjusted) from the previous quarter.

All property types rose in price, nationwide, during the year to Q1 2020.

  • Apartment prices rose by 10.9%, to an average of €293,085 (US$332,404)
  • Terraced house prices rose by 6.7%, to an average of €296,882 (US$336,710)
  • Detached house prices rose by 7.7%, to an average of €471,418 (US$534,661)
  • Semi-detached house prices increased 6.2%, to an average of €339,491 (US$385,035)
  • Corner houses saw price increases of 8.4%, to an average of €311,413 (US$353,191)

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 Q1 2020, house prices rose by almost 43% nationwide, with Amsterdam registering spectacular price growth of 80%.

HOUSE PRICES, ANNUAL CHANGE (%)

Year Nominal Inflation-adjusted
2008 1.70 -0.62
2009 -5.35 -6.22
2010 -1.06 -2.70
2011 -3.39 -5.75
2012 -7.57 -10.13
2013 -4.30 -5.76
2014 2.19 1.28
2015 3.47 2.83
2016 6.12 5.40
2017 8.19 6.73
2018 8.94 6.77
2019 6.24 3.48
Sources: Statistics Netherlands (CBS), Global Property Guide

In Q1 2020, the number of dwellings sold in the country rose by 8.7% to 51,579 units compared to the same period last year, following almost steady sales last year, according to CBS. During 2019, there were almost 71,000 completions, over 6% up from the previous year and the highest level in a decade.

Yet there is a problem - the housing shortage in the Netherlands was estimated at about 200,000 units this year.

Unofficial figures in April and May indicate that the housing market remains resilient, despite the COVID-19 pandemic. According to NVM, around 2,500 to 3,000 properties are changing hands every week via NVM agents since mid-March, which is broadly in line with the pre-crisis situation.

“It would appear that home hunters still see possibilities,” said NVM chairman Onno Hoes. “In addition, interest rates are low and this is also the right season.”

Other local market experts seem to agree. “I cannot explain why houses are still going over the asking price (and substantially at that),” said financial advisor José de Boer. “I guess it is because we still have such a shortage of houses and apartments in the Netherlands and interest rates are still relatively low.”

The Dutch economy shrank by 1.7% in Q1 2020 from the previous quarter, the steepest decline since Q1 2009, and marking the end of a long period of continuous growth over the 23 previous quarters, mainly due to declining household consumption, according to the CBS. The economy is projected to contract by a huge 6.8% this year,  due to the economic fallout from the coronavirus outbreak, according to the European Commission.

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 in Q1 2020. According to Statistics Netherlands:

  • In Amsterdam, existing home prices soared 9.08% during the year to Q1 2020 (7.35% inflation-adjusted), to an average of €515,289 (US$584,418) - the 25th consecutive quarter of annual rises. House prices increased 6.47% during the latest quarter (6.88% inflation-adjusted).
  • In Rotterdam, existing home prices rose by 12.17% during the year to Q1 2020 (10.39% inflation-adjusted), to an average of €297,794 (US$337,745) - the 20th consecutive quarter of y-o-y increases. House prices increased 3.97% during the latest quarter (4.37% inflation-adjusted).
  • In Groningen, existing home prices rose by 7.51% during the year to Q1 2020 (5.8% inflation-adjusted), to an average of €234,943 (US$266,462) – the 24th straight quarter of y-o-y rises. House prices increased strongly by 5.97% during the latest quarter (6.38% inflation-adjusted).
  • In The Hague, existing home prices soared by 14.14% during the year to Q1 2020 (12.33% inflation-adjusted), to an average of €357,217 (US$405,139). Quarter-on-quarter, house prices increased 7.82% during the latest quarter (8.23% inflation-adjusted).
  • In Utrecht, house prices increased slightly by 1.1% during the year to Q1 2020 (-0.51% inflation-adjusted), to an average of €385,618 (US$437,351) - the 19th consecutive quarter of annual rises. House prices increased 2.62% during the latest quarter (3.02% inflation-adjusted).

Netherlands house price index

The country’s major provinces:

  • In Zuid-Holland, the country’s most populous province, house prices rose by 11.08% y-o-y in Q1 2020 (9.31% inflation-adjusted), to an average of €325,284 (US$368,922) - the 25th consecutive quarter of y-o-y rises. House prices in the area increased 4.45% q-o-q in Q1 2020 (4.85% inflation-adjusted).
  • In Noord-Holland house prices rose by 7.47% during the year to Q1 2020 (5.76% inflation-adjusted), to an average of €418,112 (US$474,204). Quarter-on-quarter, house prices increased 4.32% in Q1 2020 (4.72% inflation-adjusted).
  • In Noord-Brabant the price of existing homes rose by 6.4% during the year to Q1 2020 (4.71% inflation-adjusted), to an average of €324,302 (US$367,809) - the 24th straight quarter of y-o-y rises. House prices increased 2.23% during the latest quarter (2.63% inflation-adjusted).
  • In Gelderland house prices rose by 7.84% during the year to Q1 2020 (6.13% inflation-adjusted), to an average of €311,977 (US$353,830) – the 24th consecutive quarter of annual increases. House prices increased 2.86% during the latest quarter (3.26% inflation-adjusted).

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-Q1 20)
Netherlands 104.4 4.7 15.3 3.8 -15.6 42.8
Groningen 100.1 8.7 16.9 2.9 -12.7 39.2
Zuid-Holland 98.9 3.3 16.1 2.2 -10.5 47.7
Noord-Brabant 107.9 5.8 13.6 3.8 -20.4 36.0
Amsterdam 131.6 -6.5 5.6 12.1 -17.7 79.9
Rotterdam 109.4 1.9 21.2 6.7 -11.9 66.6
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 Q1 2020, house prices rose by almost 43%, with very strong increases in Amsterdam (80% growth).

House sales are rising

West-Nederland accounted for about 47.4% of all property transactions in Q1 2020, followed by Zuid-Nederland (21.4%), Oost-Nederland (21.2%), and Noord-Nederland (10%).

Netherlands dwellings sold

By dwelling type:*

  • Detached house sales rose by 11.3% y-o-y to 7,266 units in Q1 2020
  • Semi-detached sales rose by 9.8% y-o-y to 5,602 units.
  • Corner house sales surged by 14.7% y-o-y to 7,077 units.
  • Terraced house sales rose by 11.6% y-o-y to 17,729 units.
  • Apartment sales increased slightly by 0.5% y-o-y to 12,536 units.

Residential construction now improving

In 2019, there were almost 71,000 dwelling completions in the country, up more than 6% from a year earlier and the highest level in a decade, according to Statistics Netherlands.

Yetit remains inadequate to meet surging demand. From an annual average of 76,300 units from 2000 to 2009, completions dropped sharply to an average of 55,400 units annually from 2010 to 2018 - partly 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 7.9 million units as of January 2020.

Mortgage interest rates continue to fall

The average interest rate for new housing loans was 1.88% in April 2020, down from 2.35% a year earlier and 2.39% two years ago.

Netherlands interest rates housing loans

For new housing loans:

  • Floating rate and interest rate fixation (IRF) up to 1 yr: 1.68% in April 2020, down from 1.86% a year earlier
  • IRF 1-5 yrs: 1.74% in April 2020, down from 2.1% in the previous year
  • IRF 5-10 yrs: 1.78% in April 2020, down from 2.33% in the previous year
  • IRF 10 yrs or more: 2.08% in April 2020, down from 2.82% in a year earlier

For outstanding housing loans, the average interest rate was 2.79% in April 2020, down from 3.05% a year earlier.

  • Original maturity of less than or equal to 1 yr: 2.05% in April 2020, down from 2.12% in the previous year
  • Original maturity of 1-5 yrs: 2.22% in April 2020, down from 2.33% in the previous year
  • Original maturity of more than 5 yrs: 2.8% in April 2020, down from 3.06% 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.

Netherlands hpi vs cpi

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

The average monthly rent in the private liberalized housing sector rose by 3.3% in 2019 from a year earlier, up from rises of 3.1% in 2018 and 2.3% in 2017, according to Statistics Netherlands.

Overall, the rent increase for dwellings (including rent harmonization) was 2.5%, after y-o-y increases of 2.3% in 2018, and 1.6% in 2017. In Amsterdam, the rent increase was 3.4% while it was 2.5% in The Hague.

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.

Netherlands rent increase dwellings

In the social housing market, the maximum basic rent in Netherlands for rent-controlled dwellings is currently €737.14 (US$835) per month, a 2.3% rise from the previous year’s rent control limit of €720.42 (US$816). 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 rent limit of €737.14 is valid until July 2020.

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 €39,055 (in 2020), and 10% to households with income of between €39,055 and €43,574. 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.

Mortgage market shrinks further

During the past decadethere has been a sharp contraction in the residential mortgage market - to 66.4% of GDP in 2019, from almost 84% of GDP in 2009, based on the Global Property Guide estimates.

Dutch residential mortgage debt had previously had the fastest annual increase (41%) among OECD countries from 2007 to 2011.

Netherlands housiing loans

The rise of mortgage debt 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”).

Netherlands loans housing purchase

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 where it 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 three years. In 2020, the maximum values are:
    • €310,000 for properties without energy-saving features, and
    • €328,600 for properties with energy-saving features.

In April 2020, total outstanding housing loans rose slightly by 1.3% from a year earlier at €533.68 billion (US$605.28 billion), according to DNB. But new housing loans drawn amounted to €12.06 billion (US$13.67 billion) in April 2020, up strongly by 36.6%.

Netherlands new housing loans approved

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.

Netherlands Share Mortgage initial rate fixiation

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.

Economy to contract sharply; budget deficit to reach record-high

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 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.

Now, the COVID-19 pandemic is crippling the economy again.

The Dutch economy shrank by 1.7% in Q1 2020 from the previous quarter, marking the end of continuous growth over the 23 previous quarters, caused by coronavirus-related lockdowns and travel restrictions, according to the CBS.

Netherlands gdp inflation

The economy is projected to contract by a huge 6.8% this year, according to the European Commission.

Gross public debt is expected to rise sharply this year, to around 62.1% of GDP, from 48.6% of GDP in 2019, mainly because of all the emergency measures the government is implementing. This would be higher than the permissible upper limit of 60% stipulated by the EU Stability Pact.

The government expects the budget deficit to reach an all-time high of €92 billion this year, equivalent to 11.8% of the country’s GDP, in contrast to a surplus of 1.7% of GDP in 2019 - almost four times the allowable limit under the EU rules.

Inflation stood at 1.2% in May 2020, at par with the previous month but down from 2.4% a year earlier, according to Statistics Netherlands. Inflation is expected to slow sharply to 0.8% this year, from 2.7% in 2019, based on estimates released by the European Commission.

In April 2020, the nationwide unemployment rate rose to 3.6%, from 3.2% in the previous month and 3.4% a year earlier.


Sources:

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