Dutch house price rises accelerating!
August 02, 2017
In Amsterdam, the price of existing homes surged by 17.2% (15.5% inflation-adjusted) during the year to Q1 2017, to an average of €394,931 (US$452,879).Nationally, the average house price rose by 8.75% (7.11% inflation-adjusted) to €257,002 (US$294,712), according to Statistics Netherlands (CBS), and by 4.08% (3.79% inflation-adjusted) during the latest quarter.
All property types rose in price, nationwide, during the year to Q1 2017.
- Apartment prices rose by 7.6%, to an average of €208,490
- Terraced house prices rose by 7.4%, to an average of €239,064
- Detached house prices rose by 7.5%, to an average of €386,422
- Semi-detached house prices increased 5.5%, to an average of €281,432
- Corner houses saw price increases of 9%, to an average of €252,880
After a housing boom lasting almost 15 years, the Dutch housing market weakened in 2008, and only began to recover in 2014. Based on figures from the Nederlandse Vereniging van Makelaars (NVM):
- 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)
- In 2015, house prices rose by 5.15% (4.47% in real terms)
- In 2016, house prices rose by 9.52% (8.8% in real terms)
Property transactions rose by 20.5% y-o-y to 214,793 units in 2016, the highest level since 2008, according to the CBS. In the first five months of 2017, property transactions soared by nearly 25% to 92,595 units compared to the same period last year, with sales up in almost all major cities and municipalities.
Despite the surge in demand, housing supply remains limited. In 2016, there were only 51,000 building consents granted, down by 4.7% from a year earlier. Moreover, there were just about 150,000 available housing units for sale across the country in early 2017, compared to 240,000 units four years ago.
Rabobank forecasts that nationwide house prices will increase by around 5% y-o-y this year. Transactions are also expected to rise to about 225,000 to 235,000 units next year.
In 2016, the Dutch economy expanded by 2.2%, after GDP growthof 2% in 2015 and 1.4% in 2014. In the first quarter of 2017, the economy grew strongly by 3.2% from a year earlier, its fourteenth consecutive quarter of expansion and the highest growth since 2008. The economy is projected to expand by 2.1% this year and by another 1.8% in 2018, 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 2017. According to Statistics Netherlands:
- In Amsterdam, existing home prices surged by 17.2% during the year to Q1 2017 (15.5% inflation-adjusted), to an average of €394,931 (US$452,879). It was the thirteenth consecutive quarter of annual rises. House prices increased 4.9% during the latest quarter.
- In Rotterdam, existing home prices increased by 13.2% during the year to Q1 2017 (11.5% inflation-adjusted), to an average of €220,930 (US$253,347). It was the eighth consecutive quarter of y-o-y increases and the biggest rise since Q1 2014. House prices increased 6.8% during the latest quarter.
- In Groningen, existing home prices rose by 14.7% during the year to Q1 2017 (12.9% inflation-adjusted), to an average of €191,895 (US$220,052) - the highest increase in 15 years. House prices increased 3.2% during the latest quarter.
- In The Hague, existing home prices rose by 9.1% during the year to Q1 2017 (7.4% inflation-adjusted), to an average of €245,961 (US$282,051), the eleventh straight quarters of y-o-y growth. However, house prices dropped 3.4% during the latest quarter.
- In Utrecht, house prices soared 17.6% during the year to Q1 2017 (15.8% inflation-adjusted), to an average of €296,189 (US$339,649). It was the highest increase in 17 years. House prices increased by 6% during the latest quarter.
For the country's major provinces:
- In Zuid-Holland, the country's most populous province, house prices rose by 10% y-o-y in Q1 2017 (8.4% inflation-adjusted), to an average of €245,647 (US$281,690). It was an improvement from last year's 3.8% growth and the highest increase since Q2 2001. House prices in the area increased 4.3% q-o-q in Q1 2017.
- In Noord-Holland house prices rose by 10.9% during the year to Q1 2017 (9.2% inflation-adjusted), to an average of €321,760 (US$368,971). It was the thirteenth consecutive quarter of y-o-y rises in the province. Quarter-on-quarter, house prices increased 4.8% in Q1 2017.
- In Noord-Brabant the price of existing homes rose by 8.8% during the year to Q1 2017 (7.1% inflation-adjusted), to an average of €261,371 (US$299,722). It was an improvement from last year's 5.8% growth and the biggest y-o-y rise in 15 years. House prices increased 3.1% during the latest quarter.
- In Gelderland house prices rose by 7.6% during the year to Q1 2017 (6% inflation-adjusted), to an average of €251,103 (US$287,947) - the biggest annual increase since Q2 2001.House prices increased 4.1% during the latest quarter.
History of the Netherlands' housing boom and bust
Median house prices in the Netherlands rose 80.8% (59% in real terms) from Q1 1996 to Q2 2001, or by an average of 11% annually (8.4% in real terms). Amsterdam house prices rose 111% (86% in real terms) during this period.
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.
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 RECOVERY (Q1 14 - Q4 16)|
|Source: Statistics Netherlands (CBS)|
By Q2 2006, house prices in Netherlands had risen 13.3% on three years earlier, with strong increases in Groningen (20.9%) and in Zuid Holland (13%).
Despite a political crisis, house prices rose by 4.7% from Q3 2006 to Q4 2007, propelled by economic growth of 4% in 2006 and 2007. Amsterdam registered the highest house price increase of 12.6% from Q3 2006 to Q4 2007.
However with the global financial crisis the housing market went into a tailspin, and 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 1.5%, 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 1.1% 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 Q4 2016, house prices in the Netherlands rose by 11.6%, with strong increases in Amsterdam (34.5%) and in Rotterdam (18.6%).
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 property transactions rose by 20.5% y-o-y to 214,793 units in 2016, the highest level since 2008, according to Statistics Netherlands (CBS). West-Nederland accounted for about 51% of all property transactions last year, followed by Zuid-Nederland (20%), Oost-Nederland (20%), and Noord-Nederland (9%).
In the first five months of 2017, property transactions soared by nearly 25% to 92,595 units compared to the same period last year. The number of dwellings sold rose in almost all of the country's major cities and municipalities.
By dwelling type:
- For apartments, sales rose by 22.8% y-o-y to 15,681 units in Q1 2017
- For terraced houses, sales rose by 29.2% y-o-y to 18,070 units in Q1 2017
- For corner houses, sales rose by 35.7% y-o-y to 7,176 units in Q1 2017
- For detached houses, sales rose by 47.1% y-o-y to 7,562 units in Q1 2017
- For semi-detached houses, sales rose by 45.5% to 5,744 units over the same period
Mortgage interest rates continue to fall
The average mortgage interest rate was 2.42% in May 2017, down from 2.64% a year earlier and 2.9% two years ago. The 12-month Euribor rate was down to a record-0.1491% in June 2017, from -0.028% in June 2016, 0.163% in June 2015, and 0.5127% in June 2014.
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: 1.99% in May 2017, down from 2.21% a year earlier
- IRF 1-5 yrs: 2.2% in May 2017, down from 2.4% in the previous year
- IRF 5-10 yrs: 2.37% in May 2017, down from 2.67% in the previous year
- IRF 10 yrs or more: 2.89% in May 2017, down from 3.07% in a year earlier
For outstanding housing loans:
- Original maturity of less than or equal to 1 yr: 2.23% in May 2017, down from 2.59% in the previous year
- Original maturity of 1-5 yrs: 2.54% in May 2017, down from 2.71% in the previous year
- Original maturity of more than 5 yrs: 3.48% in May 2017, down from 3.83% 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 4.5% to 5.7% in 2016, based on a research conducted by Global Property Guide.
- In The Hague, yields are around 6.5%.
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 are surging!
Nationwide, the average monthly rent in the private housing sector rose by almost 10% y-o-y in Q1 2017, to €1,470 for a 100 square meter (sq. m.) house.
By property type:
- For detached houses, the average monthly rent increased 16.5% y-o-y to €12.81 per square meter (sq. m.) in Q1 2017, according to research conducted by housing platform Pararius.
- For apartments, the average monthly rent rose by 9.5% y-o-y to €16.37 per sq. m. in Q1 2017
- For single-family houses, the average monthly rent increased 6% y-o-y to €10.79 per sq. m. over the same period.
Groningen registered the biggest rise in residential rents of 19.1% during the year to Q1 2017, followed by Flevoland (10.7%), Drenthe (9.7%), Utrecht (7.5%), Gelderland (6.2%), and Limburg (5.9%). More modest rent increases were recorded in Zuid-Holland (4.1%), Noord-Brabant (4%), Noord-Holland (3.5%), Zeeland (3%), Overijssel (2.9%), and Friesland (2%).
Noord-Holland had the most expensive private housing, with an average monthly rent of €19.88 per sq. m. in Q1 2017, followed by Utrecht (€14.07), Zuid-Holland (€13.86), Groningen (€12.99), and Noord-Brabant (€11.32).
In contrast, Drenthe had the cheapest rental properties, with an average monthly rent of €8.34 per sq. m. in Q1 2017.
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 2016, the rent increase for dwellings (including rent harmonization) in the Netherlands was 1.9%. In Amsterdam, the rent increase was 2.9% while it was 2.1% in The Hague.
In the social housing market, the maximum basic rent in Netherlands for rent-controlled dwellings was €710.68 (US$815) in 2016, a 1.6% rise from the previous year's rent control limit at €699.48 (US$802). 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. 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 4 years there was a slight contraction - in 2016, the residential mortgage market was 95.3% of GDP, from 104% of GDP in 2012, based on figures from the De Nederlandsche Bank (DNB). However, this contraction is unlikely to last, given strong housing demand.
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").
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.
Mortgage approvals surpass pre-crisis levels
In Q1 2017, new mortgage approvals rose to €32.96 billion, up by 9.5% from the same quarter the previous year, according to the DNB.
The total mortgage debt increased slightly by 0.9% to €433.88 billion in May 2017 from the same period last year.
Most Dutch housing loans are fixed rate mortgages (FRM) for 5 years or more. However the shares of fixed and floating mortgages vary considerably. When interest rates rapidly rose in 2007, households shifted to fixed rate mortgages. As interest rates continue to fall from 2012 to 2014, the share of floating rate mortgages and those with IRFs lower than 5 years increased again. As interest rates started to stabilize by end-2016, households are quick in shifting to fixed rate mortgages with longer IRFs.
In Q1 2017:
- Housing loans with floating rate and IRF up to 1 yr: down 16.9% y-o-y
- Loans with IRF of 1-5 years: down 30.7% y-o-y
- Loans with IRF of 5-10 yrs: up 13.7% y-o-y
- Loans with IRF of 10 yrs or more: up 46.7% y-o-y
As of Q1 2017, most new housing loans had 5-10 year interest rate fixations (IRFs), with a 57% share of total loans, followed by loans with IRF of 10 years or more (24%) and those with floating rate and IRF up to 1 year (11%). Loans with 1-5 year IRFs had an 8% 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 2016, the Dutch economy expanded by 2.2%, after GDP growths of 2% in 2015 and 1.4% in 2014.
In the first quarter of 2017, the Dutch economy grew strongly by 3.2% from a year earlier, following annual growth rates of 2.4% in both Q3 and Q4 2016, 2.3% in Q2 2016 and 1.7% in Q1 2016, according to CBS. It was the fourteenth consecutive quarter of expansion and the highest growth since 2008.
The economy is projected to expand by 2.1% this year and by another 1.8% in 2018, 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 2016, the gross public debt remains high at 62.3% of GDP, from 65.2% in 2015, 68.8% in 2014 and 68.6% in 2013. In Q1 2017, the country's government debt stood at 59.6% of GDP, the first time in six years that public debt falls below the 60% threshold.
On the other hand, the country recorded a public budget surplus of 0.4% of GDP in 2016, 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 0.5% of GDP this year and 0.8% of GDP in 2018 while gross public debt is expected to decline slightly to 59.8% of GDP this year and to 57.2% of GDP in 2018, according to the European Commission.
Overall inflation stood at 1.1% in June 2017, from 1.1% in May, 1.6% in April, 1.1% in March, 1.8% in February and 1.7% in January, according to CBS. Overall inflation is expected at 0.93% this year, from 0.1% in 2016, 0.2% in 2015, 0.3% in 2014, 2.6% in 2013, 2.8% in 2012, and 2.5% in 2011, based on figures from the IMF.
In May 2017, the seasonally-adjusted nationwide unemployment stood at 5.1%, down from 6.3% a year earlier and the lowest rate since August 2011, according to CBS. Unemployment for men was 4.6% while it was 5.6% for women. In May 2017, there were 456,000 unemployed people in the country, the lowest level since December 2011.
Nationwide unemployment is projected at 4.9% this year and 4.4% in 2018, according to the EU.