Netherlands Housing Market Demand Is Falling (2023, Q2)

The house price boom in the Netherlands seems to be over, amidst falling demand caused by rising interest rates and declining consumer purchasing power due to soaring inflation.

In Amsterdam, the capital, the price of existing homes fell by 5.7% in Q1 2023 from a year earlier (-11.5% inflation-adjusted), in sharp contrast to the strong y-o-y growth of 18.7% seen in Q1 2022, according to Statistics Netherlands (CBS). Nationally, the house price fall is more muted at 0.7% (-6.8% inflation-adjusted) over the same period – the first quarter of the y-o-y decline in 9 years.

Netherlands’s house price annual change

Quarter-on-quarter, house prices in the capital city fell by 2.2% (-0.8% inflation-adjusted) in Q1 2023 while they dropped 3.7% (-2.3% inflation-adjusted) on a national level.

By property type, in Q1 2023:

• Apartment prices fell by 2.7% (-8.8% inflation-adjusted) y-o-y, in sharp contrast to the prior year’s 18.7% increase.
• Terraced house prices were down slightly by 1.7% (-7.8% inflation-adjusted), following a huge y-o-y increase of 20.8% in Q1 2022.
• Detached house prices rose slightly by 1.6% during the year to Q1 2023 but actually declined by 4.7% when adjusted for inflation – after increasing strongly by 20.8% in the previous year.
• Semi-detached house prices fell slightly by 0.6% (-6.8% inflation-adjusted), in stark contrast to a y-o-y increase of 19.9% in the same period last year.
• Corner houses saw an average price decline of 0.8% (-6.9% inflation-adjusted) y-o-y in Q1 2023, following an annual price increase of 20.1% in the previous year.

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 2019, house prices rose by almost 40% nationally, with very strong increases in Amsterdam (77.4% growth) and Rotterdam (61.8% growth). Despite the Covid-19 pandemic, nationwide house prices rose by a huge 27.3% from 2020 to 2021.

However, in 2022, house price growth in the country slowed to 5.1%. In fact, house prices rose by just 1.2% in Amsterdam and 2.5% in The Hague, and actually declined by 1.2% in Utrecht.

HOUSE PRICES, ANNUAL CHANGE (%)
Year	Nominal	Inflation-adjusted
2008	1.70	-0.24
2009	-5.69	-0.24
2010	-0.80	-2.68
2011	-4.11	-6.38
2012	-6.90	-9.52
2013	-3.71	-5.27
2014	1.87	1.16
2015	3.27	2.56
2016	6.73	5.69
2017	8.25	6.91
2018	8.39	6.31
2019	6.48	3.66
2020	8.77	7.68
2021	19.60	14.17
2022	5.14	-5.49
Sources: Statistics Netherlands (CBS), Global Property Guide

The housing market will remain depressed in the medium term, with continuous house price falls during the remaining months of this year. “Home prices are still falling sharply this year, as a portion of potential homebuyers have dropped out due to rising mortgage rates,” said Rabobank Economic Research.

“In 2023, home prices will fall 4.2 percent year-on-year. By the end of 2023, home prices are expected to be 7.6 percent lower than during the market´s peak in July 2022,” added Rabobank.

The overall economy is also expected to slow this year. After registering a robust growth of 4.9% in 2021 and 4.5% in 2022, economic growth will slow to 1.8% this year and to 1.2% in 2024, based on a forecast released by the European Commission, as tightening financial conditions are now adversely affecting investment growth and as consumers adjust their spending to the high price levels.

Demand continues to fall

During 2022, the total number of dwellings sold in the Netherlands fell by 14.6% to 193,103 units – the lowest sales volume recorded since 2015, according to figures from CBS. The weakness of demand continues this year, with dwelling sales declining by 7.9% y-o-y to 40,437 units in Q1 2023.

By dwelling type:

• Apartment sales fell by 15.3% y-o-y to 10,769 units in Q1 2023, after declining by 7.7% for the whole year of 2022.
• Terraced house sales dropped slightly by 1% y-o-y to 14,436 units in Q1 2023, following a 13.6% decline during 2022.
• Detached house sales were down by 15.7% y-o-y to 4,987 units, after a huge fall of 20.8% during 2022.
• Semi-detached sales dropped 3.6% y-o-y to 4,296 units, after falling by 15.7% in the full year of 2022.
• Corner house sales were more or less steady at 5,659 units in Q1 2023, following a 15.5% decline last year.
  

“In recent years, the number of transactions of existing owner-occupied homes decreased significantly. This was mainly due to the lack of supply,” said Rabobank. “In 2022, the counter remained at 193,000 homes sold, 14.6 percent less than in 2021. It is noteworthy that the number of home sales has been declining at a much slower rate in recent months despite falling house prices.”

Residential construction activity remains weak

During 2022, dwelling completions in the country rose by 4.7% to 74,560 units, following a 1.8% increase in 2o21 and a 2.2% decline in 2020, based on figures from Statistics Netherlands. However, residential construction activity is now weakening again. In the first five months of 2023, dwelling completions fell by 6.9% y-o-y to 27,731 units, amidst rising materials costs and surging interest rates.

The total housing stock in the Netherlands reached 8,155,526 units as of May 2023, up by 1% from the prior year.

From an annual average of 76,300 units from 2000 to 2009, completions dropped sharply to an average of 59,000 units annually from 2010 to 2021 - mainly due to post-2010 changes in the planning system - which partly explains the rapid rise in house prices in recent years. Pandemic-related restrictions in the past two years weakened residential construction further.

House prices continued to rise last year in most major cities and provinces

House prices had been continuously rising in almost all of the Netherlands’ major provinces and cities during 2022. According to Statistics Netherlands:

• In Amsterdam, existing home prices rose by 9% during 2022 to an average of €620,954 (US$678,982) – following an 11.5% increase in 2021 and the highest level ever recorded. It was the ninth consecutive year of annual rises.
• In Rotterdam, existing home prices increased 9.3% during 2022 to an average of €397,864 (US$435,044), following y-o-y rises of 18.4% in 2021, 8.6% in 2020 and 10.2% in 2019.
• In Groningen, existing home prices rose by 10% during 2022 to an average of €353,917 (US$386,991), following annual increases of 15.5% in 2021, 9.9% in 2020, and 7% in 2019.
• In The Hague, existing home prices surged 10.4% during 2022 to an average of €454,312 (US$496,767), after increasing by 15.7% in 2021, 9.5% in 2020, and 6.5% in 2019.
• In Utrecht, house prices rose by 8.7% last year to an average of €510,980 (US$558,731) – its ninth straight year of annual increases.

The country’s major provinces:

• In Zuid-Holland, the country’s most populous province, house prices rose strongly by 10.7% y-o-y in 2022 to an average of €425,469 (US$465,229), following annual increases of 15.1% in 2021, 9.3% in 2020 and 8.8% in 2019.
• In Noord-Holland, house prices rose by 9.5% during 2022 to an average of €536,786 (US$586,949), after increasing by 15.5% in 2021, 7% in 2020, and 6.1% in 2019.
• In Noord-Brabant, the price of existing homes surged by 10.8% during 2022 to an average of €426,539 (US$466,399), after y-o-y rises of 13.9%, 8.9%, and 6.8% in the past three years.
• In Gelderland, house prices rose strongly by 11.3% to an average of €422,110 (US$461,556), following y-o-y increases of 17.2% in 2021, 9.3% in 2020, and 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.

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)	The global financial crisis, eurozone debt crisis (Q1 08-Q4 13)	Economic growth (Q1 14-Q4 19)	Global pandemic (Q1 20-Q4 21)	Global economic recovery (2022)
Netherlands	104.4	4.7	15.3	3.8	-15.6	39.8	27.3	5.1
Groningen	100.1	8.7	16.9	2.9	-12.7	36.2	32.3	5.7
Zuid-Holland	98.9	3.3	16.1	2.2	-10.5	44.7	25.7	5.2
Noord-Brabant	107.9	5.8	13.6	3.8	-20.4	32.7	25.2	6.8
Amsterdam	131.6	-6.5	5.6	12.1	-17.7	77.4	20.0	1.2
Rotterdam	109.4	1.9	21.2	6.7	-11.9	61.8	26.5	4.1
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 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 2019, house prices rose by almost 40% nationally, with very strong increases in Amsterdam (77.4% growth) and Rotterdam (61.8% growth). Despite the Covid-19 pandemic, the housing market remains resilient, with nationwide house prices rising by another 27.3% from Q1 2020 to Q4 2021.

Then in 2022, house price growth in the country slowed to 5.1%. In fact, house prices rose by just 1.2% in Amsterdam and 2.5% in The Hague, and actually declined by 1.2% in Utrecht. 

Mortgage interest rates are rising rapidly

In April 2023, the average interest rate for new housing loans surged to 3.87%, sharply up from 1.81% a year earlier and 1.62% two years ago.

For new housing loans, by initial rate fixation (IRF):

• Floating rate and IRF up to 1 year: 4.31% in April 2023, far higher than the 1.98% in April 2022 and 1.84% in April 2021
• IRF 1-5 years: 4.35% in April 2023, sharply up from 2.14% in the previous year and 1.78% two years ago
• IRF 5-10 years: 3.87% in April 2023, sharply up from 1.58% in the previous year and 1.43% in the two years prior
• IRF 10 years or more: 3.46% in April 2023, up from 1.85% a year earlier and 1.67% two years ago

For outstanding housing loans, the average interest rate was 2.42% in April 2023, up from 2.27% in April 2022 but slightly down from 2.51% two years ago. 

Over the same period, by maturity:

• Original maturity of less than or equal to 1 year: 3.98% in April 2023, sharply up from 1.89% in the previous year and 1.94% two years ago
• Original maturity of 1-5 years: 3.58% in April 2023, up from 1.93% in the previous year and 2.1% two years earlier
• Original maturity of more than 5 years: 2.4%, slightly up from 2.28% in April 2022 but still lower than the 2.52% in April 2021

The mortgage market continues to shrink

From 68% of the GDP in 2003, the Dutch mortgage market expanded to almost 84% of GDP in 2009, based on the Global Property Guide estimates. However, since then, there has been a sharp contraction in the residential mortgage market - to 59.5% of GDP in 2022, mainly due to the introduction of new reforms to discourage borrowing, aggravated by the adverse impact of the Covid-19 pandemic.

The previous rise of mortgage debt - the fastest among OECD countries from 2004 to 2010 - 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”).