The housing market in 2022: who would have thought in January 2022 that such a turnaround was coming? Honestly, not me. At the start of 2022 I did write that I had solutions for stabilising the housing market. I wrote back then that rising interest rates would make prices fall, and that this is/was the only instrument we had. On the housing market, everything revolves around affordability.
Contents
- Is the housing market going to crash?
- Strong growth in the Dutch population
- Government policy makes prices in the Netherlands explode
- Hugo de Jonge's plans
- The market is locking down
- Price corrections
- Should you buy a house now?
A lot happened on the housing market over the past year:
- Uncertainty grew because of the war in Ukraine
- Inflation went up
- Interest rates rose
- The costs of housebuilding went up
- Construction stalled
Is the housing market going to crash?
All over the world, house prices are falling because of rising interest rates. In New Zealand, house prices have fallen by around 12%. New Zealand had the fastest-rising housing market in recent years. In Canada and Sweden, prices fell by 8% year on year. Across the Netherlands as a whole, prices fell last quarter by 6% compared with the previous quarter. That's the biggest fall ever. But across the Netherlands, homes are still 10% more expensive than last year. Although in Utrecht prices have fallen by 6% on average this year.
Countries with extremely high price rises are also the first countries where prices will fall hardest. Such a price rise often has to do with affordability. The more affordable a home is, the faster prices will rise. If that affordability decreases, prices will also fall faster.
The Dutch have relatively high housing debt. We only need to bring a small amount of our own money to buy a house. Precisely because we can finance everything so easily, our prices were also able to rise at a rapid pace.
So at the moment it's us, the Dutch, who are at the greatest risk of a housing crash, and not the United States, the United Kingdom or Spain. Household debt in the Netherlands last year amounted to 222% of our national income. That's more than twice as much as in the United States (101%).
Fortunately, the Dutch generally fix their interest rates for a long time. That keeps them from getting into trouble with their payments. An expensive home that's under water still means ‘relatively’ low monthly costs. This makes it seem much more serious in the Netherlands than it actually is.
Strong growth in the Dutch population
The Dutch population has grown considerably. In the first nine months of this year our country grew by 191,000 inhabitants. That's more than twice as many as in the same period last year.
Relatively few babies were born and mortality was high. So the growth is mainly due to the high rate of immigration. Last year around 318,000 people found a new home in the Netherlands.
Government policy makes prices in the Netherlands explode
In recent years we liked to blame the housing shortage or the investor for high house prices. But in fact that wasn't the biggest problem. Government regulation. That was the problem.
Home ownership in the Netherlands was very favourable. Low mortgage rates, lenient mortgage lending standards and mortgage interest deduction made buying a home in the Netherlands dirt cheap. Almost everyone was able to buy a home, even with little of their own money. We got an ever higher loan to value, which made buying a house very attractive indeed.
Because of the wealth return tax and the very low return on savings and government bonds, many people invested in property. In the Netherlands we also have Box 3, also known as the ‘party box’. That made investing in property even more attractive. All these investors created a lot of housing supply. However, homes had to get bigger and bigger. Apartments of 30 m² could no longer be created within existing buildings. In Utrecht, for example, a home that was being split had to be at least 140 m², and then be split into apartments of at least 50 m². So relatively speaking we started living bigger, which put extra pressure on the housing market.
Transfer tax for investors also went up to 8%. Just before this measure was introduced, the prices of homes suitable for letting exploded. After that you saw not only fewer apartments being bought, but also fewer conversions. Converting old office buildings into homes, for example, used to be attractive for investors, but the sums no longer added up with 8% transfer tax. And the apartments investors bought often turned out to be less attractive to first-time buyers as a first home after all. The popularity of apartments around the centre in less popular neighbourhoods fell quickly. Relatively fewer people lived in each apartment.
Hugo de Jonge's plans
Hugo de Jonge, what do I think of him? It's not just his shoes that are clownish… I can get really angry about someone like that, who doesn't understand a thing, in such an important post. His ego is too big. But anyway, my opinion doesn't matter.
Hugo introduced the opkoopbescherming (buy-to-let protection) and the owner-occupancy requirement. Hugo de Jonge also wants more regulation in the rental sector. A noble aim in itself. However, the minister thinks he can achieve that goal by regulating mid-market rents. At the moment, only homes with a starting rent of up to €763.47 fall under the social rented housing system. The minister now wants to introduce a new mid-market rent category for rents up to €1,000 a month. In my view, Hugo has completely missed the mark here.
If you want to regulate mid-market rents completely, it will mean these homes are sold off on a large scale. Property developers will also think twice before building mid-market rental homes. After all, no property developer wants to make a loss. All that will be left are social rented homes from housing associations and large, very expensive rental homes. It's precisely the middle segment that will then be pushed out of the rental market altogether.
The market is locking down
If a construction project leads to nitrogen deposition in a vulnerable nature area, a nature permit is now required again. Because of this ruling by the Raad voor Volksgezondheid & Samenleving (RVS), all construction projects that don't yet have a permit must apply for an individual environmental permit. The trade association Bouwend Nederland says that with this ruling the Netherlands is ‘locking down’. So we're back to square one. It causes enormous delays. Which has major consequences for the Dutch housing market, the economy and the energy transition. There was an exemption for the construction, installation and demolition of, among other things, homes, energy projects and roads: no nature permit was needed. But from now on it is a requirement for nitrogen emissions close to nature areas that could have a negative effect on that nature.
According to the RVS, there was no other way to bring nitrogen policy back. The Raad van State recognises that the construction exemption mattered for the number of homes that need to be built and for the energy transition. Hugo de Jonge does not see the new rules as a reason to adjust the building ambitions. The accumulating problems on the housing market should be no reason to lower the ambition of building 900,000 homes over the next eight years. ‘Everyone says it can no longer be done, but we have no alternative.’ Not that it's achievable or realistic. But Hugo doesn't care very much about that anyway.
Interest rates have risen, building costs have risen enormously, the population has grown, consumer confidence has fallen and the number of building permits is stagnating. I honestly have no idea how Hugo still thinks the targets can be met. But then I don't believe in fairy tales. Perhaps that's the difference.
For the property market, the combination of inflation, and therefore higher building costs, on the one hand and higher interest rates on the other has major consequences. The rise in interest rates dampens demand for property and puts its price under pressure. That makes investing in property less attractive. Certainly with all of Hugo de Jonge's plans, which squeeze returns. Investing in property is therefore very risky at the moment.
Construction investment in property only pays off if the market value of the new property is higher than the building costs. So the market is facing a double scissor movement: market value is falling while building costs are rising. Things would have to go very strangely indeed for this not to lead to a sharp drop in new builds. This seems bad news for Hugo de Jonge to me. Little will come of his ambition to build a hundred thousand new homes a year. But Hugo de Jonge doesn't seem to realise these consequences.
Price corrections
Low interest rates, and with them low financing costs, have pushed down the required returns in housebuilding and in buying property to let. To make the sums add up now, the price will have to be adjusted downwards. There are examples where the financing costs are now four times as high as a year ago. This is putting house prices under pressure.
Because returns are low, many funds will move their capital into alternatives. In search of returns. Norwegian and Swedish bonds are currently very popular among pension funds.
But this isn't only true for investors and property developers. It's true for consumers too. As a consumer, last year you still had a mortgage rate of approx. 1.6%. At the moment the interest rate is approx. 5%. That makes your monthly payment a lot higher. And so the amount you can spend on a home is a lot lower.
Should you buy a house now?
House prices are falling, energy costs are rising, interest rates are rising, inflation is rising, building costs are rising, the population is growing and construction is stalling. Wages are rising too, but not as fast as inflation at the moment. Investors are no longer so keen on developing and letting homes. All the regulation pushes you off the mid-market rental market. So where are you supposed to live? With your parents until you're 40? Sleeping under a bridge? What's the right thing to do? Should you wait to buy a house? Or should you just jump in at the deep end?
Honestly? If I had a crystal ball, I could have told you. But I think affordability will remain an important point. At the moment everything is very uncertain. But because of the enormous shortage on the rental market, prices there are sky-high. I would buy a home myself. You pay off a fair amount of the loan. At the moment the housing shortage is still growing. Once inflation drops a bit, building costs stabilise and interest rates come down a little again, we'll have a problem on the housing market that I have no idea how to solve. If you enter the housing market now, at least you can build something up. For the first few years, don't see your home as a property investment with a return, but simply as a nice house you're going to live in. Don't compare yourself with friends who had €100,000 of overvalue (home equity growth) in 1 or 2 years last year, but look for a house that suits you and where you can stay for a while.
In a few years you'll be grateful you bought. Because in 8 years the problems on the housing market will be beyond comprehension. Interest rates will then drop a little again, and demand will be greater than ever!
Take a look at our listings or get in touch with us about buying or selling your home. Want to know what your home is worth? We'd be happy to come round for a no-obligation valuation or to draw up a valuation report.
