Houses are expensive. The easiest thing to say is that it's all down to the slumlords. And that's exactly what politicians like to do. Which is why there's now an enormous amount of regulation to rein in the slumlords. Only now everyone gets called a slumlord. Whereas most investors are actually the solution rather than the problem.
Contents
- Housing crisis
- Driving out the slumlords
- Restrictions on new builds and renovations
- Not profitable
- Building for the rich too
- What's behind the housing shortage?
- Houses are expensive
- The solution?
Housing crisis
The main reason for the housing crisis is simple: there just aren't enough homes available. You'd think the answer would be simple too, namely building more homes quickly. However, house building in the Netherlands is seriously disrupted by all sorts of rules, restrictions, critical local residents and well-meaning but sometimes rigid aldermen. Yet we actually have quite a lot of living space in the Netherlands. It's just that we live relatively large. There are housing protests with slogans such as ‘You can't live in a waiting list’, ‘Housing is a right’ and ‘People before the market’.
I think we're too quick to point the finger at ‘the rich’, ‘the market’ and the ‘slumlords’. Even if we got those so-called ‘rich’ ‘slumlords’ off ‘the market’, we still wouldn't have a single extra home. In fact, without investors there definitely won't be any extra homes. And with the upcoming measures it's no longer attractive for investors to invest in extra homes, because it costs money. De Correspondent came up with a nice metaphor. The housing market is really a game of musical chairs. When the music stops, not everyone has a seat. And in this case, not everyone has a place to live. And whether it's owner-occupied, private rental or social rental, we don't have a home for everyone.
Driving out the slumlords
Even if you drove out all the slumlords (residential investors) and regulated the rental market more strictly, not a single home would be added. In fact, if you made rental homes cheaper, demand for them would only increase. The problem of access to housing remains. Demand just shifts. It might feel fairer, but it certainly doesn't become more accessible. So the fundamental problem isn't so much how homes are distributed, but the shortage of available homes.
The gap between supply and demand
Especially in the big Dutch cities there's a huge gap between supply and demand. The move to urban areas has accelerated over the past ten years. This has led to a major shortage of available homes in these cities. The argument that low mortgage rates and easy lending drive up house prices is true, but in the end it's about buyers' monthly costs, not just house prices. It all comes down to affordability, and monthly affordability in particular.
The Dutch housing market, however, is inelastic (think back to your economics lessons for a moment) when it comes to responding to rising demand. The price of a home goes up, but supply lags behind. There are various reasons for this scarcity, including government restrictions and local interests that block the development of new homes.
Restrictions on new builds and renovations
The government often restricts house building by imposing rules and regulations, such as zoning plans and spatial restrictions. Local interests often outweigh the general interest of house building, which means a lot of building projects are held back. On top of that, local authorities often meddle in the smallest details of building projects, such as parking standards and architectural requirements. This increases costs and reduces the returns on projects, making developers less inclined to build. But local residents also put up lengthy resistance.
Last year at the Provada real estate fair a remarkable study was presented. Everyone wanted extra homes. But nobody wanted those homes around the corner. The not-in-my-backyard principle. People wanted affordable homes for their children, but above all those homes mustn't block their view or add parking pressure in their neighbourhood, no little parks could be sacrificed, and no extra roads or public transport could be built in their neighbourhood. Pretty strange, right? It all has to be available and accessible, but not in ‘their backyard’. Preferably no high-rise either, but large family homes with front and back gardens. Unfortunately we can't have it all…
Rules and restrictions
What we also see is that here in our street it's a real hotchpotch of building heights, extensions, building styles and finishes. Only twice is there a row of three where the façades actually match. A young family would love to stay in their home. However, they're only allowed to add a storey if the neighbours do the same. But the neighbours don't have the financial means for that. So this family is being forced to move, while they could stay where they are, and meanwhile Hugo de Jonge is calling for us to add storeys to flats and houses. Beats me.
Because of the enormous list of rules and restrictions, it's impossible to create extra homes and living space. The municipality wants to keep the streetscape uniform, but it also wants to keep homes in Utrecht affordable. That's why homes aren't allowed to get too big. I don't get it!? Of course I understand that you want to preserve a streetscape, but our streetscape isn't particularly attractive anyway. Lots of hideously ugly roof extensions and extensions have been added. This roof extension is being drawn up by a draughtsman. An architectural draughtsman who has already drawn up other roof extensions in the street. We're really not in favour of putting up high-rise everywhere or plonking a new housing estate in the middle of nature. There are plenty of good reasons to limit new builds or roof and rear extensions in certain places. You don't want a residential tower on the canal ring or city parks full of apartments. It has to be in proportion.
Not in my backyard
My grandfather was a building contractor, and his sister's husband was a biologist. They were best friends at weekends and at parties, but they also sometimes faced each other in court. Uncle Koen wanted every building site to be surveyed for protected plant species, insects and animals, plus all sorts of other studies. Mostly to preserve nature, and above all he wanted to let nature take its course as much as possible. Nature was very important to him. My grandfather built for developers, and for him it was important that attractive neighbourhoods were created and that the house building was profitable. There was something to be said for both sides. We needed homes, but we also want nature to be able to take its course.
Then, when Uncle Koen wanted to build himself, lots of parties (neighbours) blocked it. Suddenly he realised how annoying it was, when you wanted to build a house in a particular spot, that small studies cause huge delays and get in the way of your plans. When it came to his own house, he suddenly had quite different wishes and plans after all. His own living comfort came first then. Indirectly it did in all the other cases too. He liked living around and in the city and preserving nature. He did want affordable homes. But not in the nature areas around him.
My grandfather's sister's daughter can talk for hours about spatial developments in the countryside. She works as a policy adviser for the Province of Utrecht. We're not diametrically opposed. But we each look at these issues from our own field. I find what she has to say interesting, and how the trade-offs are made. Living on the Utrechtse Heuvelrug is so lovely precisely because there's so much nature. More often than not we'll really have to build upwards in urban locations instead of building everywhere in nature. Precisely because I occasionally hear her weigh things up at a birthday party, I sometimes look at housing market issues differently. I also realise that none of us want high-rise and less greenery around us. But that's actually quite selfish. We all already have a home and can protect ourselves. The people still looking for a home can't.
Not profitable
I wrote earlier that new builds are often not profitable at the moment. When building social rental homes, construction companies make a slight loss, because the income doesn't fully cover the building costs. For affordable owner-occupied homes and mid-market homes, construction companies just about break even, while they can make a profit building more luxurious homes. If sales of these more luxurious homes fall away, the earnings model for a new-build project disappears. The recent changes in our rental policy have made social rental homes entirely loss-making, which makes it impossible to build them. This is problematic, since permits often require a substantial share of the homes to be social rental or mid-market rental. The prices of the remaining homes then rise proportionally, making them too expensive for potential buyers, and running at a loss isn't a viable option for investment funds either.
Municipalities can interfere enormously in the requirements for house building. Sometimes it goes so far that they decide which materials are used. They want expensive materials and at the same time it has to be affordable housing. Former SP alderman Ivens from Amsterdam said ‘We want homes that are as big as €500,000 homes and look like €500,000 homes, but only cost €300,000. That is our goal’. I really wondered at the time whether this man believed in fairy tales. Something that seems too good to be true usually is. The municipality's packages of requirements are never free and eat enormously into a builder's returns.
It seems so well-meaning
It all sounds very noble, affordable homes for everyone. This is a pattern we see again and again. For example, in 2017 Amsterdam's city council introduced the well-known 40-40-20 rule. Under this rule, every building project should in principle consist of 40% social rental (with a maximum rent of €808.06 per month), 40% regulated mid-market rental (with a maximum rent of 1,000 euros per month) and 20% owner-occupied homes. Although Amsterdam is known for its strict requirements, virtually every municipality nowadays imposes rules on the percentage of social rental homes, and increasingly mid-market rental homes too, in new-build projects.
At first glance this seems a well-meaning aim: building more affordable homes. But unfortunately the reality is less rosy. Developers are faced with having to pay market prices for building land, while the municipality demands that the homes they build aren't sold or let at market prices. This often makes new builds financially unviable, so in many cases developers decide not to build at all. Ironically, in many of these projects the municipality itself owns the land and so is itself charging those market prices for the building land. So it's a bit of a double standard.
Building for the rich too
In the end, the municipal policy described above isn't all that smart. The thinking is that just putting up affordable homes will ensure there are enough homes. But that's not right. There are enough large family homes; it's just that our housing stock isn't quite distributed properly. A large villa or a luxury apartment complex for older people can actually lead to more affordable rental homes. When the whole chain moves up, an affordable home opens up at the bottom for a first-time buyer or a student. And as ‘spoilt Dutch people’ we'll also have to adjust our demands a little. We're all looking for a large family home, ideally with a front garden, back garden, attic and rear access.
As I wrote in a previous blog, we're all looking for the same home for a low price, and ideally in the city too. That really isn't possible. If new-build projects don't go ahead because it isn't profitable to build so many social and mid-market rental homes, then the municipality's policy really is off the mark. We'd do better to build more apartments, which can then be sold and let at market prices. That adds more homes, and people will probably also leave their social rental homes. At the moment there are an enormous number of tenants whose income is too high for their social rental home, but there's a huge gap.
Price elasticity
In fact, if rental homes are compulsorily made cheaper, demand for those homes only increases. Of course a single person would also like to live in a family home in a prime location, as long as they only have to pay half the market rent or less. What does ‘affordability’ even mean then? If thousands of people end up responding to one home that's regulated well below the market price, it's ‘affordable’ for one lucky so-and-so, but not for thousands of others. They literally lose out. The city remains inaccessible, because it's still packed with people who all want to live affordably in the centre.
When it comes to price elasticity, I always think back to Mrs De Kruijf's economics lessons. She explained it back then using sweets from the vending machine. If they got cheaper, we all wanted even more sweets from the vending machine. Sweets were price elastic. With a calculator, if it got cheaper, we didn't all want an extra one. One was enough. That's why the calculator was price inelastic.
On top of that, the Province decides how much can be built in an area. In practice, policy always steers towards scarcity, and scarcity puts pressure on house prices. Regulating further in the way left-wing policymakers would most like will create even more scarcity. Even more scarcity means even less affordable. A matter of supply and demand.
What's behind the housing shortage?
Anyone who wonders what's causing the current housing shortage eventually ends up at a crucial moment in history.
Yet it's the ‘Draft memorandum on public housing in the 1990s’ that's regarded as the start of it all. It ended subsidies for housing associations, which led to a decline in their building activities. As a result, private-sector homes with high rents appeared and home ownership was encouraged. Our house-building policy was held together by subsidies. The government simply couldn't afford that any more. In reality the homes were too cheap and the affordable homes were paid for by the community. Liberalising housing policy made homes more expensive and created a gap. One part of the Netherlands lives too cheaply and another part pays market prices.
For those on the tightest budgets
Housing associations provided homes for people on the tightest budgets. Proposals were made to let the rents of housing association homes rise gradually, so that the rents could finance the construction of new homes. The government guaranteed their bank loans, so they could borrow cheaply. Later, all subsidies for the housing associations were abolished. All outstanding loans were written off. In one fell swoop the associations became independent. It was stipulated, however, that the homes were intended for the people who need them most.
Landlord levy
In 2013 Blok introduced the landlord levy (verhuurderheffing), a substantial tax on landlords of social rental homes. In total this measure cost housing associations around 12 billion euros. The original intention was that associations would charge higher rents and sell more homes. Although this partly happened, the most striking effect of the measure was that the construction of new social rental homes was almost halved. The cost of the landlord levy weighed enormously on returns. Stef Blok also lobbied foreign investors quite hard to buy property in the Netherlands. That worked, only they didn't just buy affordable homes. Making a return and renting below market prices don't go well together. Land prices and building costs are high and rents are relatively too low. There's a big gap between the cheaper social rental homes that are let below market prices and the homes that are let at market prices.
Houses are expensive
Houses are expensive. But a great many houses are actually too cheap as well. Together we all bear the costs of the homes that are let below market value. But with all the regulation aimed at letting as much as possible below market value, we also see that hardly anything is being built any more. It's simply too expensive to build so many cheap homes, because then no return can be made. Do you remember that little example someone once made for the VVD's election campaign? A group of people are sitting in the pub. When the bill comes, it's split according to the friends' incomes. The person who earns the most pays the largest share of the bill. But they don't think that's fair. He can easily spare a bit more. But if the friend who pays the most stops coming, they can no longer pay the bill….
The bill can no longer be paid
That's actually what's happening now too. The people who always paid the bill are the people at the top: the ‘rich’, the ‘slumlord’. They were always willing to pay more. To take risks. But at some point it stops. If they just have to keep chipping in, they'll leave. Then there's nobody left who can pay the bill. That brings you almost to the end of the game of musical chairs. Only the lucky ones with an affordable home and the rich have a ‘chair’, and the rest are out. Let's build more; then perhaps the very nicest chair won't be left for you. But you won't be ‘out’. Then there are enough homes and it becomes affordable all by itself.
The solution?
If you want to solve the housing problem, the government will have to start building homes again like in the ’80s, or provide subsidies to housing associations, cooperatives and developers. That's the only way enough homes can be built.
Are you one of the lucky ones and looking for a home? Take a look at our listings. Is your tenant moving out of your investment property and is letting it no longer profitable? We're happy to give sales advice. Would you rather invest your money differently? Gé is happy to help.
There's one more gem, the kind where the municipality is being obstructive…
P.S. On the Amsterdamsestraatweg there's still a large restaurant with an enormous garden standing empty. The municipality doesn't want 8 homes built here. It has to stay a restaurant. It's been empty for years and one restaurant after another has gone bust there. But according to the municipality there's a real need for a restaurant in that spot. I think this is above all a great opportunity to create homes with gardens in a fine location. But who am I to say?
