February 21, 2023

The Dutch housing market is becoming less inclusive

This is due to the rising house prices and the growing cost difference between buying and renting a house in the private sector.

It is an old example out of economics classes: give two people with the same social-economic position a home. One a house for sale, the other a rented house in the private sector. Thirty years later, the term of a mortgage, you look at the differences in their financial position. The result: the buyer is much better off financially than the tenant.

This example is relevant again after De Nederlandsche Bank (DNB) this month cited the increasing gap between tenants and buyers as an additional argument for thoroughly overhauling the tax system for the housing market. Apart from the sky-high mortgage debts, the sharply fluctuating house prices and their effect on consumption, the cost differences between buying and renting, according to DNB, lead to a split. The gap hampers the development of a well-functioning rental market.

In the debate about the adjustment of tax housing rules, the private rental sector is often forgotten. Too complex, too small, and therefore electorally uninteresting. Only 7 percent of all homes in the Netherlands are private rental homes. About 33 percent is social rent, about 60 percent is for sale.

But the little attention for private rent is unjustified. You will not only find skewed relationships between (private) rent and purchase, people with social housing are also better off than people with free rental housing. It is no coincidence that there are years worth of waiting lists for affordable rental homes in the social segment, and prices of owner-occupied homes are rising rapidly because demand far exceeds supply.

Social tenants and homeowners will experience few problems from this, but the housing market will become less inclusive. Without a private rental sector, the housing market is like a dog biting its own tail. If buying a house becomes more difficult, the pressure on the free and social sector will increase. If there is a shortage of rental homes in the private sector, even more home seekers are dependent on the social sector. And because too many people depend on it, the people who really need such a social rental home cannot go there.

One of the solutions to balance the housing market is to end the unequal treatment of buying and renting. Simply put, the tax incentives to buy a house in the Netherlands are so great that they disrupt the entire housing market. Think of the mortgage interest deduction, and of the fact that capital built up in a house is hardly taxed, while capital built up elsewhere - on a savings account, in shares - is taxed.

Renting in the private sector is therefore less attractive than buying a house, partly due to government policy, and that is felt on the rental market. The problem is not only caused by the comparison of buyers with free tenants, but has its origin in the skewed relationship between tenants in the social and private sector, says Jasper de Groot, director of the rental platform Pararius. “There is far too large a share of social rental housing, certainly in comparison with the number of vacant rental housing. There is a large group of people who earn too much to be eligible for a social rental home and too little to be able to afford a home for sale. ”

If that difference between the size of the social and free sector is less significant, says De Groot, “then you get a good mix, and more homes that are in a kind of transition segment. This can initiate flow which in turn creates more space in the social sector and more accessible rental prices.”

In a sense, this is what DNB argues. The solution she advocates: stop this disruption that stimulates buying and hinders the development of the rental market, for example by gradually completely phasing out the tax differences between renting and buying, by lowering the mortgage interest deduction and gradually increasing the notional rental value, or the home (and mortgage debt) to be moved in phases from box 1 (income) to box 3 (assets).

They noticed this at the Vereniging Eigen Huis as well, the organization that stands up for the interests of homeowners. After the publication of the DNB bulletin and the subsequent media attention, some 200 emails and phone calls were received. "A remarkable amount," said spokesman Hans André de la Porte. “Our members were angry and unsure whether to view this as a serious announcement of a tax increase or not. DNB previously argued for an accelerated reduction in mortgage interest relief, and that wish has become reality. So our members wonder whether that will also happen now. ”

The Vereniging Eigen Huis thinks that DNB is “really flattening the comparison between the housing costs of buyers and tenants”, says André de la Porte. According to him, the housing costs for homeowners are in reality much higher than DNB proposes. “For example due to future costs for sustainability or because of the risks that the foundation will have to be repaired. You also have to take those risks into account when you look at the housing costs of buyers. DNB does not take this into account. ”

What he wants to guard against, is that housing costs for buyers are now being increased, and then turn out to be too high when economic conditions change. “Interest rates are low now, but that stock has been artificially created by the policies of central banks worldwide. If you now radically change the tax system so that housing costs go up and interest rates rise again, you will cause homeowners to get into financial trouble. ”

DNB therefore received a lot of criticism of the proposal, which the regulator has consistently appointed for many years. In a blog at the end of last week, chief economist Olaf Sleijpen of DNB therefore summarizes what should be done in his opinion. Simply put, tackling the owner-occupied market must lead to a better functioning of the rental market. And yes, that phasing out the tax benefits for homeowners will hurt, he acknowledges. The trick is to spread the pain over time and take sufficient compensatory measures so that it remains bearable and does not lead to new disruptions.