Investors do not have a good reputation in the housing market. Purchase protection, compulsory self-occupancy, more transfer tax – all these recent measures are intended to tighten their grip on the housing market.
“Scarcity does not bring out the best in people,” said Minister Hugo de Jonge (Public Housing and Spatial Planning, CDA) recently, when he announced his plans to regulate the rental market more. He was referring to investors, who, according to him, charge “absurd prices” especially in the city. But is their grip on the market really that strong?
Rents have indeed risen enormously in recent years: from 2014 by 57 percent, according to figures from real estate association NVM. The average square meter price for a rental home is now 14.43 euros. Rents are highest in North Holland, around Amsterdam: an average of over 18 euros per square metre. But house prices rose much faster in the same period: a house has become almost twice as expensive.
Investors have no influence on the market price for a rental home, says Matthijs Korevaar, lecturer at Erasmus University and guest lecturer at Columbia Business School in New York. He conducts research into the Dutch housing market. “The rent is determined by the market: it is what the madman will pay for it. You cannot ask 2,400 euros per month for a house in Delfzijl, in Amsterdam you can. Nowhere does an investor have so many properties that he or she is a monopolist and can determine the price himself.” An investor is of course free to ask for less rent than the market price.
So, to what extent have investors contributed to the massive rise in house prices? In an analysis of the heating of the housing market, Statistics Netherlands cites several causes: a strong increase in the number of 25 to 35-year-olds (starters), the elderly who continue to live at home for longer, lower interest rates and higher incomes, but also the rise of private rental.
Multiple causes
According to Korevaar, this is therefore a difficult question to answer. For example, you need to know whether an investor pays more for the same home as an ‘ordinary’ buyer. “This could be the case if interest rates are very low,” he says. “In that case, an investor would rather have his money in pawns than in the bank, because rather a little return than no return at all. As a result, an investor may be willing to pay more for a home.” However, it is not known whether this has a major effect on the price. “I am now researching it and my hypothesis is that this effect on the total housing market is small. It may have more of an impact locally.”
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Investors are not the largest player in the rental market: they are housing associations. They own 2.3 million of the 3.4 million rental homes. Most of it is social rent. The remaining 1.1 million homes are in the hands of investors. So about a third.
And these are by no means all expensive homes. In fact, that share is quite small. In 2018, for which the most recent figures are available, institutional investors owned about 200,000 homes, 40 percent of which were social housing. Private investors, who sometimes have one, and sometimes hundreds of properties, had about 700,000 rental homes, 65 percent of which are social housing.
These figures should not be taken too literally, because there is no register containing all leases. But it is clear that deregulated rental housing is only a small part of the housing supply of investors. And most free rental properties fall under mid-term rent. In 2018 there were ‘only’ 110,000 expensive rental homes in the Netherlands.
These homes are mainly located in the four major cities and surrounding municipalities. The higher the pressure on the housing market, the higher the middle and expensive rent. For example, there is hardly any expensive rent in the north of the Netherlands.
In the Amsterdam region, on the other hand, eighty percent of rental properties in the free sector would now cost more than 1500 euros per month, reported Nul20.nl recently, one on housing policy and urban development. Here, De Jonge’s plans to regulate the rental market would have a far-reaching effect. Based on calculations by agency Rigo, the blog arrives at an average rent decrease of 700 euros.
Side Effects
“Due to Hugo de Jonge’s plans, some of the expensive rental homes will have to drop significantly in price,” says Hein Wegdam, head of ING’s real estate financing branch. “In the short term, that might be a nice profit. But in the long run, those homes will be sold by investors, because they make a loss on them. You will never get those homes back in the rental sector.”
Another option, he thinks, is for homes to be merged. A home is then allocated more points in the home valuation system, which determines the price of regulated rental homes. Investors may then charge a higher rent. “So you get fewer homes, instead of more. That is not how we solve the housing shortage.”
Another side effect, says associate professor Matthijs Korevaar, could be that prices in the private rental sector rise enormously. “If you regulate almost everything, the demand will grow: for a low rent, many more people would like to live in the center of Amsterdam. The homes that can still be distributed via the free market mechanism will become very expensive.” That was also seen in Berlin, he says. “There it was tried for a few years, and rents in Potsdam rose very fast. Because people have to go somewhere.”
A version of this article also appeared in the newspaper of June 4, 2022