Housing associations are financially able to build at least 2,000 new mid-rental homes per year in the coming years, and potentially even 14,000 per year. That writes ING in a report published Thursday. The government aims to build 100,000 homes per year.
At the same time, that optimistic message comes with a big blow to the arm. There is a severe shortage of building land, land prices are high, and permit procedures for new construction projects can take years. Therefore, despite the better financial position of housing associations, it is still the question whether it is really possible to build enough mid-market rents in the coming years.
Of the total number of homes in the Netherlands (more than 8 million according to the CBS), 10 percent is a private sector rental home, about half of which is mid-range rent (with a monthly rent of between 752 and 1,000 euros). Of those nearly half a million homes, about a quarter are owned by corporations, the rest are owned by private individuals or institutional investors.
The demand for rental homes in the middle segment has been increasing for years, partly due to rising house prices and stricter financing standards. However, housing associations have started to build fewer and fewer homes for middle incomes. With the introduction of the Housing Act in 2015, the policy that housing associations should focus more on social rent for low incomes became the core task.
That entailed strict rules. For example, a market test had to assess whether, in addition to the housing associations, market parties were interested in the construction of these potential mid-rental homes. The test resulted in many delays for housing associations, making it less attractive to build mid-range rent.
45,000 shortfall in 2019
The housing market has become so overheated in recent years that it is increasingly difficult for people on both low and middle incomes to find affordable housing. Social rental housing sold by housing associations is rented out for hundreds of euros more per month in the hands of private or institutional investors. In 2019, the demand for mid-range rental homes was about 45,000 homes above the supply – a shortage of almost 11 percent. The scarcity for the entire housing market was 4 percent that year.
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In order to turn the tide, the previous cabinet already suspended the market test for several years at the beginning of 2021.
The suspension of the measure seems to be an important incentive for housing associations to focus more on the mid-market rent again. Last summer, housing associations already announced that they want to invest 2.5 billion euros in that segment for the period 2021-2025. That is 56 percent more than in the plans for the previous period (2020-2024). At least one in three housing associations says they want to expand their mid-rental activities.
ING writes that housing associations indicate several reasons for wanting to play a greater role in the mid-market rent. For example, two-thirds believe that ‘market parties in their area of work do not sufficiently respond to the demand from (lower) middle incomes’. The corporations are also feeling the pressure from politics.
It can also benefit corporations themselves. More mid-market rents should allow the flow from social rent to get going again. In addition, mid-market rent yields a higher return, which can be used for investments in social rent.
Large borrowing capacity
If housing associations use the maximum borrowing capacity for new construction in the mid-term rent, an additional 14.4 billion euros will be available – on top of the 2.5 billion euros in planned investments, ING writes. In the best case scenario, this means that around 14,000 homes can be built per year, more than the 10,000 per year that the housing associations will agree in 2021 with investors, developers and municipalities.
But a majority of housing associations say that acquiring building land is problematic, and they often lose out to investors.
“Corporations indicate that they can often only build in new locations in and around the centers of large cities if the municipality sells them the land below the market price,” the report said. In addition, obtaining permits from municipalities can often take years. This can cause problems because land may only be purchased if it is built on within five years.
According to ING, it would help if housing associations set up their own development companies again. A housing association is then less dependent on private companies, which means that the construction of medium-sized rents can start more quickly. According to the researchers, building up that expertise takes time, but can make it much easier to build mixed neighborhoods (with social, medium-sized and more expensive rental homes), for example. Housing associations could also collaborate more, which is already happening more often with social housing.
A version of this article also appeared in NRC on the morning of February 10, 2022