“You have to see it in the context of a bigger picture. Of course, you also have to do something about the supply side,” Van Rij said at the annual meeting of the IMF in Washington. According to the fund, many more houses must be urgently built to solve the severe housing shortage.
Martin Visser: left-wing abolition of interest deduction causes homeowners problems
The global organization for financial stability has been calling for an end to the Dutch mortgage interest deduction for years, because it would unnecessarily increase house prices and disrupt the balance with the rental market. Van Rij calls this a “distortion in the housing market”.
Since the beginning of this century, the mortgage interest deduction has been quite limited, both in duration and in amount. But in politics there was never a majority in favor of stopping it completely. This may be different this election, because several parties have abolition in their programme.
‘Shock effect’ of abolition of mortgage interest deduction
Van Rij, who was previously State Secretary for Finance, points out that parties have different views on the time allocated for this. According to him, that matters a lot. “Do you abolish it from one year to the next? No one proposes that. But then you will of course get a huge shock effect. Or do you say: I will abolish it over a period of thirty years?”
Two-thirds of starters hope to maintain mortgage interest deduction: ‘Housing market plays a major role in voting for party’
Former chief economist of De Nederlandsche Bank (DNB) Job Swank recently calculated in economists’ magazine ESB that an abrupt stop to mortgage interest deduction on new loans could cause a price drop of 30 percent in ten years. Existing homeowners would then be confronted with a significant decrease in wealth. But according to Van Rij, there is virtually no one in politics for that scenario.
“I think that if you do it gradually, the effects can never be that great,” he says. “And then the next question is: what do you do with that proceeds? Do you give it back in tax relief?” Van Rij points out that approximately 11 billion euros will be released. This can be used to reduce other taxes, so that the pain in monthly costs for homeowners can also be compensated in other ways.