The Dutch residential real estate market became highly financialized over the last years. Regulatory changes and new collaborations between public and private parties characterise the market orientation in the Dutch governance of housing production.

Housing associations were forced to focus on their core task, social housing, since the amendment of the Woningwet 2015. New socio-economic trends, such as increasing flexibility of the Dutch labour market and less popularity of home-ownership, is increasing the demand for a deregulated rent-housing sector. Rentals in the deregulated rent-housing sector almost doubled over de last 10 years. Institutional investors became the most important actor in the deregulated rent-housing sector. Institutional investors are real estate enterprises that manage extensive real estate portfolios. They manage these extensive portfolios for pension funds, insurance companies, and commercial banks for the long term.

Widespread disagreement between Dutch housing politics and institutional investors

Currently, the position of institutional investors in the Dutch residential real estate market has been questioned by some councils in the major cities. The councils in the major cities argue that institutional investors only realize expensive rent in the deregulated rent-housing housing sector, which starts at a minimum of €850, much above the boundary of regulated housing (€720). On the other hand, institutional investors argue that they bridge the regulated housing market and owner-occupied housing.

Local governments are completely dependent on institutional investors with regard to housing production in the deregulated rent-housing sector

As a result of the amendment of the housing act in 2015, housing associations were forced to focus on their core task, which is social housing in the regulated rent-housing sector. Institutional investors became the most important actor in the deregulated rent-housing sector. Local governments in the major cities have high ambitions to add housing in the deregulated rent-housing sector as a result of increasing demand, but they do not have the ability to finance it. Therefore, local governments are completely dependent on institutional investors with regard to housing production in the deregulated rent-housing sector. The figure below visualizes the investment volumes of the most important institutional investors in the Netherlands.

Figure: Investment volumes of the most dominant Dutch institutional investors. Source: Savills Research.

Mismatch between strict local housing regulations and investment interests of institutional investors

The councils in the major cities argue that institutional investors only realize expensive rent in the deregulated rent-housing housing sector, which starts at a minimum of €850. The gap between the social housing sector (€720) – and €850 is not fulfilled if institutional investors only realize housing above €850. In order to prevent excessive rent increases, some municipalities such as Amsterdam are thinking to implement the emergency button. The emergency button is a policy instrument of local governments where they think they can stop excessive increases in rental prices.  The implementation of the so-called emergency button will result in a substantial decrease of new construction in housing, a mismatch between local policies, and housing production. In addition, institutional investors would move to alternative locations outside the Netherlands or other investment classes. An appropriate public-private collaboration can help to realize both objectives. Additionally, there are no similar parties in the Dutch rental market which can take over the role of institutional investors. Housing associations focus only on social housing, because of the amendment of the “Woningwet”, so they are out. The mismatch between strict local housing regulations and investment interests of institutional investors causes irritation among institutional investors, slows down housing production, increases housing shortage in the long run and finally, it does not enhance housing affordability.

Delta Plan Dutch Housing

The underlying reasons for the mismatch between housing policies and housing production are the lack of planning capacity and slow spatial planning which makes housing scarce. The lack of planning capacity in the Randstad makes ground scarce and therefore extremely expensive. The increasing urbanisation in the Randstad results in housing shortages. Moreover, there has been a restrictive policy regarding new housing developments in the last couple of years. Overall, the mismatch between supply and demand in housing is worrying.

In order to counter this mismatch, municipalities should increase their planning capacity and lower their ground prices in order to enhance housing production. A Delta plan should address this mismatch. An overarching organisation consisting of provinces, municipalities, institutional investors, and developers focuses on housing production. The national government should designate specific urban development areas in the Randstad, determine reasonable ground prices for project developers, and choose stakeholders (i.e. institutional investors) which can speed up the process of urban development. This approach is favourable for institutional investors, governments, and residents. Housing shortage could be reduced and returns on investments for institutional investors would not be damaged by restrictive policies.

— By Scato de Smit