Municipalities lack financial means to realise government's newbuild ambitions
- Housing Market
Hans Sjouke Koopal
Sr Press Officer
House prices are likely to rise by 12.5% in 2021, and 5% in 2022
The number of transactions is slowing this year (-10%)
The housing market may enter gridlock due to sluggish pace of newbuild
House prices now exceed the previous peak (2008) by 6.5%
Given the continued increase in house prices and the strong economic recovery, ABN AMRO has made an upward revision to its housing market outlook. The bank's new forecast is a price rise of 12.5% this year, and another 5% in 2022. The old figures were 7.5% and 2.5% respectively. No changes are being made to the forecasted number of transactions in the housing market. The bank anticipates a decrease of 10% this year and 5% next year in the number of homes sold. Previously the housing market may have appeared to be cooling down as a result of Covid-19, but as it stands, all signs are pointing to an overheated market. The Dutch house price index was nearly 13% higher in May 2021 than in the same month last year, and adjusted for inflation, house prices now exceed the previous peak (2008) by 6.5%. ABN AMRO is publishing the full data today in the latest edition of its Housing Market Monitor.
Tight housing supply leads to a stagnating market
Despite the limited housing supply, transaction activity has remained lively. During the first five months of the year, 102,000 homes were bought, 10,000 more than over the same period in 2017 – which was a new all-time high at the time. ABN AMRO has identified two main underlying drivers: in January the property transfer tax was cut for starters up to 35 years old, and a limit of 400,000 euros was introduced on 1 April 2021. As a result, sales soared, and so did the average purchase price. In addition, the government's support measures resulted in solid economic recovery, and interest rates hit historical lows. Regardless, the bank anticipates a fall in the number of transactions as the housing supply dries up. Existing homeowners are restricted in their movement options, too, due to the sluggish pace of newbuild.
Construction of newbuild lags government ambitions
If the newbuild backlog is to be resolved, at least 900,000 new homes will have to be constructed over the next ten years. “The number of newbuild homes continues to lag due to strict regulation, sluggish decision-making and other factors. However, it appears that we have successfully determined where those houses are to be built, as the newest estimates indicate enough 'hard' planning capacity,” says Philip Bokeloh, Housing Market Economist at ABN AMRO. “What isn't clear is whether those assessments took climate change and related climate-proofing costs into account. As we become more certain about the locations of newbuild, it's time to move on to the next step: approving construction plans, granting permits, and developing the bare land. Municipalities do need the financial means to make it all happen, but they haven't been given access to those means yet. Over the past few years the national government has outsourced many tasks to municipalities, but no financial compensation was provided to cover the costs. If the government is to realise its housing market ambitions, they will need to create the necessary financial leeway at municipal level first.”