Dutch government tiptoes around housing market

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A house for sale

The Dutch government is shying away from sweeping measures to restructure the housing market, despite the European Commission’s urgent call to step up housing market reform. Only minor adjustments have made it into the government’s draft budget.

Government makes no major changes to housing market policy - a prudent choice that prevents renewed uncertainty.  Philip Bokeloh Philip Bokeloh Senior Economist

Cabinet ignores European Commission appeal

Housing market reform needs to stepped up, says the European Commission. In particular, the Commissioners want the deductibility of mortgage interest to be phased out more quickly. At the same time, they are urging the Netherlands to make rents in the social housing sector more income-dependent.

The Dutch government, however, is continuing to tread very carefully. Faster adjustments, in their view, can only be made if they can be offset by lower taxes in other areas. This should be part of a major overhaul of the tax system, the government says. But with three tax reform proposals now on the table produced by three different advisory committees in recent years, the government has still failed to reach agreement on this topic.

End to popular gift tax holiday

But neither is the government giving in to popular demand for a prolongation of the gift tax exemption it introduced this year. Under this temporary measure, people could receive a gift of up to 100,000 euros and pay no taxes over it, provided they used it to buy a house or pay down their mortgage. This widely welcomed measure has given the housing market a boost, but the government is confident that the measure does not need to be prolonged to ensure further recovery.

Support for home-owners with negative equity or double mortgages

The government prefers to use the available resources for more targeted policy. Over a million home-owners could be left with a residual debt if they were to sell their homes at this point in time. This is keeping people from moving house. The government wants to lower the threshold for this group by extending the period in which they can continue to deduct interest on their residual debt from ten to fifteen years. Moreover, the government is coming to the rescue of people with double mortgages by permanently extending from two to three years the period in which people moving house can deduct the interest of two mortgages.

Reduced VAT rate for home improvement extended

Finally, the government is encouraging home owners to improve their homes. The temporary reduction of the VAT rate on home improvement from 21% to 6% was supposed to run to year-end 2014, but the government has decided to prolong this measure for another six months. This should help maintain the quality of the housing stock, and at the same time generate some welcome extra employment. Building activity is starting to pick up somewhat, but is still far from pre-crisis levels.

This is how the government is keeping the housing market calm

The government is leaving existing housing market policy largely intact. With targeted measures, a few bottlenecks are being addressed, but no radical changes have been proposed. The idea behind this approach is to avoid renewed uncertainty in the housing market. That makes sense, all the more so given how fragile economic recovery still is. More drastic measures will have to wait until the economic situation improves.

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