ABN AMRO: ‘Housing shortage driving up prices even faster than previously thought’

Press release -

The housing shortage is continuing to drive up prices. Last August the average price of existing housing was 9.3% higher than in the same period last year, prompting ABN AMRO’s Group Economics to raise its house price estimates for 2018.

In the new Housing Market Monitor the bank's economists expect houses to become an average of 9% more expensive this year than in 2017. The economists also assume that the end of the price increases is not yet in sight, although they foresee a slight flattening of the upward trend.

According to Philip Bokeloh, economist at ABN AMRO, “The prices at the lower end of the market are rising fastest. Apart from first-time buyers, private investors are also interested in this segment. They have the advantage of having their own money available and being less dependent on loans. That means they can close deals quicker. In a tight market, you need to act fast and bid high to get a property. Private investors are making it increasingly difficult for first-time buyers to find affordable homes. To compound the problem, new-build homes for first-time buyers are also in short supply. During the crisis, new-build housing was largely targeted at this group. But the new houses now coming onto the market are mainly aimed at people moving up the property chain. So first-time buyers are being squeezed out. That’s worrying. With the property market increasingly beyond their reach, would-be first-time buyers are having to turn to rented housing. And the monthly costs of renting are often higher than buying.”

Municipalities cautious on project development

The country needs one million extra new-builds by the end of 2035, over half of which should be built by 2025. But labour and construction material shortages are making it difficult to step up the production of new housing. The lack of building land and the rising prices of plots are creating additional obstacles. Before the crisis, many municipalities invested in land for housing projects. But when land values dropped during the crisis, they had to make large write-downs on these investments. And this has now made them cautious about investing in land and preparing it for project developers.

Municipalities should be involved

As Bokeloh explains, "Whether the lack of municipal involvement will benefit house construction in the long term remains to be seen. You could get the same type of situation as in Britain, where project developers are clearly focused on land speculation, making them less productive. British builders often also seem to be more interested in future rises in the value of the land than in actually building homes. The situation there shows what can happen when you leave the acquisition and preparation of building land entirely up to market forces. And that’s why municipalities shouldn’t just to stay on the sidelines. On top of that, governments are better able to bear the financial risks involved than market parties.”

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