“House prices to rise through shortages and low interest rates”

Press release -

According to ABN AMRO Group Economics, price increases for homes will slow down: having surged by 7% in 2019, prices will rise ‘only’ 4% in 2020.

ABN AMRO economist Philip Bokeloh explains, “The economy won’t offer the housing market the same amount of support this year. We predict that the GDP will grow by only 1%. Stricter rules for borrowing will also help slow down the rising prices. Although a second income now carries more weight, the amount that households can borrow based on their income has been limited.” According to Bokeloh, the shortage of available homes is another factor driving up house prices. “Buyers don’t have many options to choose from. Availability is very limited, particularly in the lower price segment.” Another factor that Bokeloh believes will contribute to the higher price is the mortgage interest, which is at an all-time low. “And if the US and European central banks lower their interest rates – as we expect them to – mortgage interest rates could drop even further.”

Stricter environmental rules interfering with transactions

Economic growth will be depressed as global trade slows down. At the same time, the economy is also suffering from stricter environmental requirements. The construction sector is particularly affected. Bokeloh continues, “The number of permits issued plummeted last year. This will lead to less new residential construction, putting the target of 75,000 new homes per year out of reach.” The lack of opportunities for existing homeowners to move to new homes will mean that fewer homes will be purchased. Bokeloh believes that the number of transactions will fall by 5% in 2020, which he suspects will also be reflected in the sustainability level of the available homes. “Moving house is an excellent opportunity for people to make large-scale home improvements.”

Prices rising fastest for new construction

Prices for new residential construction are rising significantly faster than prices for existing homes. During Q2 of 2019, prices rose by 16% year-on-year, compared with 7.2% for existing homes. One of the factors pushing up prices is the shortage of available homes. Despite a full order book, ABN AMRO Group Economics believes that output might drop during 2020. Further factors contributing to the more rapid price increases are the rise in construction costs and the changed composition of what homes are being built. More new homes are being built in regions that are suffering from shortages, where the average prices are higher, while at the same time the homes that are being built are on average larger than in the past.

Mortgage interest system to be overhauled?

The deductibility of mortgage interest is a topic that will not go away. The Dutch Ministry of Finance recently asked for reviews of the taxation of homeownership, with a particular focus on the changes since 2001. The reviews show that the vast number of changes has made it very complicated for people to comply with all the rules, in particular if their personal circumstances have undergone a major change; even professional advisers and the Dutch tax authorities have difficulty knowing what is what then. According to the reviewers, the only solution to these problems is to bring forward an overhaul of the tax benefits of homeownership. The present government has taken the findings from the reviews on board, but has announced that it will leave them for a later government to put into practice.

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