Buy or rent? The housing situation of 1.8 million households in the Netherlands does not match their preferences. This means they currently rent their home but would prefer to buy, or own a home but would prefer to rent.Read more
Higher mortgage rates have caused house prices to fall. Nevertheless, first-time buyers still find it difficult to buy a home. Waiting lists in the social housing sector are long. Rental properties in the private sector are scarce and often expensive. DNB examines these and other problems in the Dutch housing market and proposes solutions.
Housing market cooling down
House prices rose steeply until mid-2022. This was mainly driven by low interest rates combined with generous mortgage loan standards, which allowed people to borrow money cheaply.
Mortgage rates have been rising since 2022. Combined with a slumping economic outlook, this has caused the housing market to cool since the summer of 2022.
Compared to the peak in 2022, house prices have dropped significantly. Houses are on the market for longer and buyers have a somewhat wider choice of properties as a result. Overbidding is happening less frequently and the amount overbid is also lower.
House prices fall, interest rates rise
The blue line shows house price trends; the orange line shows mortgage rates in percentages
© Statistics Netherlands, DNB
First-time buyers are still struggling to find a home
In the Netherlands, there are not enough houses for everyone. And housing is expensive for many people looking for a property such as first-time buyers, low- and middle-income earners and single people. Housing costs are particularly high in the Randstad region. This remains true even though house prices have fallen. If you take out a mortgage now, the higher interest rates mean your monthly payments will also be higher. This has a negative impact on housing affordability in the short term. Moreover, households' budgets are tighter due to higher energy prices and inflation. As a result, it remains difficult for many first-time buyers to find a property.
For most homeowners, monthly costs remain the same for now
Homeowners may face higher monthly costs when their fixed-interest period expires. While interest rates were still low, many households chose to fix the interest rate for a long time, more than 15 years on average, when taking out a new mortgage. . That means there is a very large group for whom the rise in interest rates is less of a problem for the time being. But there is also a group that will have to deal with higher monthly costs.
Fewer houses under water
A fall in house prices is bad news for homeowners looking to sell their homes. If prices continue to fall, the value of a house may at some point become lower than the mortgage debt. The house is then “under water”. This is a problem when you want to sell your house: the proceeds from the sale will not be enough to pay off the mortgage and you will be left with a residual debt. A fall in house prices is always a risk for homeowners. At the lowest point of the 2013 housing market crisis, 3 in 10 homes were under water. If prices fell 20% now, 1 in 12 homeowners would be left with residual debt when selling their home. In many cases, these are first-time buyers who have borrowed heavily to buy their homes. Having a home that is under water is not only problematic for homeowners, but also bad for the economy. This is because if your home is under water, you will generally have less money to spend, and that slows down the economy.
Expected house price developments
Every six months we publish our outlook for the economy, including for house price developments. In June 2023, we expected the prices of owner-occupied houses to fall by 5% in 2023.
Solutions for the housing market
We have made a number of proposals to solve the problems in the Dutch housing market, and we list the most important ones below.
More new construction
In the coming years, many new homes will have to be built. and the central government should play a coordinating role in the process. In particular, more affordable rental housing in the non-subsidised sector is needed. This will offer an alternative to those entering the housing market and not yet able to buy, giving them the opportunity to save toward the purchase of a home in due course without having to take on huge debts.
Reduce tax benefits for homeowners
There is a big difference between buyers and renters. People who own their home often have much lower housing costs than people who rent in the private sector due to tax benefits. We advise the government to further phase out financial benefits for homeowners. For example, by moving home equity from Box 1 to Box 3 for income tax purposes, or by incrementally increasing the notional rental value of a property. The government could then use the resulting revenues to lower income tax, for example. Of course, these tax benefits should be phased out gradually, so homeowners do not suddenly face higher costs.
Tighten mortgage lending standards
In the Netherlands, we have high mortgage debts compared to other countries. Here, you can take out a mortgage up to 100% of the home's value. Moreover, the government makes it financially attractive to borrow money to buy a house. This means that many Dutch households have high mortgage debt, which makes them financially vulnerable. Indeed, if house prices fall sharply, homes may go under water. High mortgage debt also leads to high volatility in our economy. We recommend gradually reducing the maximum mortgage from 100% to 90% of the house price.
No measures that increase spending capacity.
The government has taken several measures that allow first-time buyers in particular to make higher bids. Examples include the more widely available special loans and the abolition of transfer tax for first-time buyers. These measures are well-intentioned, but they actually lead to even higher house prices in the longer term. If you have more money to spend on a house, you can pay a higher price. And if more people do so, housing prices will rise further.
Why does DNB involve itself with the housing market?
As an independent economic adviser, we at DNB study socio-economic developments in the Netherlands. The housing market is beset by major challenges, and we wish to contribute to structural solutions. With an impartial perspective and focused on the somewhat longer term. We advise the government: we make it clear what problems we see, what options are available to address them and what the consequences of certain choices will be.
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