Group Economics
Housing Market Monitor
Philip Bokeloh 020 38 32 657
Madeline Buijs 020 38 38 201
Housing market recovery continues
8 October 2014
•
Improving housing market: greater confidence, more transactions and higher prices
•
Despite growth in mortgage origination, outstanding mortgage debt is falling due to increased repayments
•
Government is maintaining calm in the market by adhering to previously agreed pace of reform
Home buying is back! The situation in the Dutch housing
market is clearly on the mend. Interest among prospective
buyers is growing now that homeowners have more certainty
about the government’s housing market policy and can benefit
from sharply lower mortgage rates. Meanwhile, substantial rent
increases are making the rental segment less attractive, while
temporary incentives such as the expanded gift tax exemption
are giving an extra impulse to the demand for owner-occupied
housing. The revived interest is reflected in the higher number
of transactions, and prices are also on the up.
Rising number of transactions
Buyers are flocking back into the housing market. In the first
eight months of this year, just under 90,000 existing homes
changed hands, almost 40% more than in 2013. This is also
the highest number of transactions for the first eight months
since the onset of the economic crisis. New-build sales are on
the rise as well, with over 12,000 new-build homes sold in the
first seven months of 2014. That is 50% more than in the same
period of 2013, but still less than in the years preceding 2013.
More affordable housing thanks to low interest rates
According to ABN AMRO, a further recovery of the housing
market is likely next year. But only if the wider economic
recovery takes hold and the government’s housing market
policy includes no unpleasant surprises. As regards the first
condition, we think that economic growth will be slightly higher
in 2015 compared to this year. The second condition is
surrounded by greater uncertainty. The housing market
measures announced on Budget Day will not hamper the
recovery, but the outcomes of the tax reform negotiations and
their impact on the housing market are still uncertain.
Net housing costs as % of net income
40
30
20
10
0
95
Confidence is growing
The Dutch are regaining confidence in the housing market.
The Market Indicator of the Homeowners’ Association (VEH)
has been climbing for 21 months in a row, reaching in
September its highest level since the start of the series in April
2004. Households are clearly more confident about future price
trends. In September 2014, a majority of 53% expected prices
to rise, as opposed to only 17% in September 2013.
One confidence-bolstering factor is the greater affordability of
housing. The Calcasa indicator, which compares net housing
costs against net income, is a good measure in this respect.
This indicator is now at its lowest level since the series started,
signalling that owner-occupied properties are currently very
affordable. The improvement is mainly due to the sharp fall in
mortgage interest rates, which was aided by the extremely low
capital market rates and the ECB´s interest rate policy.
Another reason is the significantly lower house prices. Note,
however, that the Calcasa calculation of net housing costs
does not consider mortgage repayments. As interest-only
mortgages have fallen out of favour, actual housing costs are
higher than the amount calculated by Calcasa.
00
05
10
15
Affordability indicator
Source: Calcasa
Zooming further into the market for existing houses, we see
that the transaction recovery is broadly-based. All types of
housing are benefiting, though the number of transactions
involving terraced houses (excluding end-of-terrace properties)
and detached houses showed the strongest growth in the past
year. While the market is improving in all provinces, the
acceleration in the number of transactions is particularly strong
in the regions and cities with robust economic dynamics.
The improvement is also in evidence across all price
categories, though the most salient rise can be seen in the
more expensive segments, which suffered the most from the
crisis. This is an initial indication of growing upward mobility in
the property market. Further support for this assumption is
provided by the slight growth in the share of the 35-45 age
category in the total number of transactions and in the cautious
fall in the share of the under-25 category.
2
Housing Market Monitor - 8 October 2014
Though more houses are being offered for sale, the stock of
houses on the market is shrinking. In August, the total number
of houses for sale was 207,000, which is 21,000 less than in
the same month a year ago. Clearly, the number of houses
being sold is greater than the number of houses being put on
the market. Given the current transaction volume, it would
theoretically take eighteen months before the entire stock of
houses for sale has changed owners. That is seven months
shorter than in August last year. Selling times are shortest in
the provinces of Utrecht, Noord-Holland and Zuid-Holland and
longest in Drenthe, Groningen and Friesland. However, the
selling times of individual properties can vary widely: according
to Calcasa, 60,000 houses have been on the market for more
than three years.
Higher mortgage origination
The recovery of the housing market is fuelling mortgage
origination. According to the Land Registry, 187,000
mortgages were sold in the twelve months until the end of
August, 40,000 more than in the twelve months until the end of
November 2013 when the market reached a low point. The
average mortgage amount is also rising, albeit very cautiously:
from EUR 244,000 in the twelve months until the end of
November last year to EUR 246,000 in the twelve months until
the end of August. Thanks to the price and volume increase,
new mortgage lending surged from EUR 32bn to EUR 40bn in
this period.
Mortgage debt is falling due to repayments
EUR bln
Prices are rising
If the asking price is attractive, the property is usually sold
faster and ultimately often for a higher price. The average
asking price in August was EUR 297,000, down EUR 4,000 on
the same month a year earlier. As the average selling price
has meanwhile risen by EUR 10,000 to EUR 225,000, the
difference between the average asking and selling price has
narrowed markedly since August last year. This convergence
is making it easier for buyers and sellers to reach agreement.
680
80
670
70
660
60
650
50
640
40
630
30
10
Though the average asking price is falling, the average price
level is rising. Since hitting a low in June 2013, the CBS/Land
Registry Index for existing homes has risen by more than 3%.
The price level is now 19% instead of 21% below the peak of
August 2008. The price index is currently at the May 2003
level. In line with the number of transactions, the best price
performance is witnessed in the most economically dynamic
regions: the Randstad conurbation is leading the way, while
the provinces of Groningen, Drenthe and Zeeland are lagging
somewhat behind.
The housing associations are dampening the price increase to
some extent. Traditionally, housing associations sell a small
portion of their housing stock every year. Due to the slump in
the housing market, the share of housing associations in total
sales has increased and stood at 12% of the transactions in
2012. As the total number of transactions is rising, this
percentage will probably fall again. Housing association
properties are often put on the market at a discount. Research
by the Amsterdam School of Real Estate shows that prices for
housing association properties are, on average, 6.5% lower
than going market prices for properties of equivalent quality.
The lower price also has a negative effect on transaction
prices for nearby homes, but less than might be expected. This
is probably because housing association properties fall within
the lower price categories and cater to a different market
segment than the mainstream owner-occupied segment.
11
12
13
Outstanding mortgage debt (lhs)
14
Mortgage origination (rhs)
Source: Land Registry & Statistics Netherlands
The growth in new mortgage lending is also reflected in the
number of applications for mortgage quotes at Hypotheek Data
Network (HDN), a mortgage organisation whose members
include most mortgage lenders. In the first eight months of this
year, almost 128,000 mortgage applications were sent via
HDN, up 45% compared to last year. The HDN statistics
confirm the expanding share of annuity mortgages. Another
clear trend is the growing market share of new mortgage
lenders funded by insurers and pension funds. They are mainly
active in the segment with longer fixed-rate periods and low
loan-to-value (LTV) mortgages. A final conclusion from the
HDN data is that the popularity of mortgages with an LTV
above 100% is diminishing as more buyers are opting to make
down payments on their home.
In line with the growth in new mortgage lending, the number of
guarantees issued by the Homeownership Guarantee Fund
(WEW) is also rising. In the period up to the third quarter, more
than 83,000 households took out a mortgage with a National
Mortgage Guarantee (NHG), up 10% on the same period last
year. The total number of outstanding WEW guarantees is now
1,144,000, totalling EUR 171bn. Almost 3,600 households
have made use of the guarantee this year, 5% more than in
the same period last year. The number of households invoking
the NHG guarantee is growing less quickly, but the average
paid-out loss compensation remained stable at EUR 39,000.
3
Housing Market Monitor - 8 October 2014
Despite the growing volume of new mortgage lending, the
outstanding mortgage debt is shrinking. Data from Statistics
Netherlands (CBS) show that outstanding mortgages in June
totalled EUR 660bn, down EUR 8bn on June 2013. The main
explanation is the increase in repayments. Homeowners
whose property is under water are making repayments in order
to reduce negative equity. In addition, the government has
temporarily expanded the gift tax exemption in an effort to
encourage mortgage debt reduction. A further factor is that
most new mortgages are annuity-based instead of interestonly. Finally, the low savings rates make it more attractive for
some homeowners to repay their mortgage loan rather than
save, even though this reduces their mortgage tax relief and
their financial buffer against setbacks.
Sharp growth in group at risk of residual debt
Households in millions and mortgage debt as % of home value
5
4
3
2
1
0
06
No debt
07
08
0 - 0.25
09
0.25 - 0.75
10
11
0.75 - 1.00
12
13
1 or higher
Source: Statistics Netherlands
Pace of reforms remains unchanged
The cabinet is continuing to reform the housing market at the
agreed pace. On Budget Day it confirmed that mortgage
interest relief for the highest tax bracket would be reduced by
half a percentage point to 51% on 1 January 2015. From that
date, the maximum mortgage amount will also be capped at
3% instead of 4% above the collateral value. Finally, with effect
from 1 July 2015, the upper limit for the National Mortgage
Guarantee will be lowered by EUR 20,000 to EUR 245,000. All
these reforms are in line with the previously announced plans.
In adhering to the agreed pace of reform, the cabinet is
ignoring the recommendation of the European Commission to
accelerate the housing market reforms as soon as the
economic climate improves sufficiently. Brussels is particularly
keen to see a faster restriction of mortgage interest relief.
However, the cabinet has not complied with this wish and
rightly so, in our view. The recession may be behind us, but
GDP growth is still far from robust, and confidence in the
housing market remains fragile. Fresh adjustments could
easily disturb the newly-gained calm.
This is not to say that a faster restriction of mortgage interest
relief is definitely off the agenda. An unexpectedly strong
upturn in the economy and the housing market could still
prompt the cabinet to change its mind. But we do not consider
this a high probability.
The future of the tax system is less clear. If the cabinet has its
way, radical changes are ahead. The aim is to simplify the tax
system and cut income tax rates in order to stimulate
employment. However, lowering the income tax rates will not
be possible unless the government drastically scales back the
existing tax benefits. Against this backdrop it is uncertain
whether mortgage interest relief, which is the most important
tax benefit, can escape further adjustments.
The idea of setting up a National Mortgage Institution has not
yet been completely abandoned. Evidently, the cabinet is still
discussing this option with the European Commission. Last
year, plans were announced to set up an institution that would
package NHG-guaranteed mortgages and then sell them
under government guarantee to investors. This would give
foreign investors better access to the Dutch mortgage market
and make mortgage funding less sensitive to the whims of the
capital market in times of crisis. However, forming such an
institution has proven to be more difficult than previously
thought: it must comply with European state aid rules and its
creation must not result in a higher public debt. Given these
start-up obstacles, we doubt whether the National Mortgage
Institution will ever become a reality.
Several additional measures
On Budget Day the cabinet announced a limited number of
additional measures aimed at removing specific bottlenecks.
One example is the measure to help a large group of
homeowners who are having trouble moving up the property
ladder. Due to the price decline of the past years, 1.4 million
homeowners are facing the risk of residual debt when they sell
their homes. The government wants to help this group. To this
end, starting next year interest on residual debts will be eligible
for tax relief for fifteen instead of ten years. This arrangement,
incidentally, is only available for residual debts incurred in the
period from 29 October 2012 until the end of 2017.
The cabinet seeks to encourage mobility in the owneroccupied segment by alleviating the burden of double housing
costs. During the crisis, the period during which homeowners
were allowed to deduct mortgage interest for both their new
and former home was temporarily extended from two to three
years. This facility has now been made permanent. It is a
sympathetic gesture towards homeowners who are having
difficulty selling their property, as it will reduce their costs.
However, it may also make this group less inclined to lower
their asking price to accelerate the sale of their home.
4
Housing Market Monitor - 8 October 2014
Despite all the adjustments, some homeowners are still
struggling to move to a more suitable home. In such cases, the
only way they can meet their changing housing requirements is
by making improvements to their current home. The
possibilities for this have been expanded. For instance, from 1
November homeowners are allowed to expand their house by
four metres without a permit. The former limit was two and a
half metres. The new rules are a precursor of the Planning and
Environment Act (Omgevingswet). This new Act will replace
twenty-four separate acts and should ultimately lead to lower
administrative costs.
Homeowners can also benefit a little longer from the
temporarily reduced VAT rate on renovations (6% instead of
21%). This reduction was initially to end on 1 January 2015,
but has now been extended to the middle of next year in an
effort to boost activity in the still-struggling construction
industry. A further reason for the measure is to safeguard the
quality of the housing stock in difficult economic times. The
reduced VAT rate makes it more attractive for homeowners to
invest in home maintenance.
End of temporarily expanded gift tax exemption
The cabinet has decided against a further extension of the
temporarily expanded gift tax exemption. Until the end of this
year, gifts up to one hundred thousand euros are tax free, on
condition that the money is used to buy a home or reduce a
mortgage debt. This measure will be withdrawn with effect
from next year, which will bring the tax exemption for gifts back
down to around EUR 53,000. The measure has proved much
more popular than anticipated. The government had originally
counted on 20,000 gifts for the period from 1 October 2013 to
31 December 2014, but the tax department has already
received around 50,000 tax returns claiming the exemption.
Given the great popularity of the measure, various civil society
organisations urged the cabinet to extend the expanded
exemption. But the cabinet has decided against this, as a
further extension might disturb the market. Moreover, the
government prefers to use the available financial resources to
support specific target groups, such as households with
potential residual debt.
The cabinet is also sticking to its policy course regarding the
rental segment. Income-dependent rent increases are intended
to discourage people from living in social housing that is too
cheap relative to their income. According to the latest CBS
data, average rents are now just over 9% higher than before
rent increases were made income-dependent. Social housing
in particular has become more expensive. The government is
creaming off the higher rental income via the landlord levy,
with revenue from the measure rising in the coming year to
EUR 1.3bn.
Higher rents due to income-dependent adjustments
Percentage of annual rent increase
9
6
3
0
80
85
90
95
00
05
10
15
Source: Statistics Netherlands
As promised, there will be more scope for private investment in
housing in the private rental segment. The private sector rental
threshold will be frozen for three years to give investors greater
certainty and enable the private segment to grow.
Furthermore, housing associations must shift their focus
towards housing for lower-income households. The financial
supervision of the housing associations is also to be tightened
up and will be placed under ministerial responsibility. Whether
the latter is a wise move remains to be seen. During the
evaluation of failing supervision in the healthcare sector, one of
the points of criticism concerned the ministry’s excessive
interference with the healthcare authority. Practice shows that
independence is crucial in enabling the supervisor to do an
effective job.
To build or not to build?
The number of orders received by architects to build homes
has been on the rise for four successive quarters. The
economic barometer survey of the Economic Institute for the
Construction Industry confirms that residential orders are
increasing. And the rise in the number of new-build permits
also points to renewed activity in the residential sector.
Nevertheless, the number of new-build completions will not
rise significantly in the coming years as the improvement in the
aforementioned leading indicators is still too modest.
Moreover, given the long average construction time, it will be a
while before new-build completions start rising again.
Fortunately, however, limited growth in the number of homes
need not be a problem, according to the PBL Netherlands
Environmental Assessment Agency. The PBL asserts that
demand for housing is currently at a peak in the Netherlands,
but that this will flag in ten to twenty years’ time due to the
ageing population. Instead of releasing more land for
construction, the PBL advocates converting vacant office and
retail buildings into residential units and adjusting existing
houses to changing needs.
5
Housing Market Monitor - 8 October 2014
Forecasts
In light of the above developments, we see no reason to make
any radical changes to our outlook for the housing market.
After a series of bad years, confidence is starting to return. The
improved sentiment will boost home sales. Given the higherthan-expected increase in transactions over the first eight
months, we have raised our growth forecast for 2014 from 25%
to 30%. If the imminent termination of the expanded gift tax
exemption triggers an end-of-year rush for properties, this
percentage could be even higher.
The increase in the number of transactions next year will be
less pronounced due to the lower gift tax exemption, the
smaller funding pot for first-time buyer home loans and the fact
that the pent-up demand has already partly been satisfied. We
are counting on an increase of 5%, bringing the number of
transactions to around 150,000. That is quite reasonable,
though still a long way off the pre-crisis level. It will, in fact, be
some time before that level is reached again. Potential residual
debt remains a concern, even though the longer tax relief
period for interest on residual debts will make people less
fearful of moving house. In addition, the ongoing population
ageing will also dampen the number of house removals.
We are leaving our price forecasts at 1% for this year and 2%
for 2015. The low interest rates, combined with the cautious
economic recovery, underlie this expectation. A much higher
price increase is less likely in our opinion. After all, there are
still large numbers of properties on the market and the
continuing restriction on the maximum mortgage amount will
keep prices in check. Given the slow price recovery, it will be a
long time before the problem of negative home equity is
definitely behind us.
Price and transaction estimates
Transactions (% yoy)
Prices (% yoy)
2013
-6.1
-6.6
2014
30
1
2015
5
2
Source: Group Economics
6
Housing Market Monitor - 8 October 2014
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