Amsterdam November 18, 2022 – We must continue to build housing. The low point of residential construction was during the credit crisis in 2013. Only 27,000 housing permits were granted that year. Almost a decade later, there is a major housing shortage in the Netherlands, partly due to the low housing production of the time. Alarmingly, therefore, CBS released figures this week showing that the number of permits has declined for three quarters in a row, reaching only 14,600 in the third quarter of 2022. Meeting Minister Hugo de Jonge's goal of building 900,000 new homes by 2030 will require twice as many homes each quarter as are currently licensed.
A survey of developers and investors reveals that there are many causes why new construction projects are delayed or fail. In particular, high land/ground lease prices, rising finance charges and construction costs, nitrogen, purchase or rental regulations, uncertainty about the Environment Act, and high parking standards. These are all factors that require high sales revenues to realize viable projects. Currently, sales prices are falling and economists expect this decline to continue in 2023 and 2024. New government policies should therefore only stimulate housing production in the coming period. The expiration of the landlord levy is a good example of this, but other policies are counterproductive.
Taxes
For example, the transfer tax goes from 2.0% to a whopping 10.4% in a short period of time. In an investor's calculation model, this means that more than 20% of the value of a property is paid in taxes. As a result, investors are diverting to other markets, where the tax rate is lower. This costs the industry potential buyers of much-needed housing. This also puts pressure on pension funds. ABP, the pension fund for government and education, has as much as EUR 41 billion (9% of total assets) invested in real estate.
Middle Rent
The introduction of a unified middle rental policy is a good thing. But The Hague has probably underestimated that uncertainty about the new rules of play has led to great unrest. For new construction, suddenly not only the municipal middle rental rules apply, but also the middle rental policy from the national government. Was the plan that a pension investor, who could potentially receive 10% less rent, would simply continue to pay the same price - required for a viable project - for the same newly built homes?
Do not adjust rules of the game in the interim
Policies must be predictable. It is disastrous for pension returns if, for example, rent growth is suddenly restricted or a "WOZ cap" is introduced. Future leasehold canon redemption as well as contributions to suburban facilities are often perceived as a large "black box," which is counterproductive.
Making new policies for new construction, at a time when the land value can be adjusted accordingly and the costs can be budgeted, is acceptable; breaking into an ongoing project does not improve feasibility or pace. Unless the municipality accepts that its land value or operating contribution will be used as a balancing item.
It becomes important that, now that municipalities may also allocate houses for sale up to the NHG limit based on economic or social bonding, projects do not slow down if no one living in the municipality wants to pay the required amount. The fact that individual municipalities must make their own elaboration in their municipal housing ordinances based on this Housing Act leads to differences at the municipal level. This does not benefit market transparency. While limited capacity at municipalities is already a delaying factor.
Rewarding new construction
The current WWS system lags behind sustainable reality. A house with an energy label A++++ gets no more rent points than a house with an A++ label, while a higher rent for sustainable houses makes sense. The win-win-win then is: the tenant has less consumption costs, the rent is increased and thus the sales revenue with which a house can be built.
Therefore: Let us cherish new construction projects and keep up the momentum. And let's think through new policies carefully to see if they contribute to our housing production goals as the development task becomes even more difficult. Policy at the service of our housing production!
