25-5-2022 —
The ink on the new regulations as of May 1 is not yet dry or Housing Minister Hugo de Jonge comes up with the next (proposed) new regulations in his "Affordable Housing Program".
Currently there are 2 options in the rental sector, a house belongs in the social sector (basic rent < € 763.47) or in the free sector (basic rent > € 763.47). The plan is now to add a medium priced rental sector. Hugo de Jonge wants to achieve this by extending the points system to a rent between € 1,000.00 and € 1,250.00, which is still to be determined.
What does the proposed plan entail?
Since May 1, 2022, a house must have at least 142 points to be able to rent out in the free sector, of which up to 1/3 may come from the WOZ-value. If a house has 142 points or more, then a landlord may ask any rental price. Below that, you are stuck with the maximum rent that corresponds to the number of points. But if Hugo de Jonge's plan goes through, that will change. If the limit for medium priced rental properties is set at € 1,000.00, then this currently involves a minimum number of points of 188. If the limit is set at € 1,250.00, the requested number of points will even be 232. Only above that, a house would belong in the free sector if this plan is approved.
Desirable location versus shrinking region
The area of the house + the energy label + the WOZ value determine the majority of the points. In cities, houses are often relatively small and somewhat older and the energy label is usually not very good due to the year of construction. Outside the cities the houses are often a lot bigger because there is simply more space available. This means that the chance that a house outside the city, where far fewer people want to live than in cities, can continue to be rented in the free sector is many times greater than a house in the city. But it is precisely in the city that most people want to live.
As an example, we look at a property in a very desirable location in Amsterdam vs. a shrinking region.
Amsterdam canal belt:
WOZ value 2021 € 624.000
Apartment of 75 m2
Energy label D
Probably this property will even have too few points to rent in the medium priced rental market, so social sector = maximum € 763.47 basic rent.
This property is guaranteed to result in a loss-making operation for the landlord.
Shrinking region Valkenburg in Limburg (South-East of Holland):
WOZ value 2021 € 347,000
House of 175 m2
Energy label D
This house can be rented in the free sector without any upper limit to the rental price. But this house is located in a shrinking region, where more people are leaving than there are coming.
The consequences if Hugo de Jonge is allowed to go through with this plan
Leaving aside the absurdity of the plan whereby ca. 80-90% of rental properties will fall into the social or medium priced rental sector (de Jonge even wants to investigate whether it can also be introduced retroactively for current rental contracts), it seems to us that a sought-after region such as Amsterdam or Utrecht should not be judged the same as a shrinking region. No landlord in a sought-after region, who currently rents in the free sector, is going to rent out an expensive property in the social sector. Maybe some landlords, if they bought in the good times and have low costs, will rent out the property in the middle rent. But we consider the chances to be small. Most landlords will take the risk and keep renting in the free sector. Or they will sell their houses en masse.
More people will be competing for fewer houses
In itself, it's good for the selling market if investors would sell their properties. Perhaps that's even the idea behind the proposal; to "rid the rental market of those pesky investors" or at least to deter the wannabee property investors while boosting the buying market by dramatically increasing the supply.
But the supply of rental properties is already continuously declining. Before corona, there was an average of about 1850 homes for rent in Amsterdam on the biggest rental website Pararius. During corona this increased to 2650 homes and currently, for reasons that are unclear, there has been a very small supply of 700-750 rental homes for some time. In the meantime, companies are being stimulated with a.o. the 30% expat ruling to bring highly educated employees here, as well as universities and colleges that receive subsidies to bring international students here. In addition, more and more migrant workers are looking for a home, as well as asylum seekers. So more and more people are competing for fewer rental properties. And that drives up the price. No matter how hard the government tries to regulate it.
Only a greater supply can ensure that rents go down. And the government, in combination with investors, will have to ensure this by building far more new houses than at this moment. But it is precisely those investors who are driven away by constantly changing regulations and uncertainty created by Dutch government.
Higher costs, negative returns
Of course it would be better for everyone if the Dutch housing market normalized and thus became more affordable for more people. But you don't need to have a Master's degree to understand that this proposed regulation would completely destroy the rental sector. And with it the competitive position of the Netherlands. Because ultimately companies only settle where their employees also have the opportunity to live.
Moreover, a landlord does not rent for fun, but for profit. With this plan, landlords will still have high costs (Amsterdam will once again significantly increase the costs of home owners!), but at the same time a negative return.
The House of Representatives still has to approve the plan
Hugo de Jonge's intention is to introduce this plan in or after 2024. Even though he presents it as a fait accompli, the plan still has to be approved by the House of Representatives. There is already so much commotion from all sorts of market parties about the plan, that we expect that they will not go along with it. Or, as befits the Netherlands, with all sorts of exceptions.
Build a million homes?
Hugo de Jonge also has a plan to build an additional one million homes in the coming years. However, that plan seems to have gotten no further than the drawing board and the objective is already doomed to fail. Indeed, 13% fewer building permits have been issued in the 1st quarter of 2022 than in the same period in 2021. Perhaps De Jonge should put some more pressure on this instead of yet another regulation of the rental market. Because: the more supply of rental homes, the lower the rental prices. Then there would be no need to regulate at all, but the market would regulate itself. Two birds with one stone!
Government becomes unreliable as a partner with rigorous proposals like these
And by continually coming up with radical changing legislation, the Dutch government also becomes unreliable as a partner for investors. Who, no matter how annoying you find them, are really needed to build the new homes that are necessary. As a result, even less rental houses will be built instead of more. The free sector market in the Netherlands is already many times smaller than in our surrounding countries. And it will become much smaller if it is up to De Jonge.
In short, Dutch government, take a serious look at building many more homes without all kinds of restrictive rules, take a closer look at the influx of people in the Netherlands and the current distribution of housing, and then consider whether regulation is still necessary.
Fully furnished
110m²
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