## 1. Demographic Trends and Housing Valuations ## Source details **Canonical URL:** [1. Demographic Trends and Housing Valuations](https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023023.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023023.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023023.pdf.json) --- ### Key findings on demand, prices, and valuations - After a trough in mid-2013, house prices in the Netherlands have nearly doubled and exceeded their pre-global-financial-crisis peak by more than half. - Model-based estimates indicate an overvaluation of 14 percent in 2022:Q2. - Price-to-income ratios have risen by more than 50 percent since 2015. - Demand drivers: - Net migration and the formation of new—and smaller—households grew at relatively robust rates over the past decade. - Mortgage interest rates declined toward historic lows and borrowing conditions remained advantageous (e.g., generous loan-to-value limits and existence of interest-only mortgages). - Housing valuations in the Netherlands are among the highest in the euro area. ### Government policy responses enacted (summary) - Mortgage market and prudential measures: - Since January 1, 2013: legally binding rule that only up to half of a property’s market value can be financed with interest-only mortgages. - Progressive tightening of loan-to-value ratios to a 100 percent maximum by 2018. - Introduction of a framework for evaluating the debt-service-to-income burden of households. - January 2022: Dutch central bank introduced minimum risk weights for mortgage loans. - Taxation and transaction measures: - Limits to mortgage interest tax deductibility to amortizing contracts of up to a 30-year maturity and gradual reduction in the applicable rate for higher income households. - Differentiation since 2021 of taxes for real estate transactions between first-time buyers, buyers of second/following homes, and investors in buy-to-let real estate. - Gift tax exemptions in place since 2022 for the purchase of the beneficiary's own home (noting later adjustments explained elsewhere in the chapter). - Social housing and rent control: - Large social housing stock and an extensive system of rent control to contain rental expenses for households unable or unwilling to purchase. ### Observed effects and trade-offs - Some prudential and tax measures reduced attractiveness of debt-financed owner-occupation and may have helped curb demand and prices. - Other tax changes since 2021 may have opposite effects (e.g., differentiated transaction taxes and gift tax exemptions). - Measures primarily targeted macro-financial risks but may have also constrained mortgage size and availability, moderating price increases. ### Tenant structure, rent regulation, and access - Rental market classification and regulation: - Rental dwellings are ranked via an elaborate points system considering market value, size, amenities, energy efficiency. - Homes below a certain point threshold are attributed to the rent-controlled (social) sector. - Monthly rents capped at a maximum amount for rent-controlled sector. - Annual rent increases limited to wage growth agreed in collective labor agreements minus 0.5 percent. - For existing tenants, free-market rentals are subject to the same strictures; new occupants can be offered free-market rents without constraints (with temporary restrictions in force 2021–2024). - Scope and providers: - Regulated rentals constitute about three quarters of all rental properties. - Non-profit housing associations account for nearly four fifths of the supply of rent-controlled dwellings. - Eligibility and mandates: - Housing associations have a public service mandate and benefit from a state borrowing guarantee and preferential municipal land access. - In 2023, housing associations must allocate at least 92.5 percent of their rental property supply to households with annual income less than € 44,035 (single-person) and € 48,625 (multi-person); the remainder may be allocated above these thresholds. - Additional tenant support: - For low-income tenants with limited assets, a monthly allowance to subsidize rental payments is available. - Specific regulatory and numeric details: - For 2023, the maximum monthly rent in the rent-controlled sector was set at €808.06. - With planned broadening of the points system, about 96 percent of rental properties will be subject to rent control. - From May 1, 2021 to May 1, 2024, government imposed restrictions on permissible rent increases for free-market rentals: initially inflation plus 1 percent (matching rent-controlled rule) and replaced from 2023 with wage increase plus 1 percent if wage developments remain below inflation. ### Tax treatment and owner-occupier incentives - Tax status and lending norms: - Owner-occupied housing is taxed in Box 1 with taxation of imputed rent at a comparatively low level; mortgage interest tax relief remains more generous relative to taxation of other savings/investments in Box 3. - Loan-to-value limits at 100 percent (among the highest in the euro area). - Half of a home loan can be financed with an interest-only mortgage; tax advantages for interest-only were abolished in 2013 (non-amortizing mortgages originated before 2013 remain tax-deductible). - Recent numeric changes: - Mortgage interest deductibility reduced from 52 percent in 2018 to 37 percent by 2023. - Imputed rents' share of a property’s value declined from 0.70 to 0.35 percent as prices outpaced rents. - Transaction and gift tax provisions: - Government waived the 2 percent transaction tax for first-time buyers of a home with value up to €400,000 aged 18–35 (noting subsequent changes described elsewhere). - Tax exemption for gifts up to €106,671 for recipients aged 18–40 if proceeds are used for purchase/renovation of owner-occupied home (noting later amendment dates referenced elsewhere in the chapter). ### Housing affordability, distributional impacts, and fiscal costs - Affordability and burdens: - Share of disposable income allocated to housing is comparatively high for Dutch households. - Renters face much steeper costs than the euro area median; owners with a mortgage have seen burdens follow the median euro area decline. - Rental expenditure as a share of total household consumption is elevated: third highest share for actual rentals and seventh highest for imputed rentals in the euro area context. - Distributional data (owners with mortgage): - 2010: housing cost burdens ranged from 15 percent of disposable income for top quintile to 24 percent for bottom quintile. - 2020: compressed to a 12–15 percent span. - Distributional data (renters): - 2010: renters spent between 14 percent (top quintile) and 32 percent (bottom quintile). - 2020: renters spent between 17 percent (top quintile) and 36 percent (bottom quintile), indicating worsening inequality among renters. - Social housing access: - Multi-year waiting periods for admission to rent-controlled social housing; regionally, waiting periods can range from 2.0 to 13.7 years. - Fiscal and financial implications: - Foregone revenues due to mortgage interest tax relief amounted to 1.3 percent of GDP in 2019 (OECD figures). - Spending on housing allowances required outlays of 0.5 percent of GDP in 2020 (OECD figures). - About two fifths of the outstanding mortgage stock is accounted for by interest-only products, contributing to high household debt levels and macro-financial vulnerability. - Subsidization of social and owner-occupied housing has contributed to crowding out of the private rental market. ### Housing investment, supply shortfall, and construction constraints - Investment and stock metrics: - Real residential investment as a share of real GDP recovered from the late 2013/early 2014 trough but remains below the euro area average and below neighboring economies such as Belgium, France, and Germany. - Residential building permits have not returned to pre-global-financial-crisis levels. - Rise in Dutch housing stock per head has been among the lowest in the euro area, falling short of demographic requirements. - Supply constraints and costs: - Netherlands is the second most densely populated country in the euro area after Malta, limiting scope for residential development and infrastructure expansion. - Spatial, regulatory, planning, environmental and supply chain constraints lengthen permit procedures and increase project complexity, raising developers’ costs and undermining incentives to build. - Capacity diminished in private and public sectors since the early 2010s downturn, including reduced construction personnel and planning staff: - By mid-2022, around 400,000 people employed in Dutch construction sector, down from 520,000 at end-2008. - Labor market shortages and supply bottlenecks have contributed to a steep rise in construction costs. - Environmental constraints: - Sustainability upgrades of existing buildings will draw resources away from new housing provision. - Nitrogen emission thresholds, primarily from agriculture but also affecting the building industry, have halted some construction projects. - EU “Fit for 55” proposals: minimum energy performance standards requiring worst-performing 15 percent of building stock be upgraded from Energy Performance Certificate Grade G to at least Grade F by 2027 for non-residential and by 2030 for residential buildings; new (public) buildings must be zero-emission by 2030 (2027). - In the Netherlands, about 30 percent of the building stock is ranked E or below. ### Concise inventory of salient numeric facts - Overvaluation: 14 percent in 2022:Q2. - Price-to-income ratios: risen by more than 50 percent since 2015. - Maximum monthly rent in rent-controlled sector (2023): €808.06. - Regulated rentals constitute about three quarters of rental properties. - Non-profit housing associations supply nearly four fifths of rent-controlled dwellings. - Planned scope of points system expansion: about 96 percent of rental properties subject to rent control. - Housing association allocation requirement (2023): at least 92.5 percent to households with income less than € 44,035 (single-person) and € 48,625 (multi-person). - Mortgage interest deductibility: from 52 percent in 2018 to 37 percent by 2023. - Imputed rents’ share: from 0.70 to 0.35 percent. - Transfer tax waiver referenced up to €400,000 for first-time buyers aged 18–35 (scheme details elsewhere in chapter). - Gift tax exemption referenced up to €106,671 for recipients aged 18–40 (scheme details elsewhere in chapter). - Foregone revenues due to mortgage interest tax relief: 1.3 percent of GDP in 2019. - Housing allowances spending: 0.5 percent of GDP in 2020. - Interest-only mortgages: about two fifths of outstanding mortgage stock. - Regional waiting periods for social housing: 2.0 to 13.7 years. - Change in construction sector employment: around 400,000 by mid-2022 vs 520,000 at end-2008. - EU minimum energy performance standard: worst-performing 15 percent to be upgraded from Grade G to at least Grade F by 2027 (non-residential) and by 2030 (residential); new public buildings zero-emission by 2030 (2027). - Share of Dutch building stock ranked E or below: about 30 percent. ### 10. Acknowledging the role of inadequate housing supply, the Dutch government has ### Government agenda and targets - Proposals in “Programma Woningbouw” foresee the building of 900,000 homes by 2030 at a pace of 100,000 units per year. - Abolishment of the landlord levy for rent-controlled properties on January 1, 2023 may create space for lowering rents and free funds for investment in affordable dwellings. - Central government to adopt and monitor enforceable performance agreements with provinces, regions and municipalities setting out construction targets aligned with national plans. - Lead times between conception and completion of housing projects average 10 years; measures aim to reduce these lead times by identifying bottlenecks, streamlining building regulations, shortening legal procedures, and enhancing expertise across government bodies. - Financial support will be made available to induce municipalities to develop land for the provision of housing. - “Betaalbaar Wonen” program emphasizes expanding rental regulation scope, facilitating market access for acquirers of owner-occupied properties, and better protection of tenants and buyers. ### Supply-side measures and institutional roles - Housing associations committed to construction targets and ensuring sustainability of existing homes; their prominent engagement is central to the government’s program. - The dominant position of housing associations and their non-profit status, plus numerous subsidies, tilt the playing field against other providers and have crowded out the private rental sector since World War II (some signs of reversal in recent years). - Recommendation: conduct a full cost-benefit analysis of the role and subsidies of housing associations, with special attention to households ineligible for their services and long waiting times for social housing. ### Rent control, eligibility, and market distortions - Current rent control: a dwelling’s value and quality determine whether it is subject to rent control, creating ceilings particularly for smaller properties at the lower end of the market. - Identified adverse effects: - Rent ceilings can restrict supply as potential private providers may retrench for lack of adequate return on investment. - Housing associations are not sufficiently filling the resulting gap in supply. - Households unable to access social housing face narrow free rental market or owner-occupation, implying considerable welfare costs and a likely non–pareto-optimal allocative outcome. - OECD estimates indicate the Netherlands could benefit significantly from deregulation of its rental market. - Policy recommendations: - Investigate the scope for gradually narrowing the number of rent-controlled accommodations to incentivize private sector provision. - Cushion possible rent increases with a more generous, yet rigorously means-tested, housing allowance framework. - Modify rigid rules that prevent re-allocation of dwellings from the rent-controlled sector to the free rental market while the current tenant remains in place, to reduce lock-in effects and free up suitable properties for the free rental market. - Eligibility for social housing: - Current income thresholds are notably above median household income, opening the sector to large parts of the population and fueling demand for scarce social housing. - Recommendation: limit eligibility to groups for whom below-market housing is necessary on socio-economic grounds, and implement more regular means-testing (income is assessed only at contract signature; household wealth is not taken into account). - Strengthen mechanisms allowing housing associations to raise rents faster for better situated tenants to encourage transition to the free rental market. ### Incentives for municipalities, landowners, and developers - Municipalities bear large economic and political costs of new construction while insufficiently benefiting from it. - Policy options to explore: - Allow municipalities to capture a larger share of extra tax revenue created by population growth or some of the increase in land value when publicly owned land is authorized for development. - Subject privately owned land designated for residential construction but left idle to more onerous land value taxes to encourage productive use. - Accompany the transaction tax hike for acquirers of existing, not owner-occupied properties (introduced January 1, 2023) with tax incentives for developers of new housing. ### Owner-occupied housing: taxation and macroprudential measures - Current subsidization of owner-occupied properties via mortgage interest tax deductibility, favorable transaction taxes and liberal mortgage borrowing constraints is costly and distorts the market. - Policy recommendations: - Continue and preferably accelerate phasing out subsidization of owner-occupied housing. - Ideally move housing taxation to Box 3 of the Dutch income tax code to align taxation with other investments and record an appropriate level of imputed rent as income; the Dutch Supreme Court decision in December 2021 opens a window of opportunity. - If tax treatment in Box 1 remains unchanged, phase out mortgage interest deductibility faster and lift imputed rent to a more realistic level. - OECD estimates suggest eliminating mortgage interest rate deductibility could improve affordability. - Macroprudential tightening recommended: - Reduce loan-to -value ratios of 100 percent to levels more in line with international practice. - Curtail the possibility to allow for a 50 percent interest only component in mortgage lending. - Make the setting of debt-service-to-income ratios more sensitive to financial stability considerations. ### Land use, building regulations, and densification - Largely decentralized model places housing development responsibility with municipalities, causing local considerations to override national priorities and fragment building codes. - Performance agreements between government echelons are positive steps to align long-term national supply with demand. - Recommendations: - Harmonize and simplify land use and construction frameworks to shorten permitting procedures and create economies of scale for developers. - Study potential for residential densification: Netherlands shows a preference for (semi-)detached houses over apartments despite very high population density. - Strengthen efforts to split existing residences into smaller units or entice households to move to properties more appropriate for their size. - Advance construction in areas further from difficult-to-develop urban centers combined with efficient transport infrastructure. ### Phasing, political economy, and calibration - Modifying housing policies will create winners and losers; strategic adjustment, conscientious timing, and clear communication are necessary to maintain political and public support. - Example: eliminating rent controls and tightening social housing eligibility is infeasible without adequate alternative affordable rental supply. - Overarching focus on measures to boost supply is welcome, but there should be a sustained effort to gradually remove market-distorting policy settings that impose non-negligible welfare costs. ### Key findings and conclusions - Persistent imbalances in the Dutch housing market are driven in large part by long-standing supply constraints. - Spatial, regulatory, planning, environmental and supply chain constraints have limited dwelling construction since the early 2010s. - Government actions focus on constructing new homes, improving coordination between national and sub-national levels, facilitating building-related regulations and procedures, enhancing public sector capacity, and offering financial support to municipalities. - There is scope to strengthen policy traction by: - Re-assessing the role and subsidies of housing associations. - Re-evaluating liberal eligibility criteria for social housing and extensive rent control, with potential relaxation of rental regulation and narrower social housing access contingent on improved free rental supply. - Accelerating phase-out of generous taxation and borrowing arrangements favoring owner-occupied dwellings. - Harmonizing and simplifying construction and land-use provisions to facilitate creation of sufficient and affordable living space. *Source: IMF Selected Issues Paper — sipea2023023, chapter content provided.* ### 1. Demographic Trends and Housing Valuations _______________________________________ 3 ### 1. Demographic Trends and Housing Valuations ### Key findings on demand, prices, and valuations - After a trough in mid-2013, house prices in the Netherlands have nearly doubled and exceeded their pre-global-financial-crisis peak by more than half. - Model-based estimates indicate an overvaluation of 14 percent in 2022:Q2. - Price-to-income ratios have risen by more than 50 percent since 2015. - Demand drivers noted: - Net migration and the formation of new—and smaller—households grew at relatively robust rates over the past decade. - Mortgage interest rates declined toward historic lows and borrowing conditions remained advantageous (e.g., generous loan-to-value limits and existence of interest-only mortgages). - Housing valuations in the Netherlands are among the highest in the euro area. ### Government policy responses enacted (summary) - Mortgage market and prudential measures: - Since January 1, 2013: legally binding rule that only up to half of a property’s market value can be financed with interest-only mortgages. - Progressive tightening of loan-to-value ratios to a 100 percent maximum by 2018. - Introduction of a framework for evaluating the debt-service-to-income burden of households. - January 2022: Dutch central bank introduced minimum risk weights for mortgage loans. - Taxation and transaction measures: - Limits to mortgage interest tax deductibility to amortizing contracts of up to a 30-year maturity and gradual reduction in the applicable rate for higher income households. - Differentiation since 2021 of taxes for real estate transactions between first-time buyers, buyers of second/following homes, and investors in buy-to-let real estate. - Gift tax exemptions in place since 2022 for the purchase of the beneficiary's own home (noting later adjustments explained elsewhere in the chapter). - Social housing and rent control: - Large social housing stock and an extensive system of rent control to contain rental expenses for households unable or unwilling to purchase. ### Observed effects and trade-offs - Some prudential and tax measures reduced attractiveness of debt-financed owner-occupation and may have helped curb demand and prices. - Other tax changes since 2021 may have opposite effects (e.g., differentiated transaction taxes and gift tax exemptions). - Measures primarily targeted macro-financial risks but may have also constrained mortgage size and availability, moderating price increases. --- ### Tenant structure, rent regulation, and access - Rental market classification: - Rental dwellings are ranked via an elaborate points system considering market value, size, amenities, energy efficiency. - Homes below a certain point threshold are attributed to the rent-controlled (social) sector. - Rent control features: - Monthly rents capped at a maximum amount for rent-controlled sector. - Annual rent increases limited to wage growth agreed in collective labor agreements minus 0.5 percent. - For existing tenants, free-market rentals are subject to the same strictures; new occupants can be offered free-market rents without constraints (with temporary restrictions in force 2021–2024 described below). - Scope and providers: - Regulated rentals constitute about three quarters of all rental properties. - Non-profit housing associations account for nearly four fifths of the supply of rent-controlled dwellings. - Eligibility and mandates: - Housing associations have a public service mandate and benefit from a state borrowing guarantee and preferential municipal land access. - In 2023, housing associations must allocate at least 92.5 percent of their rental property supply to households with annual income less than € 44,035 (single-person) and € 48,625 (multi-person); the remainder may be allocated above these thresholds. - Additional tenant support: - For low-income tenants with limited assets, a monthly allowance to subsidize rental payments is available. ### Specific regulatory and numeric details - For 2023, the maximum monthly rent in the rent-controlled sector was set at €808.06. - With planned broadening of the points system, about 96 percent of rental properties will be subject to rent control. - From May 1, 2021 to May 1, 2024, government imposed restrictions on permissible rent increases for free-market rentals: initially inflation plus 1 percent (matching rent-controlled rule) and replaced from 2023 with wage increase plus 1 percent if wage developments remain below inflation. --- ### Tax treatment and owner-occupier incentives - Tax status: - Owner-occupied housing is taxed in Box 1 with taxation of imputed rent at a comparatively low level; mortgage interest tax relief remains more generous relative to taxation of other savings/investments in Box 3. - Recent numeric changes: - Mortgage interest deductibility reduced from 52 percent in 2018 to 37 percent by 2023. - Imputed rents' share of a property’s value declined from 0.70 to 0.35 percent as prices outpaced rents. - Transaction and gift tax provisions: - Government waived the 2 percent transaction tax for first-time buyers of a home with value up to €400,000 aged 18–35 (noting subsequent changes described elsewhere). - Tax exemption for gifts up to €106,671 for recipients aged 18–40 if proceeds are used for purchase/renovation of owner-occupied home (noting later amendment dates referenced elsewhere in the chapter). - Lending norms: - Loan-to-value limits at 100 percent (among the highest in the euro area). - Half of a home loan can be financed with an interest-only mortgage; tax advantages for interest-only were abolished in 2013 (non-amortizing mortgages originated before 2013 remain tax-deductible). --- ### Housing affordability, distributional impacts, and fiscal costs - Affordability and burdens: - Share of disposable income allocated to housing is comparatively high for Dutch households. - Renters face much steeper costs than the euro area median; owners with a mortgage have seen burdens follow the median euro area decline. - Rental expenditure as a share of total household consumption is elevated: third highest share for actual rentals and seventh highest for imputed rentals in the euro area context. - Distributional data (owners with mortgage): - 2010: housing cost burdens ranged from 15 percent of disposable income for top quintile to 24 percent for bottom quintile. - 2020: compressed to a 12–15 percent span. - Distributional data (renters): - 2010: renters spent between 14 percent (top quintile) and 32 percent (bottom quintile). - 2020: renters spent between 17 percent (top quintile) and 36 percent (bottom quintile), indicating worsening inequality among renters. - Social housing access: - Multi-year waiting periods for admission to rent-controlled social housing; regionally, waiting periods can range from 2.0 to 13.7 years. - Fiscal and financial implications: - Foregone revenues due to mortgage interest tax relief amounted to 1.3 percent of GDP in 2019 (OECD figures). - Spending on housing allowances required outlays of 0.5 percent of GDP in 2020 (OECD figures). - About two fifths of the outstanding mortgage stock is accounted for by interest-only products, contributing to high household debt levels and macro-financial vulnerability. - Subsidization of social and owner-occupied housing has contributed to crowding out of the private rental market. --- ### Housing investment, supply shortfall, and construction constraints - Investment and stock metrics: - Real residential investment as a share of real GDP recovered from the late 2013/early 2014 trough but remains below the euro area average and below neighboring economies such as Belgium, France, and Germany. - Residential building permits have not returned to pre-global-financial-crisis levels. - Rise in Dutch housing stock per head has been among the lowest in the euro area, falling short of demographic requirements. - Supply constraints and costs: - Netherlands is the second most densely populated country in the euro area after Malta, limiting scope for residential development and infrastructure expansion. - Spatial, regulatory, planning, environmental and supply chain constraints lengthen permit procedures and increase project complexity, raising developers’ costs and undermining incentives to build. - Capacity diminished in private and public sectors since the early 2010s downturn, including reduced construction personnel and planning staff: - By mid-2022, around 400,000 people employed in Dutch construction sector, down from 520,000 at end-2008. - Labor market shortages and supply bottlenecks have contributed to a steep rise in construction costs. - Environmental constraints: - Sustainability upgrades of existing buildings will draw resources away from new housing provision. - Nitrogen emission thresholds, primarily from agriculture but also affecting the building industry, have halted some construction projects. - EU “Fit for 55” proposals: minimum energy performance standards requiring worst-performing 15 percent of building stock be upgraded from Energy Performance Certificate Grade G to at least Grade F by 2027 for non-residential and by 2030 for residential buildings; new (public) buildings must be zero-emission by 2030 (2027). - In the Netherlands, about 30 percent of the building stock is ranked E or below. --- ### Concise inventory of salient numeric facts (preserved exactly as in source) - Overvaluation: 14 percent in 2022:Q2. - Price-to-income ratios: risen by more than 50 percent since 2015. - Maximum monthly rent in rent-controlled sector (2023): €808.06. - Regulated rentals constitute about three quarters of rental properties. - Non-profit housing associations supply nearly four fifths of rent-controlled dwellings. - Planned scope of points system expansion: about 96 percent of rental properties subject to rent control. - Housing association allocation requirement (2023): at least 92.5 percent to households with income less than € 44,035 (single-person) and € 48,625 (multi-person). - Mortgage interest deductibility: from 52 percent in 2018 to 37 percent by 2023. - Imputed rents’ share: from 0.70 to 0.35 percent. - Transfer tax waiver referenced up to €400,000 for first-time buyers aged 18–35 (scheme details elsewhere in chapter). - Gift tax exemption referenced up to €106,671 for recipients aged 18–40 (scheme details elsewhere in chapter). - Foregone revenues due to mortgage interest tax relief: 1.3 percent of GDP in 2019. - Housing allowances spending: 0.5 percent of GDP in 2020. - Interest-only mortgages: about two fifths of outstanding mortgage stock. - Regional waiting periods for social housing: 2.0 to 13.7 years. - Change in construction sector employment: around 400,000 by mid-2022 vs 520,000 at end-2008. - EU minimum energy performance standard: worst-performing 15 percent to be upgraded from Grade G to at least Grade F by 2027 (non-residential) and by 2030 (residential); new public buildings zero-emission by 2030 (2027). - Share of Dutch building stock ranked E or below: about 30 percent. _Italic: Prepared by André Geis (EUR); analysis benefitted from research assistance by Yushu Chen (EUR) and comments by Bernardin Akitoby (EUR). Content extracted from the IMF Selected Issues Paper chapter "1. Demographic Trends and Housing Valuations" (February 8, 2023)._ ### 10. Acknowledging the role of inadequate housing supply, the Dutch government has ### 10. Acknowledging the role of inadequate housing supply, the Dutch government has ### Government agenda and targets - Proposals in “Programma Woningbouw” foresee the building of 900,000 homes by 2030 at a pace of 100,000 units per year. - Abolishment of the landlord levy for rent-controlled properties on January 1, 2023 may create space for lowering rents and free funds for investment in affordable dwellings. - Central government to adopt and monitor enforceable performance agreements with provinces, regions and municipalities setting out construction targets aligned with national plans. - Lead times between conception and completion of housing projects average 10 years; measures aim to reduce these lead times by identifying bottlenecks, streamlining building regulations, shortening legal procedures, and enhancing expertise across government bodies. - Financial support will be made available to induce municipalities to develop land for the provision of housing. - “Betaalbaar Wonen” program emphasizes expanding rental regulation scope, facilitating market access for acquirers of owner-occupied properties, and better protection of tenants and buyers. ### Supply-side measures and institutional roles - Housing associations committed to construction targets and ensuring sustainability of existing homes; their prominent engagement is central to the government’s program. - The dominant position of housing associations and their non-profit status, plus numerous subsidies, tilt the playing field against other providers and have crowded out the private rental sector since World War II (some signs of reversal in recent years). - Recommendation: conduct a full cost-benefit analysis of the role and subsidies of housing associations, with special attention to households ineligible for their services and long waiting times for social housing. ### Rent control, eligibility, and market distortions - Current rent control: a dwelling’s value and quality determine whether it is subject to rent control, creating ceilings particularly for smaller properties at the lower end of the market. - Identified adverse effects: - Rent ceilings can restrict supply as potential private providers may retrench for lack of adequate return on investment. - Housing associations are not sufficiently filling the resulting gap in supply. - Households unable to access social housing face narrow free rental market or owner-occupation, implying considerable welfare costs and a likely non–pareto-optimal allocative outcome. - OECD estimates indicate the Netherlands could benefit significantly from deregulation of its rental market. - Policy recommendations: - Investigate the scope for gradually narrowing the number of rent-controlled accommodations to incentivize private sector provision. - Cushion possible rent increases with a more generous, yet rigorously means-tested, housing allowance framework. - Modify rigid rules that prevent re-allocation of dwellings from the rent-controlled sector to the free rental market while the current tenant remains in place, to reduce lock-in effects and free up suitable properties for the free rental market. - Eligibility for social housing: - Current income thresholds are notably above median household income, opening the sector to large parts of the population and fueling demand for scarce social housing. - Recommendation: limit eligibility to groups for whom below-market housing is necessary on socio-economic grounds, and implement more regular means-testing (income is assessed only at contract signature; household wealth is not taken into account). - Strengthen mechanisms allowing housing associations to raise rents faster for better situated tenants to encourage transition to the free rental market. ### Incentives for municipalities, landowners, and developers - Municipalities bear large economic and political costs of new construction while insufficiently benefiting from it. - Policy options to explore: - Allow municipalities to capture a larger share of extra tax revenue created by population growth or some of the increase in land value when publicly owned land is authorized for development. - Subject privately owned land designated for residential construction but left idle to more onerous land value taxes to encourage productive use. - Accompany the transaction tax hike for acquirers of existing, not owner-occupied properties (introduced January 1, 2023) with tax incentives for developers of new housing. ### Owner-occupied housing: taxation and macroprudential measures - Current subsidization of owner-occupied properties via mortgage interest tax deductibility, favorable transaction taxes and liberal mortgage borrowing constraints is costly and distorts the market. - Policy recommendations: - Continue and preferably accelerate phasing out subsidization of owner-occupied housing. - Ideally move housing taxation to Box 3 of the Dutch income tax code to align taxation with other investments and record an appropriate level of imputed rent as income; the Dutch Supreme Court decision in December 2021 opens a window of opportunity. - If tax treatment in Box 1 remains unchanged, phase out mortgage interest deductibility faster and lift imputed rent to a more realistic level. - OECD estimates suggest eliminating mortgage interest rate deductibility could improve affordability. - Macroprudential tightening recommended: - Reduce loan-to -value ratios of 100 percent to levels more in line with international practice. - Curtail the possibility to allow for a 50 percent interest only component in mortgage lending. - Make the setting of debt-service-to-income ratios more sensitive to financial stability considerations. ### Land use, building regulations, and densification - Largely decentralized model places housing development responsibility with municipalities, causing local considerations to override national priorities and fragment building codes. - Performance agreements between government echelons are positive steps to align long-term national supply with demand. - Recommendations: - Harmonize and simplify land use and construction frameworks to shorten permitting procedures and create economies of scale for developers. - Study potential for residential densification: Netherlands shows a preference for (semi-)detached houses over apartments despite very high population density. - Strengthen efforts to split existing residences into smaller units or entice households to move to properties more appropriate for their size. - Advance construction in areas further from difficult-to-develop urban centers combined with efficient transport infrastructure. ### Phasing, political economy, and calibration - Modifying housing policies will create winners and losers; strategic adjustment, conscientious timing, and clear communication are necessary to maintain political and public support. - Example: eliminating rent controls and tightening social housing eligibility is infeasible without adequate alternative affordable rental supply. - Overarching focus on measures to boost supply is welcome, but there should be a sustained effort to gradually remove market-distorting policy settings that impose non-negligible welfare costs. ### Key findings and conclusions - Persistent imbalances in the Dutch housing market are driven in large part by long-standing supply constraints. - Spatial, regulatory, planning, environmental and supply chain constraints have limited dwelling construction since the early 2010s. - Government actions focus on constructing new homes, improving coordination between national and sub-national levels, facilitating building-related regulations and procedures, enhancing public sector capacity, and offering financial support to municipalities. - There is scope to strengthen policy traction by: - Re-assessing the role and subsidies of housing associations. - Re-evaluating liberal eligibility criteria for social housing and extensive rent control, with potential relaxation of rental regulation and narrower social housing access contingent on improved free rental supply. - Accelerating phase-out of generous taxation and borrowing arrangements favoring owner-occupied dwellings. - Harmonizing and simplifying construction and land-use provisions to facilitate creation of sufficient and affordable living space. *Source: IMF Selected Issues Paper — sipea2023023, chapter content provided.* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023023.pdf_