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Everything grinding to a halt in the housing market

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There are great shortages in all sectors of the housing market; from social rental homes and homes for middle-income earners, right up to owner-occupied homes. Long waiting lists for social rental homes – which are sometimes over 20 years - and stampede-like activity in the small rental segment for people with median or high incomes, are nothing new. However, warning signs are now also visible in the owner-occupied market. Shortages are not only being witnessed in cities within the Randstad, but are spreading like an oil spill all throughout the Netherlands. 

Supply is currently so low that there is no way to satisfy demand, which has resulted in major price increases in many parts of the country. The issue of scarcity has now also resulted in an additional problem, namely that of financial feasibility. Although stricter financing requirements had already made it more difficult for people to acquire owner-occupied homes, this possibility has now all but ebbed away for many people who are looking to buy a home. Not enough homes are available, and those that are, are way too expensive. As things stand, the issue may first need to fully take effect before something is done about it: buyers are being put off by price increases, while any remaining affordable homes are becoming increasingly scarce.

Vacancy is way too low 

People can only move to a new home if enough of them are available for sale. The amount of supply needed to ensure a sufficient number of home relocations is referred to as ‘friction supply’ or ‘friction vacancy’. Friction supply indicates what percentage of the overall housing supply is available for sale at any given moment. A target percentage of around three percent is normal and sufficient to ensure a healthy housing market, where demand and supply are reasonably effective at keeping each other in equilibrium. However, in the current market, average friction vacancy has decreased to 1.4% whereby the Dutch housing market is falling well short when it comes to the quantity and quality available to home buyers. At this moment in time, 6 million Dutch inhabitants live in a municipality where friction supply has dropped below one percent. As a result, the options available to them in their own municipality are none existent if they need to move home due to changing residential needs.

Situation in housing market in 2015 and 2019: what percentage of the housing stock is for sale? 

The biggest shortages are encountered in the west of the Netherlands, particularly in the northern wing of the Randstad. Almost the whole area that runs on the axle from Haarlem, Zaanstad, Amsterdam, Utrecht and Amersfoort is suffering from worryingly low supply. Apart from the odd exception, this also applies to the larger cities (over 100,000 residents) and the surrounding peripheral municipalities. In the meantime, things have become so bad that people dare not sell their existing home until they have purchased a new home. This limited inflow can only cause us to conclude that the whole housing market is starting to come to a standstill. Not only in Amsterdam and Utrecht, but also nationwide.

Source: Cushman & Wakefield

At this moment in time, circa 72,000 extra owner-occupied homes are needed at national level to return to the 3% target for friction vacancy. The total stock of owner-occupied homes has almost entirely been reduced to inflow involving homes that are being put up for sale. In the first quarter of 2019, 35,000 of NVM’s overall housing stock of 42,000 homes involved homes that were being sold for the first time. Practically all of these homes were then sold during the quarter, as demonstrated by the average sale time of 39 days. There is also a very low inflow of new homes because people first want to buy their next home before they sell their existing one.

Fewer and fewer sales; ever increasing prices

In the first quarter of 2019, the total number of sales transactions was 16% lower than the fourth quarter of 2018. The average sales price remained historically high at circa EUR 295,000. The market is thus operating in a strange manner. Whereas circa 236,000 homes were on sale at the start of 2013 (or 1 in 17 homes or 5.6% of the housing stock), this stock had dropped to circa 60,000 homes by the start of 2019 (or 1 in 54 homes or 1.8% of the housing stock). The flip side of this decrease in housing stock is the unbridled increase in the average sale price: during the same period, homes became 40% more expensive.

Stumbling blocks and saving graces

The stumbling blocks in the housing market are more or less known to all. First are foremost, the major housing shortages that have resulted in unbridled price increases can be attributed to the relatively quick transition from a period of crisis to a period of economic prosperity. That is why the construction sector does not have enough capacity (equipment and personnel) to realise all its plans in the short-term. The second stumbling block is administrative in nature, and relates to additional environmental and affordability requirements that many municipalities have implemented for their new-build housing programmes. For instance, to make estates free of natural gas or to introduce further liberalisation by implementing maximum rental or sales prices. This means existing projects are at risk of delay or postponement. And these additional requirements mean new projects are facing uncertainties. It would be less expensive for developers to realise their projects if they did not have to incorporate so much extra margin due to these uncertainties.

Municipalities are now often too one-sided in their focus on revenues when tendering building ground. In fact, they should work with developers to create new types of partnerships, where the same goals are pursued: to offer good quality and affordable homes, with a fair land price that facilitates and allows ambitions to be realised. In the end, this will not only benefit municipalities and developers, but all people looking for a home in the Netherlands.