Rabobank: Strong price increases not only good news for housing market

The Dutch housing market is currently breaking all kinds of records. Never have so many houses been sold in the first quarter of the year as was the case in the first three months of 2017. With an increase of 6.8% as compared to the first quarter of 2016, house prices have also been rising strongly again. These are the views of economists at Rabobank in the Dutch Housing Market Quarterly published today.

Given the robust economic growth, rises in income, and persistently low interest rates, we expect house prices to increase by at least 6.5% this year. While the number of houses sold will reach between 225,000 and 235,000. In view of the continuing rise in house shortages and the resulting sharp price rises, it is for the new government to work together with municipalities, housing associations, commercial parties and private developers to come up with new solutions for the housing market. A crucial task here will be the construction of new affordable homes and the conversion of existing non-residential buildings into owner-occupied and rental housing properties. Many more rented homes in the medium segment in particular are badly needed. 
 
The fact that the housing market is currently breaking record after record is becoming increasingly difficult to explain merely as a catch-up effect. Housing market economist Christian Lennartz of Rabobank: ‘At present, house prices are rising at a rate that we didn’t even experience in the years before the crisis. If the housing market continues to grow at this rate and supply clearly lags behind rising demand, housing costs especially in the rental sector, but also in the owner-occupied sector, will swallow up an ever larger portion of household incomes. As a result, the accessibility of the owner-occupied housing market for first-time buyers will decline further, meaning that in the long run it will be reserved for households with a relatively high income or coming from a wealthier background. Eventually, this process will increase wealth inequality in the Netherlands.’
 
Lennartz adds: ‘This effect will be further intensified by the widening price gap between hot markets, such as Amsterdam, Utrecht and Rotterdam, and weaker housing market regions outside the Randstad. Moreover, we should not underestimate the macro-economic risks that come with surmounting private debts and increasing non-payment risks when prices increase this rapidly. Think, for example, of the stability of the financial system should house prices fall again in the future.’
 
Housing market continues to grow unabated
The number of sales in the first three months of the year reached 55,911 homes, well over 30% more than in the first quarter of 2016. At the same time as the rise in the number of transactions, the number of owner-occupied homes for sale also rose, so that shortages remained at roughly the same high level. Lennartz: ‘Looking at Statistics Netherlands’ forecast for the growth in the number of households until 2020 by an average of 62,000 per year, the pressure on the housing market is likely to become even more intense. Taking into account that around 10,000 homes are demolished each year, annual production in excess of 70,000 homes in the mid-priced rental sector as well as the owner-occupied sector will be needed simply to prevent the housing shortage from increasing any further. The new government, together with municipalities, housing associations, the commercial construction sector and private developers, must therefore rise to the challenge to build more homes. Further attention also needs to be given to the potentials of transforming more vacant commercial buildings into residential properties.’
 
The Dutch Housing Market Quarterly can be found at: www.rabobank.com/economics

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