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Dutch housing supply does not respond to price levels

Dutch control an impediment


Tags: Excerpts from the Windmill

THE HAGUE — The steadily rising housing costs in the Netherlands has largely been caused by the government. Additionally, the upward price trend has scarcely prompted more housing construction or better housing, report the Central Planning Bureau (CPB).

The government agency studied the Dutch housing supply and its costs for the period from 1970 to 2005. In the Netherlands, the cost increase of 10 percent in a single year only generated a jump of just 0.4 percent in the construction of new housing. In the U.S.A., the same factors lead to a building boom by about 40 percent, 100 times the increase in the Netherlands.

The rise in market values in the Netherlands does not lead to higher quality of existing and of new housing. The CPB suggests that the reason for this must partially be sought in the many forms of government intervention in the housing and subdivision markets in its discussion paper 'Housing supply in the Netherlands.

The supply of building lots in subdivisions in the Netherlands is not controlled by the market, but by local municipalities and their senior government levels. To maintain scarce greenbelts and other open spaces, the government has restricted land usage in many attractive locations, such as around the major cities and keeps tight control on the various types of housing it allows to build often after exhaustive studies and procedures.

Subsidy

Dutch government policy also maintains strict rent control, making the construction of rental housing unattractive to market players. The rental housing sector is, so reports the CPB, implicitly subsidized by municipalities, which finance it from profits generated by rezoning agricultural land into subdivisions. The private sector in effect indirectly finances social housing, which in turn obstructs the construction non-rental housing.

Demand for housing has grown rapidly in recent decades due to increasing purchasing power, declining mortgage interest rates, demographic trends (fewer members in a household), easier credit and various subsidies for housing (rental subsidies and mortgage interest deductibility). These factors on their own should not have led to a substantial rise in housing costs, reasons the CPB.