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Thursday, 19 January 2012

Dutch housing extravaganza: testimony on the sorry-state of the Dutch housing market

Today showed a real housing extravaganza in The Netherlands. News item on news item testified on the sorry-state of the Dutch housing market:
·        On the threat of mass lay-offs in the building and construction industry.
·        On the soaring number of foreclosures in The Netherlands
·        On the banks finally throwing the towel on the Mortgage Interest Deduction, but not really
·        On The Hague finding a desperate solution for the problem of tenants living out-of-synch
It is this sorry-state that I already predicted in my second article at Minyanville ( in April 2009: Dutch housing market next bubble to deflate?
And you can argue that I was (too) early in 2009 with my predictions. The economy picked up in 2010 and looked fine for 1.5 years, only to contract again in 2011Q3. However, you cannot say that I have been wrong during these years.
The Dutch housing market is indeed a disaster and in spite of the ´national´ sport of kicking the can down the road, the building industry is on the brink of a total meltdown.
Mass lay-offs in the building and  construction industry.

The Dutch Business News Radio station BNR ( writes today on threatening mass lay-offs in the building industry. Here are the pertinent snips of this article:
If the Dutch housing market does not improve quickly, many thousands of workers in the Building and Construction industry will lose their jobs. Project developers demand quick and decisive action from politics.
Many thousands of people will lose their jobs and various renowned building companies will default, if politics doesn´t interfere in the Dutch housing market, as this is in dire straits currently. This warning came from Nico Rietdijk, managing director of the association of developers and building entrepreneurs NVB.
It is forecasted that in 2012 sales of newly-built houses drops to 12,000 from 21,000 in 2011. In 2010 even 26,000 new houses were sold. `The situation on the market for newly-built houses is dire´, Rietdijk confirms.
According to the director, the problems are caused by the mortgagors, that keep their hands on their wallets.  ´Banks don´t dare to be bank anymore. This causes 20% to 30% of the potential buyers to not receive a mortgage loan´, according to Rietdijk. The current political discussion on the Mortgage Interest Deduction (MID) is a non-issue in reality, says Rietdijk.
Rietdijk states: ´Supervisors went over the top with invigorating the mortgage rules and the sad thing is that politics supplied them the political leeway to do so´.
The fox is complaining here that all those pitiful chickens are locked behind bars and that it is much better to let them go freely.
The problems in the Dutch housing market, as signaled by Nico Rietdijk of the NVB, are undoubtedly present these days and therefore the loss of jobs in Building and Construction will be very significant in the coming months.
But it is a grave mistake to think that everything would be ´back to normal´ when the supervisors would drop all the rules again. For this, the subject of ´peak housing prices´ is much too influential. 'Peak housing prices' means that the potential house-buyers are sick and tired of the high housing prices, can´t or won´t afford those anymore and wait until they drop; even for years and years when the buyers have to. And they won´t change their minds until the housing prices have gone significantly down by at least 30-50%, compared to 2007 peak prices. Please read my article housing prices in The Netherlands keep dropping, from 22 September 2011.

The financial newspaper Het Financieele Dagblad ( quotes another expert in the housing market. Wienke Bodewes, chairman of the industry-association of Project Developers Neprom, is also very pessimistic on the Dutch housing market:
Bodewes foresees 2012 to be a dramatic year. ‘There is a significant chance that sales of private-owned and rental houses further contracts in 2012. This means that the number of defaults and lay-offs will further increase in our industry. The project development industry works currently already with less than half the manpower it had in 2006.’
So a vigorous reorganization in the building and construction industry is all that lasts now. That is a very sad, but necessary result of the building frenzy that took place in The Netherlands since 1995. And I’m truly sorry for everybody that loses their job. But don’t blame me; I have just been the messenger, while politics messed up for a large number of years.
Soaring number of foreclosures in The Netherlands
De Telegraaf reports on the soaring number of foreclosures in 2011. Here are the most important snippets of this article:
The number of forced housing sales rose by one-third last year. More and more people can’t keep their heads above water and are forced to sell their home through an auction.
The number of foreclosures rose to 2811 in 2011 from 2086 in 2010; an increase of 725 houses, or 34.8%.
Peter Boelhouwer, professor with the chair ‘Housing market’ at the Technical University Delft, states that foreclosures also cause problems for the banks. In case of a forced sale, they only earn 70-80% of market value. A share of the remaining 20-30% is borne by the National Mortgage Guarantee (NHG), but the remains should be written off by the banks.

BNR radio invited a renowned budget expert, Erica Verdegaal, to shed light on the subject of foreclosures in The Netherlands:

Although the sheer number of foreclosures is still only 0.2% of the total housing supply, it is hard for an individual to foreclose on his home. If you have an NHG (national mortgage guarantee), you are alright. Otherwise you drop in the Debt Remission Act for Natural Persons’, according to Verdegaal.

‘The main reasons for foreclosures are divorce, unemployment and depreciation of the house. These things do happen currently, there is no cure for that. I get an uncomfortable feeling of this 35% increase in foreclosures. The die is cast now’.

It is true, the number of foreclosures in The Netherlands is still extremely low with 0.2%. But it won’t remain this way when 2012 is as hard as I think it will be. I happen to totally agree with Erica Verdegaal and I think that the number of foreclosures will explode in 2012, especially as politics is still assuming the ostrich position in The Netherlands.

Banks throw the towel on the Mortgage Interest Deduction (MID)? Or don’t they?!

‘Desperate needs lead to desperate deeds’. Never was this proverb more true than today, when the Dutch banking association announced that it was in favor of slowly abolishing the Mortgage Interest Deduction (MID). Were these the same banks that were even against ‘thinking about abolishing the MID’ only one year ago? Yes, they were.

The crux of this bold statement by the banks was the word ‘slowly’. When the MID will be abolished in 30 years, everybody has plenty of time to think of the implications and nobody will panic. 

And that is much better than the current ‘communio opinis’ among economists that is in favor of a much quicker abolishment of MID and especially those rogue bloggers (a.o. the savvy expert of BNR Kees de Kort and yours truly) that want to immediately abolish the MID ‘cold turkey’, while using the saved money for a transitional arrangement  helping people to bring down their principal amount.
The FD writes on this story:
The banking industry wants that the cabinet curtails the Mortgage Interest Deduction. The two largest credit suppliers, ING and Rabobank, each laid a proposal at the table for a transitional arrangement at the industry-association NVB (i.e. Dutch association of banks).
Chairman Boele Staal wants to talk on necessary reforms for the housing market ‘without taboos or embargoes', as he stated on Monday, January 16. ‘And when you talk about the MID, it wil change’, he predicted. 'You put an embargo on ethical questions, not on matters of arrangement, like in this case’.
According to the banks, the insecurity on the future of the MID is one of the main causes for the housing market being locked. Staal breaks a lance for an integral debate on the housing market with all stakeholders: on the MID, but also on the rental market, living out-of-synch and the problems for starters on the housing market.

It is the first time that the banking industry is so clear about changing this politically sensitive tax arrangement. In the past all banks were very much in favor of the MID.

The Rabobank plan wants to curtail the MID to the constant payment mortgage and not to varieties like the amortization-free mortgage or the savings´ mortgage (in this mortgage variety, the monthly redemption amount is stored at the bank, instead of withdrawn from the principal. Real redemption takes only place after 30 years).
ING wants to abolish the MID ‘cold turkey’… in thirty years.
The banks are not scared that finishing these tax arrangements will lead to large price-drops. Staal: ‘in some occasions it will lead to problems, concerning the collateral value, but in most cases people stay where they are, growing themselves out of problems’. 

It is funny. The project developers blame the banks and supervisors for the contracted mortgage market. The banks blame it on the insecurity of people about the future of the MID. And none of these parties wants to think about the real reason: peak housing prices.

Chairman Boele Staal of the NVB stated in a snip of the same article that I didn’t post (please click link to the original):in reality the housing prices are not too high. People only think they are too high and wait until prices do drop’. This remark earns him a ‘golden doughnut’, my prize for ‘ideas that have clearly a hole in it’.

The Golden Doughnut
Picture courtesy of
This tunnel vision leads to preposterous proposals, like ‘kicking the can down the road’ for another 30 years, hoping that the problems on the housing market will miraculously disappear. You could call this a flight forward, but in reality it isn’t! The French say about this behavior ‘apres nous le deluge’ (i.e. after us the deluge).
The Hague finds desperate solution for tenants living out-of-synch
In the category ‘preposterous proposals’, here is another one from the Dutch city of The Hague.
It wants to offer a €5000-€10,000 stimulation bonus for tenants of (too) cheap houses that want to move to a private-owned house. Here are the pertinent snips from the FD.
Persons that exchange a social renting house for a private-owned house, receive money from the The Hague-municipality. This plan was launched by the local authority this Wednesday, January 18.

It is about a €5000 bonus for everybody that moves from a social renting house to a private-owned house. The house-buyer also doesn’t pay mortgage interest for four months and he can even receive a €10,000 subsidy on the purchase of a newly-built house.
The municipality wants to loosen the stalled housing sales with this plan. Also it wants to do something about people ‘living out of synch’: people that are wealthy enough to buy a house, but remain in their cheap social renting house instead. Currently wealthy people stay often in their social renting house, which leads to a shortage of cheap renting houses for low incomes.
This is yet another example of totally messed-up government policy, introduced in order to repair the consequences of earlier messed-up government policies.
I am absolutely not against social renting, as cheap, but good houses should be available for people with low incomes. But the fact that wealthy people can maintain their cheap social renting houses forever is good for them, but a disaster for the social renting market.
The first thing you would ask from such an arrangement as ‘social renting’ is an earnings threshold: if your income jumps over the threshold, you must leave the house or pay market value rent for it (in reality you would probably need two or three thresholds, but these are details - EL).
Now the municipality is rewarding people with lots of cash for their bad behavior in the past. And the tax-payer will foot the bill for this stupidity. This is totally ridiculous and preposterous.
And will it help to unlock the housing market? Well, do you feel lucky?

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