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Thursday, 20 September 2012

Dutch housing market in a nutshell: more optimism, but not much to be optimistic about!

It’s been a while ago since I last wrote on the Dutch housing market. Since then there has been a dramatic change in The Netherlands, although it is not clear what the direction of this change eventually will be.

The elections of Wednesday, 12 September, for the Dutch 2nd Chamber of parliament showed a clear victory for the liberal-conservative party VVD of PM Mark Rutte (41/150 seats) and the Dutch labor party PvdA (38/150 seats).

All other parties ended up with clearly fewer seats and the disappointment among especially the socialist SP, the right-wing PVV of Geert Wilders and the Christian-Democrat party CDA was big, as all three lost many seats when compared to respectively the latest prognoses (PVV, SP) and the latest elections (CDA).

Although the VVD was the clear winner of the elections, the voter made a second stint of the dreary and lackluster cabinet VVD-CDA(-PVV), aka Rutte I, de facto impossible as all three parties combined are still lightyears away from the required 76 seats in the 2nd Chamber. That is the good news.

The bad news is: with the VVD in a new government, it is still implausible that structural policy changes are applied to the Dutch housing market and especially the Mortgage Interest Deductability (MID), that – together with the extremely low interest of the last 15 years – created a housing bubble of epic proportions in The Netherlands.

The consumer trust at the Dutch housing market seems slowly recovering. The market indicator of the home-owners association Vereniging Eigen Huis (VEH) and the Delft Technical University rose to 57 points in August. In June and July the indicator didn’t exceed 54 and 53 points respectively. Slightly better, but still extremely low when compared to the 90 points of summer, 2007.

VEH-housing consultant Bob Maas states that more potential house-buyers now understand that a low mortgage interest has a positive effect on the housing supply. ‘They feel it is now time to strike in order to avoid political decisions on reduction of the MID’.

It were people like Bob Maas that made me start my blog. The man is clearly clueless: the Dutch housing prices are still skyhigh, due to the relatively low mortgage interest rate and the MID. 

Since the moment of peak housing prices, the housing prices didn’t drop by much more than 10-15%, while the government failed to run the gauntlet concerning the Dutch housing market. 

The result is that the Dutch housing market is still firmly locked. Wise people that can afford to wait, should wait until the housing prices dropped further, unless they really need their desired new house and can easily afford to buy it.

Almost 5% of the houses in The Netherlands is vacant, according to the Central Bureau of Statistics.

Totalled up, 375,000 of the 7.2 million houses in The Netherlands is vacant. With 75,000 of the houses, this vacancy is caused by usage of the house as a practice, studio or second house. The rest is really vacant.

Over 15% of the vacant houses is built after 2000. Two-third of all vacant homes is a rental house. According to the CBS it is improbable that vacancy will increase in the coming years, as the supply of newly-built houses has dropped, while the number of households has increased at the same time.

So far for Bob Maas: 300,000 houses are really vacant of which 100,000 owner-occupied houses. Many older rental houses are vacant, because of renovation or demolition, but that is not true for the vacant owner-occupied houses.

If the housing market would be on its way to recovery, you would expect this number to drop, taking into consideration that the number of newly-built houses dropped sharply. Instead, the number of vacant houses is stable over the last two years. 

And what to think of the 15% vacant houses that have been built after 2000; there is clearly something wrong with these houses. Either these houses are too expensive, not suitable for the distinct groups of people looking for a house or in a impopular neighborhood. Summarized, the problems are far from over and the vacancy is there to prove it.

This is to rub it in once more.

Year-on-year sales of houses in August 2012 dropped by 16.2%: to 8,384 sold houses from 10,009 in 2011M08. Month-on-month sales increased by 12.5% from 7,451 houses.

The number of registered mortgages in August dropped by 24.3% y-o-y: to 14,446 from 19,082 in 2011M08. M-o-m, there is a drop of 0.5%.

The m-o-m sales data show indeed a slight improvement that could be caused by the effect that Bob Maas earlier described. However, compared to the y-o-y drop, this monthly increase is peanuts and I’m sure that the (seasonal) effect will be short-lived. The drop in mortgage sales by 0.5% m-o-m shows too that everything is not hunky-dory yet in the Dutch housing market.

The number of houses that has been foreclosed, has soared y-o-y by 18.1%: to 170 from 144. The increasing number is remarkable as protests against foreclosures have been mounting. The auctions would not be executed fairly in general, which leads to higher residual debts for the former owner than deemed necessary.

On a total housing stock of 7.2 million houses, the number of 170 foreclosures is still extremely low. This is not so much a sign of health of the Dutch housing market, as it is that foreclosure is a step-of-last-resort that all parties (homeowners, realtors and banks) desperately avoid.

One of the reasons for this evasive behavior is that the Dutch SIFI (systemically important financial institution)-banks (ABN Amro, ING bank and Rabobank) absolutely not want that the true value of the Dutch housing stock will get at their balance sheet, knowing that many mortgages will be underwater in many years to come. 

The banks rather kick the can down the road for some extra months, while hoping for a miracle. A miracle that won’t come.

For more than 10,000 hectares (24,711 acres) of community-owned building ground, there is hardly any demand from the owners, according to an investigation executed by the Kadaster and engineering agency DHV. For the whole country, the municipal ground reserves have been compared to the CRE and RRE (commercial/residential real estate) demand until 2025. The excess ground represents a value of €1.1 bln.

Municipal ground-owning companies are in dire straits currently. A lot of ground has been bought during the last 20 years. As a consequence of the economic crisis and the stalled housing market, these supplies weigh heavily on the municipal balances. Losses are huge: varying from €2.9 bln (Deloitte) to €3.2 bln (Professional council Municipal Finances) for all Dutch communities.

The CRE/RRE crisis made the problems at the ground-owning companies visible and reinforced these effects. The Dutch housing market is locked, there is an excess of industrial/commercial zones and (structural) vacancy on the CRE-market is still mounting.

Inquiring minds that speak Dutch or use a good translator, read the whole report, as this is a must-read document. Even if the real estate crisis and the economic crisis would not have happened, the kamikaze behavior of communities concerning ground-ownership and the development of excess industrial/commercial zones would have led to the current anyway, albeit a few years later. 

The crisis sped up the process, but didn’t cause it. The communities themselves caused it. Unfortunately the Dutch municipal tax-payers (we all are) must foot the bill for this erratic behavior.

Summarized, it puzzles me that the Dutch home-owners are slightly less pessimistic, but I’m happy about it. To be honest, they don’t have a good reason to be this optimistic, in my humble opinion.

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