Last Monday, 16 September 2013, was a new landmark for the Commercial and Residential Real Estate Madness in The Netherlands.
On this day, the Dutch financial newspaper ‘Het Financieele Dagblad’ published the news that Lansingerland, a mid-sized, recently merged municipality near Rotterdam, lost €250 million on overpaid, excess building ground. In the process, the municipality set a new national record in municipal stupidity. Here are the pertinent snips of this developing story:
The neigbouring municipality of Rotterdam, Lansingerland, is heading for a loss of at least €233 million, and probably even €286 million, from the exploitation of building ground. This is disclosed in a secret report, which was leaked to the FD.
In January 2013, the municipality reported a loss of just €144 million. In the meantime, the loss soared by more than 50% and could even double in size, in comparison with the loss reported earlier by Lansingerland.
Lansingerland lies in the hart of the Rotterdam region and is a merged municipality, consisting of the former communities Bleiswijk, Bergschenhoek and Berkel & Rodenrijs.
The latest data means that the community breaks its own record of the largest loss per inhabitant, in the exploitation of building ground. At the end of last year, Lansingerland already held the Dutch national record with a loss of €2600 per inhabitant. The new calculations increase the gross loss to roughly €5000 per inhabitant. These are not by any means ‘paper’ losses, but real, tangible losses. These losses emerge, as a result of the circumstance that the community paid much more for the building grounds than these grounds currently yield back.
Consequently, these losses will inevitably lead to radical austerity measures and tax increases, according to the city council of Lansingerland. However, even these measures won’t be sufficient for the municipality. Lansingerland expects to need financial aid from other government bodies.
In the least negative, secret scenario (€233 million loss), the municipality calculates with a further depreciation of its building ground by 7.5%. In this case, the municipality will scrap the development of expensive appartment complexes.
However, the losses on building grounds could also increase to €286 million. This happens in case of the secret scenario playing out, in which the demand for expensive newly-built houses doesn’t return to the level of 2007 within five of ten years. And when construction even totally stalls, the loss for the community will be a grand total of €373 millions.
In order to emphasize the enormous size of this mega loss of €233 million, I tell you that Lansingerland is a municipality of just over 55,000 inhabitants, ‘which expects to grow to 64,000 inhabitants in 2021’ (source: Wikipedia).
Well, I have news for this municipality and its inhabitants: this growth won’t happen!
Who wants to move to a municipality, where you and your family members immediately become the ‘happy’ owners of a debt of €5000 per capita. And where even strongly increased austerity measures and tax increases won’t be sufficient to fill the financial potholes that the city officials left, when they became the ‘victims’ of the great building frenzy, which terrorised The Netherlands between 1995 and 2007.
I always try to stay as far away from populism as possible. Nevertheless, I can’t help myself asking why failed city officials, like the ones in Lansingerland, always seem to get away with this kind of (almost criminal) behaviour during their official activities.
I would understand, when a municipality like Lansingerland would lose €10 – 15 million, after having purchased or maintained overpaid or excess building ground: you only know that the peak in ground prices and housing prices has been reached, when the demand stalls and prices start to drop steadily. Nobody can ask communities to read such an event in their crystal balls.
However, there are no excuses for a loss of €233 million or more for such a small municipality. There simply aren’t!
This is Commercial and Residential Real Estate Madness at its very worst. The thought that the city officials of Lansingerland can get away with this disgraceful loss and just present the bill for their misdemeanors to their inhabitants, is sickening. Even when these city officials would be fired, they – as civil servants – would receive retainers for a number of years, where normal employees would probably receive nothing (except for welfare payments) or perhaps even could face criminal charges.
Therefore its time to end the CRE / RRE Madness for once and for all and definitely clean up the enormous mess which it created.