After seven hard years of crisis, it seems that the Dutch housing market has finally found the positive vibe again: sales are soaring, prices are up and the number of houses for sale is steadily diminishing. But is that good news for everybody in The Netherlands?!

Was 2014 indeed the year of the final turn-around for the Dutch housing market, after the devastating crisis started in 2007? More and more signals seem to point in that direction.

Already last year in October, I reported that the housing data eventually seemed to have found the way up, after seven long years of crisis with plummeting sales and dropping housing prices. I was only very cautious about the fact that the government seemed to have thrown in a few catalysts to help the housing market:

Nevertheless, I still don’t approve of the idea that the Dutch government has thrown in another round of artificial catalysts to keep the housing prices up and enforce a turn-around in the Dutch housing market.

All in all, past government interference has created more havoc in the Dutch housing market, than that it did any good to it. Everybody, who became a victim of the Dutch housing bubble in 2008, will confirm that to you.

The real snags, regarding the current market, are the extremely low interest rates and the extraordinary increase of rental rates in social housing and low/medium budget rental houses.

I still see these two factors – the artificially low interest rates and the soaring prices for rental houses – as both a danger and an example of undesirable government interference (Mortgage Interest Deductability(!)). 

Yet, I recognize the fact that these measures seemed to have helped the Dutch housing market to find the way up again in sales and housing prices.

This morning, the Dutch Association of Realtors ‘NVM’ came with really good data with respect to the Dutch housing market. Especially the housing sales had soared, with 30% year-on-year growth in the fourth Quarter of 2014. Also the housing prices were up by 3.5% y-o-y. The following snippets come from the press release of NVM:

Recovery Dutch housing market even better than expected

The recovery of the Dutch housing market during the fourth quarter of 2014 was even better than expected [based on preliminary data – EL]. In total, NVM real estate agents sold 34,622 houses during 2014Q4. This is a 30.6% raise year-on-year for the same quarter and almost double the number of houses sold at the beginning of the crisis. Approximately 46,500 houses have been sold in the whole Dutch market. 

The average sales price of a sold house is now €215,000. That is 3.5% higher than last year and about 5% higher than at the lowest point of the crisis. NVM chairman Ger Hukker: “The 'crisis quarters' of low sales numbers and dropping housing prices lie definitely behind us. The forecasts for 2015 are positive, in spite of the restraining regulations for the financing of houses, which have been deployed on January 1st. We expect an increase in the number of transactions of 5% - 10% and a price increase of 2.5% - 3%. Yet, political unrest and instability in the world could disrupt the housing market.”

Ger Hukker, chairman of the NVM during a session in 2013
Picture created by: Ernst Labruyère
Click to enlarge

There has been an increase in sales numbers for all housing types, but the strongest increase can be found among the condominium sales: 38.1% year-on-year. NVM realtors sold a total of 116,623 houses in The Netherlands in 2014 (total sales numbers in The Netherlands: 156,500).

Quarter on quarter, the housing prices rose by 1.3% in 2014Q4. “With 0.1%, the positive price action almost came to a halt during 2014Q3, but this quarter showed again a substantial increase”, according to Hukker.  Especially the price action of condos was remarkable, as average prices increased with 4.8% y-o-y. The price of a house-in-a-row showed a limited increase with 2.3%. Again the prices of condos and houses-in-a-row have been converging.

Remarkable is that the sales duration of sold houses – the number of days it required to sell the house – did not further drop last quarter. Year-on-year, however, the sales duration dropped by a month to 124 days in average. Quarter-on-quarter, on the other hand, the sales duration increased slightly. 

Further analysis of NVM revealed that this was caused by the fact that the supply of older houses (i.e. houses that have been for sale for a longer period) sold much better during last quarter than in previous quarters. As this old supply formed a bigger share of the sold houses, the sales duration rose slightly.

Halfway the fourth quarter in 2014, 149,082 houses were for sale at NVM realtors. The whole existing housing market for owner-occupied houses then contained about 200,000 houses. At this moment, the whole supply of houses for sale has been in a declining trend for already two years. Year on year, 8.2% less houses were for sale. Cheaper housing types, like condominiums and houses-in-a-row, saw declines of 10% - 11%, while residential houses only saw a decline of 2.6%. The residential house, as a housing type, seems to profit the least from the recovery on the Dutch housing market.

After the introduction of this government, the Dutch housing market has been reformed drastically. A good development according to Hukker: “Minister Stef Blok took decisive measures and created clarity. This led to increasing confidence among house-buyers. Blok enabled thus the recovery of the housing market”. 

On the other hand, Hukker is convinced that these measures should not be deployed too rigidly. As an example, he names the gradual decline of the Loan to Value ratio. This ratio is declining by 1% per year to 100% in 2018. This means that, from 2018 on, no higher mortgage can be obtained than the value of the owner-occupied house. 

At the same time the ceiling value of the Dutch National Mortgage Guarantee (i.e. NHG) will be reduced to €245,000 from €265,000. The temporary reduced VAT-rate (i.e. value added tax) of 6% for renovation and overhauling of houses, will cease to exist on July 1, 2015. From then, the normal rate of 21% will be applied again.

NVM chairman Hukker sees a continuation of the 2014 recovery of the housing market in 2015. He expects between 5% and 10% growth in the number of housing transactions and an average price increase between 2.5% and 3%. 

Especially the market for newly-built houses will considerably improve, with substantial sales rate increases. Yet, a return to pre-crisis levels is virtually impossible, according to Hukker.

I have been to a discussion once, where Ger Hukker was present as guest and speaker. I consider him an intelligent and realistical man and not a perma-bull and ‘builder of castles in the air’, regarding the Dutch housing market. He is definitely not like the proverbial broken clock, ‘which is right two times a day’. 

His views on the Dutch housing market of the last six years have been realistic and with an open eye for the dangerous imbalances that caused the Dutch housing crisis in the first place.  

Ger Hukker understands that the pre-crisis situation of 12 years of bedazzling growth in both housing prices and housing supply – as a consequence of initially the economy being on fire during the dot-com bubble and subsequently the plummeting interest rates, when this dot-com bubble eventually popped (Allan Greenspan(!)) – were an absolute and erratic one-off situation, which probably won’t return in at least 75 years (see second red and bold text).

Where I disagree with him, however, is:

• His desire to see the Dutch housing prices rise again;
• His satisfaction about the measures that minister Stef Blok took during the last few years, in order to ‘save’ the Dutch housing market;
• His reluctancy with respect to a further reduction of (f.i.) the Loan-to-Value ratio in The Netherlands.

Everybody and their sister outside The Netherlands – including the IMF and other supra-national institutions – agree that the Dutch mortgage mountain is still skyhigh, in comparison with other countries and situations. Consequently, it will remain a millstone for many inhabitants of The Netherlands in many years to come. In other words: the Dutch are still much too much indebted with their mortgage.

Now that the interest on mortgages is still extremely low (aka ridiculously low), this mortgage mountain seems like a 'walk in the park' for many house-owners. And personally, I think that the chances for a quick rebound of the interest rates are very, very dim, now that the economy is still in the zone of the very cautious and fragile growth, in which a quick raise of the interest rates could easily cause havoc.

But still, when the interest rates would indeed increase dramatically at a time when many house-owners reached the maturity date of their fixed interest period, the increased mortgage payments resulting from this raise could send the country in another deep, economic crisis. 

Still many Dutch people live in fact beyond their means with their mortgage and many, many houses are still underwater.  

In my vision, the reduction of the Loan-to-Value ratio is a good start for a healthier housing market in the future and it should be continued after 2018, until only 85% - 90% of the sales value of the house can be borrowed. When this means that many people have to save money first, in order to buy a house, so be it!

Second, I still want to totally abolish the Mortgage Interest Deductability (MID) within 10 years maximum, as it is remains a very disturbing factor on the Dutch housing market, which caused artificially high housing prices and has turned into a subsidy for residential house owners.

I am very well aware that such measures could again cause havoc on the Dutch housing market, but the fact that these measures are not taken, means that the housing market will remain a playing field for political emotions and dogmas and will never turn into a healthy market with fair prices for houses and building ground.

And where the Dutch politicians can hardly be blamed for keeping the official interest rates artificially low (except for the MID subsidy, of course), the politicians cán be blamed for the outrageous rent increases on the social and free sector rental housing market in 2014 and before, with percentages well above the inflation rates. 

See for instance this chart from this article from February, 2014.

Average rental raises versus the official inflation rate
Chart created by: Ernst's Economy for You, based on data of www.cbs.nl
Click to enlarge

I cannot take away the feeling that the Dutch government helped the market for owner-occupied housing first and foremost, by making rental houses so unattractive and expensive, that virtually nobody WANTS a rental house, when they have a real choice. 

This is very bad policy in my opinion and unfair for people, who have too little income to buy their own house. 

So, as a matter of fact, I have mixed feelings about the current improvements of the Dutch housing market. For sellers, real estate agents like Ger Hukker, project developers and construction companies, the price and sales increases are good news indeed. 

However, for buyers (especially starters on the housing market) and tenants of rental houses these are (very) bad news, as many of the current trends and measures keep the housing prices artificially high. That is the way it is!