The Dutch housing situation is akin to
a bubble again, almost purely based upon speculation and expat housing in the
big cities. It might explode sooner than
you think, as the underlying wage growth is actually negative.
Everybody
who would take a look at the Dutch housing market in 2018, would think that the
Dutch economy is growing dramatically at the moment.
Since
June, 2013 – identified as the trough in
the average Dutch housing prices since the housing crisis started in 2007(!) – the
average house price rose by a staggering 41%, to €291.000 from €206.000. These
figures are based upon data from Statline, the online database of the Dutch Central Bureau of
Statistics.
And
while these data are slightly distorted by the sturdy price growth in large
cities like especially Amsterdam and Utrecht, the general feeling in the rest
of the world could be that the sky is the limit again in The Netherlands.
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The average housing prices and the average sales numbers in The Netherlands from 2008 - 2018 Chart by: Ernst's Economy for You Data courtesy of statline.cbs.nl Click to enlarge |
The
uninformed reader could think – based upon these shiny figures of the Dutch
housing market – that the Dutch average wages have grown dramatically since
2013. Yet, that is not the case, as the following chart shows:
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The average collective wage rise vs inflation in The Netherlands from 2010 - 2018 Chart by: Ernst's Economy for You Data courtesy of statline.cbs.nl Click to enlarge |
To
the contrary, I would say. As a matter of fact the collective labour agreement wages
(i.e. CAO wages), as negotiated by the labour unions, have not grown at all in
comparison with the inflation. The black line in the second chart represents
the net effective wage growth in The Netherlands, when corrected for inflation.
The
grim conclusion for The Netherlands is that there was actually a net wage
decrease for the middle and lower income groups, who are mostly bound by the
CAO wages. This wage decrease is caused by the rise in consumer prices for all
kinds of goods and services, as well as the sturdy growth in local and central
taxes and levies.
Then
the multi billion euro question is: what did cause this extraordinary growth in
housing prices in The Netherlands in a time when wages did not grow at all?
My
answer is: probably the causes are pure speculation – based upon financing
against the still near-zero interest rates that large investors have to pay – at one hand and the soaring demand for housing
on behalf of expats and foreign knowledge workers in the urban areas at the
other hand.
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The average housing prices in the largest cities and wealthy areas from 2010 - 2018 Chart by: Ernst's Economy for You Data courtesy of statline.cbs.nl Click to enlarge |
Especially
Amsterdam and Utrecht as well as the cities closeby are very popular among expats
and knowledge workers from around the globe, as the aforementioned chart shows.
Amsterdam “enjoyed” a 60% raise in housing prices since 2013 and also Utrecht
saw a 33% growth since the same year.
The
companies and institutions who hire these expats and knowledge workers are mostly
more than willing to pay topdollar for a small house or condo at close range,
as it is still a relatively low expense in comparison with the labour costs of
these workers themselves. This circumstance probably fueled the broad
speculation by all kinds of private and corporate landlords in Amsterdam and
Utrecht and makes that the housing prices have soared in those areas.
On
top of that, these extremely popular urban areas have almost certainly a
trickle down effect on the housing prices in neighbouring regions, even if
these are less popular among expats and/or Dutch middle class people. This
leads to the housing prices going up in general and all over the country, as
the following chart shows.
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The average housing prices in the four areas of The Nerherlands from 2010- 2018 Chart by: Ernst's Economy for You Data courtesy of statline.cbs.nl Click to enlarge |
Therefore
the current housing prices have equalled (and sometimes exceeded) the housing
prices since the crisis of 2007, when the housing crisis broke out.
Is that a healthy situation? No it is
not!
Can it continue? No, it cannot!
When the net wages of the Dutch
middle classes have actually dropped since 2008 (or since 2013 as a matter of
fact), but the housing prices have risen sturdily since then, a new and more
dangerous bubble has probably inflated.
And to make things worse: this bubble
must be close to popping!
The imploding housing bubble of 2007
did not have much to do with the American mortgage crisis, which was only
looming in those days. The real reason was that the housing prices in The
Netherlands were totally out of balance with the housing prices in countries
like Belgium and Germany, as they sat in 2007, and the people got fed up with
their ever higher mortgages.
The same situation is now also present
and perhaps even worse. I heard a radio interview with a Belgian realtor
shortly and his message was the same: Dutch people are more and more looking
for cheaper housing in Belgium.
What will be “the needle” to implode
this bubble?
I would say a sturdy increase of the
general interest rates, shaking out the pure speculators and cash strapped landlords,
who are over their heads in debt! But also an imminent buyer’s strike could
certainly be a possibilty, as the same happened in 2007 and led to a 30% price
drop.
All the signals are there that the
Dutch housing bubble might have a short life and that the explosion might send
shockwaves all over the country.
When the lower and middle classes don’t
have the money for Dutch housing anymore, the rise in housing prices cannot
last much longer!