Investment climate and investment in new construction undermined
In contrast to previous local and national regulations aimed at creating affordability on the rental market, the recently-announced rent regulation plan looks to be a serious game changer for the investment climate even before it has actually been implemented. In short, the plan is that all rental properties with 187 WWS points (house evaluation system) or under (about €1,000 a month) will form part of the regulated market as of 1 January 2024. This will only apply to new tenancy agreements. From that date the rent will be set based on the housing evaluation system (WWS), which depending on the property’s location could have far-reaching repercussions for rental income and the value of the property, but also for the attractiveness of the rental sector for investors. In the following sections of this report we explain the expected impact of the plans as outlined at the moment.
About 47% of the unregulated sector in the G20 will become regulated
When the threshold for regulation is set at 187 WWS points, about 47% of properties in the G20 (20 largest urban areas in the Netherlands) that are now in the unregulated sector will come under the regulated sector. The extent to which this occurs depends greatly on the composition of the local housing stock in each town or city. The size of the property, energy class and WOZ value (for the purposes of the Valuation of Immovable Property Act) play a major role here.
Estimate of effect of rent regulation based on 187 WWS-point threshold in the G20
Caption: This effect was calculated using data from NVM (Dutch Association of Real Estate Agents and Appraisers) and BAG (National Register of Addresses and Buildings) as well as our own data. When calculating the number of WWS points, where no data was available we assumed an average-quality property
The housing stock in cities such as The Hague contains a relatively high number of larger rental homes, in part to meet demand from expats. For this reason, a small percentage of homes in The Hague will enter the regulated sector compared to say Groningen. The latter contains a large number of smaller homes with lower energy labels, meant primarily for all the students living in the city.
The properties that will enter the regulated sector are mainly smaller (<90 sq m), partly depending on the location and energy label. In Amsterdam and Utrecht this chiefly applies to homes of up to 75 sq m with lower energy labels.
This regulation threshold for new homes in Amsterdam and Utrecht lies between 60 and 65 sq m. In Rotterdam and The Hague the threshold stands at about 70 sq m. This is mostly due to the lower WOZ values in these municipalities, resulting in them earning fewer points in this respect than in Amsterdam or Utrecht. However, this cap on the number of points derived from a property’s WOZ value is currently being reviewed and may be revised in the definitive legislative proposal.
Estimate of effect of rent regulation based on 187 WWS-point threshold in the G20 according to energy class and size of property
Analysis of property sizes and energy labels shows that it could well pay to invest more in sustainability. A higher energy label not only means a higher rent in the new regulated social+ segment but can also help the property to stay out of the regulated social sector.
The ministry is also examining whether adjustments are required to the WWS system in this respect as well in order (1) to ensure that it becomes more profitable to invest in sustainability and (2) to keep new construction projects attractive for investors.
