Regulation and affordability in a wider perspective
Stricter regulation on the residential rental market has been the subject of debate for several years now. It has resulted in several amendments to national legislation that have had a severe impact on the affordability of rental homes.
For example, the cap on the WOZ value in the housing evaluation system has caused many homes to remain within the social sector. These homes - mostly in the big cities - are let for less than the market rent. The annual rent increase in the unregulated sector is also laid down by law: owners may only raise rent on properties in the unregulated sector by a maximum of 1% above the rate of inflation. From next year, this will change to 1% above the rate of inflation or 1% above the CAO (collective labour agreement) index, depending on which rate is lower in that year.
Municipalities are also adopting their own measures quite separately from national legislation. Many are imposing restrictions when allocating land. For example, a large percentage of new construction must be let within a set rent bandwidth for a period of 10 to 25 years.
These homes also need to remain available for the mid-market rental segment. Furthermore, a growing number of municipalities are applying fixed rules for the number of new homes in the social and mid-priced rental segments. Most new construction therefore contains 30% to 40% social housing.
If we put these data in perspective, the Netherlands appears to have a considerably larger percentage of social housing within the total housing stock than its neighbours. In fact, the Netherlands continues to have a larger stock of social housing (2.7 million) than households that belong to the social sector’s primary target group (2.5 million households). To a certain extent, the affordability debate therefore still appears to be a distribution issue.
Percentage of social housing per country
This does not alter the fact that the affordability of rental homes is indeed being squeezed by incorrect distribution and shortages on the housing market. Not just in the social and unregulated segments but also the owner-occupier sector. The only difference is that the latter has been disguised by the extremely low mortgage rates of recent years. Now that rates are climbing again, the affordability of owner-occupied homes and in particular their accessibility are again being severely squeezed by the tougher loan conditions. This could be further exacerbated next year when cost of borrowing norms are adjusted downwards, as is currently expected to happen.
Prices on the owner-occupier market have risen by about 9.5% a year over the past eight years. This is considerably higher than the rate of inflation over the same period: 2.6%. If we compare this to how rents have evolved, then we can see that rents in the unregulated sector have climbed by an average of about 5.4%. Yet this only applies to the theoretical market rent, not to renewable contracts; there the average increase of 2% was 60 basis points below the average rate of inflation and 40 basis points above the annual increase in social housing rents.
Inflation and prices on the owner-occupier and rental markets based on Q3 data
All in all, we can see that rent increases for renewable contracts have been conservative over the past few years. Rapidly-rising market rents stand in stark contrast to this and are a result of the poor supply/demand ratio. Sufficient new housing stock is required to curb this, something that takes time to achieve. Yet the affordability of the most popular locations continues to be a problem, e.g. for crucial professions.
More generic rent regulation will not solve this problem, however. As we said above, such measures have a large number of mainly negative external effects. A targeted approach involving allocation at new housing complex level would seem to be a more obvious solution and is increasingly being applied at local level.
