Seeking a balance between affordability, sustainability and investability
Although municipalities are increasingly succeeding in safeguarding affordability for all incomes and professions - while retaining investment power for investors - new national legislation on rent regulation would seem to be inevitable.
We expect that the plans will indeed safeguard affordability for about 2.5% to 3% of the total housing stock. However, the affordability issue is simply being shifted upwards to above the new rent regulation threshold. The general expectation is that this will lead to considerably higher rents in the unregulated sector. Moreover, it will significantly complicate new developments, especially in the mid-price sector. It is for this reason that the ministry is reviewing the current WWS system - and specifically the number of points for communal areas, outside areas and the points awarded for energy labels. The ministry is also considering revising the cap on the WOZ value, a reassessment that we believe would be appropriate. A higher threshold would automatically lead to a considerably improved investment climate for new homes, especially in cities such as Amsterdam and Utrecht.
The contours of the new legislation are now becoming clear. In our view there is one adjustment that is absolutely essential to restricting the negative external effects on investment in new developments. This relates to the number of WWS points for energy labels.
If we place affordability in a broader context and examine overall housing costs - rent plus energy costs - then we foresee a problem under the current plans. They are at odds with the sustainability ambitions and run counter to the affordability of overall housing costs, especially now that energy costs are considerably higher.
We take the following analysis as an example. Based on current energy prices, overall housing costs for a 60 sq m home with an F label are €70 per month higher than for the same home with a sustainable A++ label. This is a remarkable statistic, given that energy costs are playing an increasingly prominent role in the general affordability debate. If we examine the same situation based on capped prices, we can see a difference in overall housing costs. Nevertheless, the question is whether this is enough given future prices once the caps are removed and the Netherlands’ ambition to strongly stimulate investment in sustainability in the housing market in order to steer existing housing stock towards energy neutrality.
Impact of energy costs on overall housing costs between F and A++ label rental homes with WWS rents (e.g. Tilburg)
Caption: Energy prices as of the end of September were used to calculate the energy costs. Consumption data are based on data from Statistics Netherlands (CBS).
One important adjustment to the housing evaluation system is therefore required: the number of points awarded for the energy labels must be increased. This will give (institutional) investors capacity to continue investing in sustainable new homes in all housing segments, rather than only in the medium and large segments. Doing so will contribute to the growth of housing stock, which in turn will lead to rents stabilising in the long term.
Furthermore, this adjustment would provide an additional incentive for landlords with energy-inefficient properties. They will accelerate the process of making these more sustainable. This will benefit the climate and aid affordability for tenants - especially when energy prices are as high as they are at the moment.