Is the government taking over the role of real estate investors?

Published on: 16 February 2023

Current issues related to the economy, (responsible) investment, pensions and income: every week, an APG expert gives a clear answer to the question of the week. This time: head of European real estate Robert-Jan Foortse on the central government’s more assertive role in housing construction. “As a real estate investor, we are looking for both a financial and a social return and are actively working towards a solution, but we are not the solution.”

Last week, it was announced that Amsterdam will receive a financial contribution from the state to build some 1,000 flex homes. In total, Minister De Jonge (Housing and Spatial Planning) made 100 million euros available to 42 municipalities for about 8,360 flex homes. This fits into the cabinet plan to build some 900,000 houses between now and 2030. The question is whether the government is thus taking over the role of real estate investors.

The first question is whether Minister De Jonge’s plan is even feasible. “It is ambitious to say the least,” Foortse argues. “Last year, a record 74,000 homes were built. That is not enough to meet the overall target of 900,000. And for this year, ‘only’ 60,000 new homes are expected, so the shortfall is piling up.”

Meeting the 2030 target requires five factors: land, permits, materials, builders and money. Each factor has its own challenges. “Because where is that land, and what is the price? And what about the permits? The process is slow now, due to a lot of objections being filed and municipalities being understaffed to grant the permits in time.”

These are all challenges that are difficult to tackle. “For instance, land is mostly controlled by municipalities, for whom its sale has become a major source of income. Land prices rise, so to speak, to keep the municipal budget in order.” And in recent years, not only land prices have risen, but also those of materials and labor, making newly built houses more expensive, continues Foortse. “That poses a further problem, because the majority of those 900,000 new homes must be affordable. Making newly built homes more expensive is undesirable, because then they will remain unattainable for first-time buyers. However, municipalities need the income from increased land prices and investors want to make a reasonable return. So, who should give in?” 

Changing rules
To break the deadlock, two solutions are possible, says Foortse. “Either someone has to take the reins and direct housing construction centrally, the minister, for instance, or a decision is made to leave the market as free as possible in the expectation that as many houses as possible will then be built. The problem with the second solution is that it will then be built mainly in the more expensive segment, possibly at the expense of opportunities for first-time buyers if the throughput does not kick in. I understand that the minister is trying to take charge. But I don’t know how successful he will be in this, given the many challenges and different interests at national, provincial and municipal levels.”

The role of real estate investors is certainly not over yet, as they bring an indispensable factor and that is money, says Foortse. “At the end of November, we went to meet Minister De Jonge with representatives of five of the largest housing investors in the Netherlands, including APG. We said that, as a Dutch pension investor, we are interested in investing in housing in the Netherlands on behalf of our pension fund clients, and that Dutch rental housing is also already an important component of our clients’ investment portfolios. As a property investor, we are looking for both a financial and a social return and are actively working towards a solution, but we ARE not the solution. The task and cost of 900,000 new homes is so big that foreign investors are also needed. It does not help that regulations have changed several times in recent years, such as the adjustment of transfer tax or the extension of the points system to the freehold sector. It amounts to changing the rules of the game while playing. This is unpleasant, especially since, as pension investors, we have a long-term horizon. We therefore stressed to the minister the importance of clear and predictable rules. Because predictability lowers risk and thus attracts investors.”

The small size of the national government’s contribution to Amsterdam’s flex housing also shows that the government is not taking over the role of real estate investors. “We’re talking about 12 million euros for about 1,000 houses, which is 12,000 euros per house. The government is not a real estate investor, but provides a contribution, a subsidy as it were. That is a different role from ours as investors. However, I do think that all market players agree that it would benefit the Netherlands to build many more homes as soon as possible,” Foortse concludes.