Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: head of Europees vastgoed (European Real Estate) Robert-Jan Foortse. He discusses why we are still not madly building new construction in the Netherlands.
To reduce the severe housing shortage, many new houses must be built soon. Outgoing Minister of Housing Hugo de Jonge has made agreements with the provinces on how many houses should be built in each province. The regional governments, together with the municipalities, determine the exact spot where the houses will be built. The dot on the horizon is 981,000 homes by 2030. Cost? Roughly 300 to 400 billion euros. Who will pay for that? Private individuals have to invest in new owner-occupied housing, housing corporations have to provide a large share of social housing. And institutional investors are also expected to put their money into rental housing, including international investors. After all, there is a limit to how much national pension funds can absorb.
So, all types of investors are desperately needed, but that is precisely where the problem lies. The far-reaching accumulation of ever-changing regulations makes investors uncertain. And investors don’t like uncertainty. Add to that high land prices, inflation of construction costs, increased interest rates and rigid approval procedures, and the result is a toxic cocktail that has paralyzed the Dutch market for new housing. So the question is; what can we do to get out of this perfect storm so we can start madly building new construction? The answer is not simple, says Foortse.
The numbers
First, the numbers. The total housing stock in the Netherlands is about 8 million residential units. Of this, 43 percent is rental housing, or 3.4 million residential units. Housing cooperatives own the largest stock of rental housing, 2.3 million residential units. Investors collectively own 1.1 million rental units. “It is good that the stock is being expanded, after all, there is an increasing shortage of over 300,000 homes in the Netherlands. That is both a quantitative and qualitative shortage.” The shortage is not always obvious in the streetscape. As an example, Foortse refers to a recent study by the international real estate organization CBRE, which shows that more than 100,000 people over 30 are forced to live with their parents. “More supply of (affordable) housing is therefore a logical and simple solution.” And there is enough space for that, according to Foortse. “The Netherlands has sufficient land, especially if agricultural land is further limited according to current plans and can be made available for housing construction.” But, Foortse acknowledges, where that land is available also matters. “Not everyone wants to live in northeastern Groningen. Preferably, you have that land available in and near the big cities where many people work and want to live. That's a puzzle that has to be put together.”
That also applies to the rules. It bothers Foortse that they keep changing while the game is already being played. “Think of the adjustment of the regulation of rents and the further fiscalization of real estate, such as increasing transfer tax, changes in box 3 and the elimination of the Fiscal Investment Institution (FBI). This is unpleasant, especially since, as pension investors, we have a long-term horizon.” Moreover, according to APG’s real estate expert, the accumulation of rules is sometimes counterproductive. “You can already see that large (international) investors are finding the Dutch housing market less attractive and are moving their assets to other countries in Western Europe, where the gap between housing supply and demand is often just as big. That’s a shame, because we really need that capital in the Netherlands.”
One step back to be able to take two steps forward
To give the housing market a fresh boost, Foortse says there is no need for short-term opportunism; it needs long-term vision. After the elections and with the coalition talks in prospect, he advocates a predictable policy, based on the long-term vision, which will ideally also be anchored for the next ten years. While a cabinet ideally governs for four years, institutional investors have a much longer horizon. Foortse does warn that solving a problem is usually accompanied by some short-term pain. “This will be no different in the housing market. All parties must be willing to take one step back in order to eventually take two steps forward. This applies not only to (local) governments, but also to market parties that have to look critically at their margins and returns.”
The mindset seems to be moving in that direction as well. After several years of paralysis, a sense of urgency has now emerged among all the market parties involved and the government, Foortse notes. “There is currently a momentum in which parties are trying to find each other to jointly reach a widely supported solution.”
The real estate market is referring to a new “Marshall Plan” for the housing market. Foortse: “Just to show how far-reaching and comprehensive the problem is, whatever the solution must therefore be. To create the right framework, we are now at the drawing board. We are emphatically doing the same with other parties in the Netherlands, to see what works for them and what works for us, in order to achieve both the financial and social return that our clients are looking for.”
Which solutions are discussed?
In the real estate market and in the dialogue with politicians, a multitude of different ideas are discussed. For example, there are parties that question the framework of housing development programming. In Amsterdam, this programming is structured with 40 percent social, 40 percent mid-rental and 20 percent private sector. Different percentages apply in other municipalities. “Can't this be equalized nationally? And what are the correct percentages?” Foortse wonders. According to him, segmentation is of great importance for social cohesion in a city. “However, strict enforcement of the frameworks currently means that many projects are no longer financially feasible, resulting in projects not being started.”
But, Foortse also realizes, the disadvantage of lowering social and mid-range rental percentages is that affordable housing is not immediately added to the stock. “The advantage is that construction can start again to get the flow going. Research shows that adding new homes leads to 2.4 moves. The same research states that it could become even more interesting if senior housing is added, because then the number of moving movements will increase from 2.4 to 3.”