Housing shortage not the only reason for steep house prices, economists claim
Steadily rising house prices for the past eight years have been largely attributed to the housing shortage in the Netherlands. Yet, economists pointed out that there are also financial causes behind the increase, NOS reported.
“You often hear the housing shortage is the cause of the sky-high house prices, but I don’t see that reflected”, chief economist at CBS, Hein van Mulligen said. “Prices are rising due to the high wealth and low-interest rates which means that people can pay more for a home.”
According to Van Mulligen, the housing shortage is not more acute than it had been in the past. “The housing stock in comparison with the number of inhabitants and households is the same as ten years ago.” Van Mulligen said the wealth of the Dutch has never been so great and the owner-occupied home is often a large part of people’s assets. “People 65 and over, in particular, have now largely paid off their mortgage and are using their means to help their children out when buying a home.”
Additionally, the chief economist pointed out that rapidly rising house prices are not a phenomenon limited to the Netherlands. The trend can also be seen elsewhere in Europe and in the United States. “We have to look for the common cause: low-interest rates worldwide”.
On Wednesday, the Dutch National Bank (DNB) reported that increasingly cheap home financing, including mortgage interest deduction, generous lending standards and subsidies for first-time homeowners, are important factors in the rise in house prices. Even more so than the housing shortage.
Cheap financing does come with risks both in the form of high mortgage debt for the people buying a house and for a bank with insufficient reserves when house prices tumble. On January 1, 2022, DNB, therefore, wants to lower the risk that banks are taking on the housing market.
The research agency, ABF Research, said the housing shortage should nonetheless not be underestimated. “If you look at how many young people have to stay at home and the number of people over 25 who are still living with roommates because they have no other choice, then these are all signals that more houses need to be built”, director of ABF Research, Berry Blijie said.
Blijie emphasized that constructing new houses will not automatically cause house prices to fall. “The housing shortage is indeed not the leading factor in the development of house prices but one of the underlying factors, such as low-interest rates and the abolition of the transfer tax. More housing could, in time, take the madness out of the market and provide regional relief.”
