Purchase protection benefiting first-time buyers in Dutch housing market: study

The purchase protection many municipalities implemented against investors buying houses to let out has benefited first-time buyers, especially those with a mid-level income. Though the measure has put lower-income tenants in a worse-off position, the Financieele Dagblad reported based on a study by the University of Amsterdam, Erasmus University Rotterdam, and the Land Registry.

Since last year, municipalities can designate neighborhoods where investors can’t buy cheap and medium-priced homes to let out. Dozens of municipalities have implemented the measure, including all four large cities. According to the researchers, about 2,000 homes nationwide went to people who bought to live there that otherwise would have fallen into the hands of real estate investors.

The researchers examined the measure’s impact in Rotterdam, the first municipality to implement purchase protection. Unlike Amsterdam and Utrecht, Rotterdam only implemented purchase protection in 16 neighborhoods, and not the whole city.

Before the introduction of purchase protection, investors bought about 35 percent of the houses in Rotterdam districts like Kralingen and Tarwewijk. After the ban on buy-to-let, that number dropped to about 10 percent last year. Before purchase protection, first-time buyers in Rotterdam bought about 40 percent of homes. After the measure, that increased to almost 60 percent. That increase was not visible in neighborhoods without purchase protection.

“We simply see that first-time buyers bought more homes when the investors left,” researcher Matthijs Korevaar of Erasmus University Rotterdam told FD. “Almost a quarter of sold [Rotterdam] homes to which a purchase ban applies are now not in the hands of an investor, but a resident, including many first-time buyers.” The trend was also visible nationally but smaller at 10 percent.

The researchers did not notice a waterbed effect in which investors moved to neighborhoods without a purchase ban. They also found no evidence that investors pushed home prices higher with high bids. “Then you should have seen a significant fall in house prices in neighborhoods where purchase protection now applies, and we are not seeing that,” Korevaar said.

While purchase protection seems to work well for middle-income buyers, it is less beneficial for low-income tenants, the researchers noted. Investors rent out properties to people with lower incomes than buyers. According to the researchers, this concerns income differences of about 10,000 euros per year. These tenants are also often younger and more likely to be ex-pats or other immigrants.

“Many of these tenants have an income that perfectly qualifies them for a social rental home, but as a labor migrant, you won’t get that without going onto the waiting list for years,” Korevaar said. “If it is necessary to give the first-time buyer a boost with, among other things, the purchase protection, how should we look at this group of tenants for whom owning a home will remain out of reach even without investors?’

The researchers figures suggested that the rents of the homes that remained in the rental market increased after the introduction of purchase protection. The Dutch central bank DNB also warned that the already small private rental sector would become even smaller due to purchase protection and the government’s plans to regulate more of it.