Dutch home prices to rise 14% by end 2026; No more fear of recession: DNB
Home buyers shouldn’t count on price reductions in the coming years after home prices reached a new record level in April. In a new estimate, De Nederlandsche Bank assumes that home prices will rise 6 percent this year and around 4 percent per year in the next two years. That is more than double what the regulator estimated six months ago. The central bank is also no longer concerned about a recession for the Dutch economy.
According to DNB, the upward adjustment to home price expectations is the result of the continuing decline in investments in housing construction. Mortgage interest rates have also fallen, and incomes have risen, giving home buyers more money to spend on a new home. In the tight market, that drives up prices.
According to Olaf Sleijpen, director of monetary affairs at DNB, this means that first-time buyers, in particular, are “back where they were.” Recently, falling prices have given them more opportunities to buy their first home. According to the regulator, just under 40 percent of households have sufficient income this year to finance an average-priced home (452,000 euros).
“The housing market is still very tight. There is only one solution for this, and that is to build. Both owner-occupied and rental homes,” said Sleijpen.
No fear of recession
The fear of a recession is definitely a thing of the past, the DNB said. According to the regulator, the strict interest rate policy to combat high inflation without damaging the economy too much has worked unexpectedly well.
The Dutch economy is expected to grow by 0.5 percent this year and by 1.3 percent in the next two years—a more optimistic outlook than December’s forecast, which expected 0.3 percent growth this year and plus 1 percent next year. A recession occurs when the economy contracts for two quarters in a row.
According to Sleijpen, the more favorable outlook is due to the revival of world trade, which is important for the Dutch economy. The government and consumers also continue to spend a lot. In addition, from next year, the business community will again contribute to the growth of the economy, where these activities currently still have a negative impact.
Consumer spending continues to increase due to rapidly rising wages and home prices. According to DNB, wage increases will peak this year and decrease slightly in the coming years. “But they remain high. However, from a consumer perspective, the inflation shock will not be fully recovered until 2026,” Sleijpen said. Price increases due to the war in Ukraine have led to a historically large loss of purchasing power since 2022, which is being made up for little by little.
Coalition plans will increase budget deficit beyond EU standards
The DNB also said that the Netherlands’ budget deficit will increase sharply in the coming years under the new coalition's plans. Under the plans in the main lines agreement of the PVV, VVD, NSC, and BBB, the budget deficit will rise to 3.3 percent of the gross domestic product (GDP) in 2025. That is significantly more than the 2.5 percent expected with the current plans and above the EU standard of 3 percent.
The CPB expects a 2.8 percent deficit next year. The difference is that the DNB assumes the new Cabinet will be able to implement relatively many of its plans. The CPB was slightly more reserved in that regard, expecting the deficit to only reach 3.3 percent and exceed the EU standard in 2026. DNB expects the standard to be exceeded in all years up to and including 2028, except for 2024 and 2027.
“The sweet spot of the new Cabinet is mainly in the first years,” Sleijpen explained. “Cutbacks will be made, especially in later years. In 2027 and 2028, this will ensure that the budget deficit with the main lines agreement is actually lower than with the current plans.”
The outgoing Cabinet was heading for a budget deficit of 3.7 percent in 2028, while the plans of the intended Cabinet amount to 3.1 percent in that year. In 2026, the expected budget deficit with the current plans (3.7 percent) is also close to the new plans (3.8 percent).
Sleijpen is more satisfied with this year’s expected budget deficit of 2.4 percent. “Government finances are in good shape now, but the deficit will rise quickly.”
Reporting by ANP and NL Times