Housing construction will miss 2023 target by 30 percent

Construction companies in the Netherlands will deliver almost a tenth fewer homes this year and next year than in 2022, the Economic Institute for Construction (EIB) expects. That’s terrible news for Housing Minister Hugo de Jonge’s plans to build 100,000 new homes yearly to solve the housing shortage. This year and next, the EIB expects about 70,000 new homes to be built annually.

The increased costs of building materials and the higher interest rates are putting a brake on construction, according to the independent research agency. The nitrogen setback that hit builders at the end of 2022 probably also played a role in the contraction.

The total construction output, which also includes renovations and road construction, will fall 1.5 percent this year, followed by another 2 percent contraction in 2024, according to the EIB’s base estimate. In addition to newly-built homes, the number of completed utility buildings will fall sharply. These are buildings not used as living space, like schools, offices, factories, and shops.

Researchers at the EIB spoke of a “turning point” primarily related to the Russian invasion of Ukraine. That caused sharp price increases for fuels and building materials, like wood and steel. The uncertainty also led to higher interest rates. More expensive loans also make investments in real estate less attractive. Only the renovation and repair of homes and buildings will still be a growth market in the coming years because more money will go to sustainability.

Earlier, the realtors’ association NVM and real estate advisor CBRE, among others, pointed to the additional effect of lower house prices. As homes fall in value while costs for construction companies rise, investors are likely to put less money into new construction, they warned.

Last year, construction did grow thanks to extra building permits issued a year earlier. But according to the EIB, the increase was much smaller than expected. A contributing factor was that municipalities issued fewer permits for construction projects due to a shortage of suitable building locations and because cities seemed to have too few civil servants to handle all permit applications. In November, the court also ended the exemption that automatically granted construction projects permission to emit nitrogen, causing additional delays in construction.

Shoulder to the wheel to stop construction decrease

“If we all put our shoulders to the wheel, the new construction will not have to decrease,” said Martin van Rijn, chairman of the umbrella organization for housing corporations Aedes. According to him, the corporations are ready to increase their new construction production. “If there is affordable building land and suitable locations, we can get started.”

“Locations are often the bottleneck, and that is related to the price of land. It is a housing crisis, the urgency is high, it cannot be the case that construction sites remain unused because there is now less return to be achieved,” Van Rijn said. “As far as I’m concerned, the Minister can also take more control over that. Sometimes things can happen simply because they have to. Anyone who doesn’t want to build now misses their turn. Housing corporations are eager for those locations. We should not allow all those people struggling to find a home to be left out in the could.”

Housing associations have previously agreed to build 250,000 social rental homes and 50,000 mid-market rental homes in the coming years. “Of course, I know that a lot of things still have to be arranged before those homes are there and that the tide is against us for a bit. But we must not let that put us off.”