New homes won’t bring prices down anytime soon, warns ABN Amro

More new construction will not lead to lower house prices in the short term, ABN Amro says in a special edition of its housing market monitor ahead of the parliamentary elections on October 29. The bank also notes that a gradual reduction of mortgage interest tax relief is unlikely to cause house prices to fall.

Housing is an important and recurring theme in the upcoming elections, as there are many conflicts of interest. Although the parties agree that there is a significant shortage of affordable housing, they differ in opinion on the policy necessary to tackle this issue.

The construction of more homes seems to be the most obvious solution for the housing shortage. In 2022, the government set a target of building 900,000 homes by 2030, which amounts to around 100,000 homes a year.

But this target will likely not be reached, partly due to objection procedures, staff shortages, nitrogen regulations, and grid congestion. The shortage is expected to rise to 430,000 homes by 2025, according to ABN AMRO.

Although the construction of more homes is the most direct way to solve the shortage in the long term, it is also the most expensive and complex solution. New housing developments need supporting infrastructure, including roads, utilities, supermarkets, and schools.

ABN Amro identifies regaining investor confidence as the main challenge, noting that it has been undermined by inconsistent political policies. The bank predicts it will take years to ease the housing shortage, meaning that new construction is unlikely to bring house prices down in the near future.

ABN Amro considers mortgage interest tax relief costly and outdated, with an annual price tag of 11 billion euros that also inflates house prices. The bank cautions that a sudden abolition could have severe economic effects, echoing recent warnings from the IMF.

This would likely lower house prices but increase housing costs for homeowners, particularly first-time buyers. Consequently, most proponents of ending the relief advocate a gradual phase-out to minimize impacts on both homeowners and property values.

ABN Amro also observes that few political parties have outlined plans for the future of the Affordable Rent Act, “indicating they intend to maintain it.” The bank says a well-regulated rental market can curb speculation and help keep rents affordable, though it may come at a significant cost to the government.