What can other countries learn from the Dutch housing market jam?
Meta van der Starren is a Research Employee at TeldersStichting, the liberal think tank of the Netherlands. She collaborated on the development of a liberal vision for the Dutch housing market (WoningMarktMeester)
Housing is a basic need for people worldwide, and affordability issues are prevalent across the globe1. The United States need to build 6.5 million homes to fill the gap between single-family home constructions and household formation2. In the United Kingdom 4.3 million homes are required to alleviate the shortage of public housing and Germany has reached the largest housing deficit in over twenty years3. In the Netherlands, the housing shortage has increased to 4.8% of the total housing stock, equivalent to 390,000 homes, in 20234. The projection is that a total of 981,000 additional homes will be needed by 2030.
In the Netherlands, the growth in housing supply has barely kept pace with the increase in the number of households since 20085. In 2016, the net expansion of the housing supply reached its lowest level since the economic crisis. While the growth in supply increased significantly starting in 2018, it did not continue into 2020.
In short, the Netherlands is a prime example of how to create a shortage of suitable and affordable housing. What mistakes has the Netherlands made, and what lessons can we and other countries learn in shaping a housing market that provides suitable and affordable housing?
Changing demographics
The demand for housing is directly influenced by the size and changing demographics of the population seeking homes. Within Europe, the Dutch population is among the fastest-growing6. Over the past decade, this growth has been primarily driven by migration rather than natural increase.
Figure 1. Immigration progress 1999-2020
Source: CBS.
According to the Central Bureau of Statistics, net migration (immigration minus emigration) amounted to 223,798 people in 2022. By 2023, the Netherlands had a population of 17,894,759. During the 2019-2020 period, the largest proportion of migration was attributed to family migration at 35%, followed by labour migration at 23%.
Meanwhile, the share of study migration has increased from 7% to 20% over the past twenty years. However, not all migrants remain in the Netherlands; three-quarters of labour migrants leave the country within ten years, and for study migrants, this figure rises to 80%. Projection of this population growth have consistently been underestimated in recent years7.
In addition to population growth, the composition of the population and housing preferences are also changing. For example, the number of elderly people in the Netherlands is increasing, and there is a growing number of single-person households. As a result, housing development plans are lagging behind actual population growth and the evolving needs of different households.
In addition to population growth, past policy choices have influenced which demographic groups seek accommodation in the housing market. For example, priority is given to asylum-seekers for social rental housing, while the deinstitutionalization of mental health care results in an annual outflow of 3,000 clients into the housing market. Housing for ex-prisoners also requires priority allocation, and there is further prioritization for individuals with social or medical urgency. Additionally, the policy of enabling older adults to remain in their homes for longer periods results in fewer housing units becoming available on the market8.
A limited free market: regulation of supply and demand
Apart from population growth and demographic changes, the demand and supply of housing are heavily influenced by government policy. Unlike many other markets, the majority of households in the Dutch housing market receive government support for their housing costs, such as the mortgage interest deduction or rental allowances.
Figure 2 distinguishes four ownership situations—ownership without a mortgage, ownership with a mortgage, rental with support, and rental without support—across different European countries, based on Eurostat data from 2022.
Figure 2. Ownership situations
Source: Eurostat 2022.
This figure highlights how significantly the Dutch housing market differs from those of other countries. For instance, the proportion of homeowners without a mortgage is the smallest in the Netherlands, a direct consequence of the long-standing and generous mortgage interest deduction policy9.
Furthermore, the percentage of rental housing without support is notably low, especially when considered as a fraction of the entire rental market. This contrasts with the notion that a robust free rental market is essential for a healthy and stable housing market10.
The limited size of the private rental sector is largely due to the relatively large share of social housing, where households are supported either directly through housing benefits or indirectly through secured financing from housing associations11. As a result of the support in the housing costs, the demand side of the housing market has been exceptionally stimulated for decades12.
However, this demand-side support contrasts with the much less available support on the supply side of the market. Numerous government measures contribute to the stagnation of new housing supply. For example, the availability of suitable building land in the Netherlands is restricted, leading to rising land prices amid a growing population13.
Despite being densely populated, only 7% of the land is used for residential purposes. Between 2000 and 2015, the number of homes increased by 14%, while the proportion of land allocated for residential construction grew by only 7%. In comparison, land allocated for businesses and offices is more generous at 4.3%. In these markets, unlike in the housing market, vacancies are more common, and land prices are generally lower14.
The supply of new housing is further hindered by spatial planning policies and other institutional barriers. The combination of bureaucratic procedures and spatial planning regulations has made new housing construction in the country a lengthy and complex process, distorting the housing market.
The (local) government imposes additional requirements beyond general quality standards, such as the requirement for a certain percentage of affordable housing or the types of materials that must be used. These additional regulations often vary by municipality.
The additional requirements imposed by municipalities on development projects often make them financially unviable for developers. As a result, these market restrictions lead to a reduced supply of new housing.
As a result of these demand-stimulating measures and supply-restrictive regulations, the Netherlands has an inelastic housing supply15. While in other markets supply typically increases with rising prices due to growing demand, this is only very limited in the Dutch housing market.
Since the supply side of the market cannot expand or adjust, developments that drive demand, such as mortgage interest deduction, declining mortgage rates, and increasing population growth, can have an exceptionally strong impact on prices16. Consequently, the price of Dutch homes is primarily driven by demand rather than supply.
The Netherlands, like many other countries, faces a shortage of suitable and affordable housing. This problem has been exacerbated by demographic changes and specific policy decisions that have altered housing market’s dynamics
Mobility: a lack of choice for the middle segment of the market
The rising housing prices in the Netherlands are particularly burdensome for those seeking homes in the middle segment of the market. As previously noted, the majority of households on the Dutch housing market receive government support for housing costs, primarily targeting the upper and lower ends of the market through measures such as housing benefits and mortgage interest deductions17.
This focus leaves middle-income households in a challenging position: they earn too much to qualify for social rental housing but not enough to afford private rentals or ownership18.
The combined effect of demographics and limited free market conditions has not only led to a shortage of homes but also resulted in a mismatch between the available housing stock and the actual housing needs19. Research indicates that one in five people in the Netherlands lives in a home that does not align with their income or life stage20.
Factors such as an aging population, policies encouraging older adults to live independently for longer, and shifting household compositions, have all contributed to an increased demand for senior housing and alternative housing forms21.
Potential solutions like relaxing cohabitation regulations, allowing for additional floors, or subdividing existing properties, could help alleviate effective remedies for the housing shortage22.
Unfortunately, these solutions are often constrained by supply-side regulations set by the government or institutional barriers, such as those related to social benefits and pensions, or mortgage and rental agreements that prohibit subletting23. These restrictions prevent the freeing up of homes for those in need, thereby stagnating the housing market.
The lack of affordable and accessible mid-range rental housing not only disrupts the housing market’s overall functionality, but also impedes labour mobility, ultimately resulting in a loss of overall welfare24.
Developing a robust mid-range segment is therefore essential for improving the housing markets functionality. It would provide more options for middle income households currently in regulated social housing to move up.
First-time buyers, who often struggle to enter the market due to their income levels, would also benefit from more accessible mid-range options. Additionally, older homeowners looking to downsize or capitalize on their property’s value would find the mid-range segment a desirable alternative.
Abolition of centralized spatial planning
From the liberation in 1945 until the early 21st century, the Dutch housing market was under strong central government control, with national policies aimed at expanding the housing stock25. The central government not only determined the number of homes needed but also decided where these homes should be built26.
Funding was provided to facilitate the development of locations and housing projects to meet these objectives27. Housing and spatial planning were closely linked, as housing needs directly influenced infrastructure, business parks, utilities, office locations, and other aspects of (urban or regional) development.
Since the 1990s, there has been a significant shift towards decentralization. Provinces and municipalities were given more responsibilities under the principle of ‘decentralize where possible, centralize where necessary’28.
This shift led to the dissolution of the Ministry of Housing, Spatial Planning, and the Environment, with housing responsibilities being transferred to the Ministry of the Interior and Kingdom Relations. Provinces became responsible for the careful use of land and balancing of spatial planning tasks of regional or supra-regional importance29.
Meanwhile, municipalities took on the task of ensuring sufficient housing and commercial sites through the development of zoning plans. They determined the placement of commercial areas and housing and assessed whether specific building plans met aesthetic and substantive requirements. This went beyond simply ensuring the quality of a building. The actual construction of homes was handled by housing associations, private developers, and, to a lesser extent, individual private citizens30.
The central government primarily viewed itself as a system facilitator, rather than a director. It reduced its substantive expertise and ambitions for directly managing the housing market at local and regional levels, relying instead on market participants, housing associations, and municipalities to solve problems31.
During this period, shrinkage regions, areas experiencing a decline in population, particularly among the working-age, began to emerge leading to vacancies in some areas.
Currently, the absence of a clear spatial planning framework is evident. The housing market, reliant on available land, inherently deals with scarcity. This market therefore must not only address demand and the ways in which supply can meet it, but also share limited space with other needs, such as energy transition, infrastructure, nature development, water management, logistics, food production, recreation, and workspaces32.
New challenges, including sustainability, nitrogen regulations, PFAS, climate adaptation, and more have further complicated the situation. Judicial rulings on nitrogen emissions and potential exemptions for construction projects have added to the uncertainty, exacerbating existing shortages and straining the overall housing market. To balance these sometimes, conflicting interests and manage scarcity effectively, some degree of centralized coordination is necessary.
Conclusion
The Netherlands, like many other countries, faces a shortage of suitable and affordable housing. This problem has been exacerbated by demographic changes and specific policy decisions that have altered housing market’s dynamics.
Support measures targeting both the upper and lower ends of the market, combined with stringent supply-side regulations, have particularly disadvantaged middle-income households, making it challenging for them to find appropriate and affordable housing.
Therefore, it is crucial to implement measures that both moderate demand and enhance supply. The scarcity of land and the need to balance housing development with other interests necessitate a more centralized approach to spatial planning.
Nevertheless, the housing market needs to be deregulated to reducing the number of regulations imposed by local governments that complicate the construction of new homes. The market needs greater freedom to build houses within the framework established by government building criteria. By giving builders more leeway to construct homes and minimizing additional requirements imposed by local authorities, the supply of new housing can be increased.
Endnotes
1. ‘Housing is in crisis all around the world’, Bloomberg, 14 March 2024, accessed on July 25, 2024.
2. ‘The US housing market is short 6.5 million homes’, CNN, 8 March 2023, accessed on July 25, 2024.
3. ‘The housebuilding crisis: The UK’s 4 million missing homes’, 22 February 2023, and ‘Multi-Crisis in Housing Market’, 4liberty.eu, 26 May 2023, accessed on July 25, 2024.
4. ABF Research, ‘Primos prognose 2023: Prognose van bevolking, huishoudens en woningbehoefte’, accessed on July 2, 2024.
5. ABF Research, Vooruitzichten bevolking, huishoudens en woningmarkt, p. 17.
6. Staatscommissie Demografische ontwikkelingen 2050, Gematigde groei: Rap- port van de Staatscommissie Demografische Ontwikkelingen 2050, Den Haag, 2024, p. 58.
7. ‘Bevolking groeit sneller dan gedacht, woningbouw loopt achter feiten aan’, gebiedsontwikkeling.nu, 14 May 2019, accessed July 25, 2024.
8. Strategies in Regulated Markets & Finance Ideas, Waar moeten opa en oma wonen? Gemeentelijke woonvisies en handelingsperspectieven onderzocht, 2020, p. 7.
9. In 1893, the mortgage interest deduction was introduced by the liberal minister Nicolaas Pierson. He implemented the notional rental value (huurwaardeforfait) to tax the benefits of homeownership, thereby treating it similarly to other assets like savings. Homeowners opposed this measure, prompting Pierson to offer a concession in the form of the mortgage interest deduction, allowing them to deduct the costs of homeownership.
10. De Nederlandsche Bank, ‘Woningmarkt en samenleving gebaat bij betere balans tussen koop en huur’, 9 April 2020, accessed on July 25, 2024.
11. Het fundament voor de sociale huur werd in 1901 gelegd door de invoering van de woningwet, opnieuw door de liberaal Nicolaas Pierson, ditmaal als premier. Pierson wilde het falen van de markt als aanbieder van betaalbare woningen voor de arbeidersklasse bestrijden met deze woningwet, waarin hij het goede werk van woningbouwcorporaties stimuleerde en opschaalde.
12. P Hilbers & C Eijking, ‘Star aanbod en stimulering van vraag stuwen huizenprijzen in Nederland op’, ESB 107(4809S), pp. 30-34, p. 30.
13. Centraal Planbureau, Beweging op de woningmarkt: Prijzen en volumes, Den Haag, 2020, p. 12.
14. Centraal Planbureau, Het bouwproces van nieuwe woningen, 2019, p. 3. Land for offices and industry costs 276 and 198 euros per square meter, while residential land costs 425 euros per square meter. In contrast, the average living space per person in the Netherlands is relatively large, at 53 square meters.
15. Caldera Sánchez & Å Johansson (2011), The price Responsiveness of Housing Supply in OECD Countries, OECD Economics Department Working Papers No. 837, 2011, p. 6.
16. Organization for Economic Co-operation and Development, ‘OECD Taxes policy studies: Housing taxation in OECD countries’, July 2022, pp. 16-18.
17. De Nederlandsche Bank, Vier ingrediënten voor een evenwichtigere woningmarkt, 2021, p. 6.
18. M Korevaar, ‘Historisch gegroeide discrepanties brengen de woningmarkt uit balans’, ESB 107(4809S), pp. 24-29, p. 2 and Planbureau voor de Leefomgeving, Middeninkomens op de woningmarkt: Ruimte op een krap speelveld, 2017, p. 30.
19. Sociaal Economische Raad, Hoe wonen werkt, p. 27.
20. I&O Research, ‘Negen op tien Nederlanders: Sprake van ‘wooncrisis’’, 2 November 2023, accessed on July 4, 2024.
21. Rijksoverheid, Ruimte voor wonen, p. 19.
22. Stec Groep, De potentie van splitsen en optoppen, 2023, p. 19.
23. P Eichholz, L Kattenberg & N Kok, ‘Neem prikkels tegen samenwonen weg om het woningtekort te verkleinen’, ESB 107(4809S), 2022, pp. 46-50, p. 47.
24. F Schilder & J Conijn, ‘Middeninkomens en het middensegment: De ontbrekende schakel op de woningmarkt’, ASRE Research papers, 2015, p. 2.
25. PJ Boelhouwer & HMH van der Heijden, ‘De woningcrisis in Nederland vanuit een bestuurlijk perspectief: achtergronden en oplossingen’, Bestuurskunde 2022 31(1), pp. 19-33, p. 25.
26. FR Bruinsma & E Koomen, ‘Ruimtelijke ordening in Nederland’, Vrije Universiteit Amsterdam, 2023, p. 55.
27. Sociaal Economische Raad, Hoe wonen werkt, p. 42.
28. Ministerie van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, Nota Ruimte: Ruimte voor ontwikkeling, 2004, p. 4 and Sociaal Economische Raad, Nota Ruimte, 2004, p. 43.
29. I&O Research, Verkenning rollen op de woningmarkt: Rolverdeling tussen Rijk, provincies, regio’s en gemeenten, 3 March 2020, p. 8.
30. Companen, Analyse prestatieafspraken 2014-2015, 14 March 2016, p. 3.
31. WJ Verheul & F Hobma, ‘Institutionele ruimte voor wonen: De woningcrisis en achterliggende systeemkwesties op de agenda’, Bestuurskunde 2022 (31) 1, pp. 3-18, p. 5.
32. Planbureau voor de Leefomgeving, Grote opgave in een beperkte ruimte: Ruimtelijke keuzes voor een toekomstbestendige leefomgeving, Den Haag, 2021, p. 9.
References
ABF Research (2023), ‘Primos prognose 2023: Prognose van bevolking, huishoudens en woningbehoefte’, 12 July.
ABF Research (2021), Vooruitzichten bevolking, huishoudens en woningmarkt: Prognose en Scenario’s 2021-2035, June 29, Delft.
J Boelhouwer & HMH van der Heijden, ‘De woningcrisis in Nederland vanuit een bestuurlijk perspectief: achtergronden en oplossingen’, Bestuurskunde 2022 31(1), pp. 19-33, p. 25.
FR Bruinsma & E Koomen, ‘Ruimtelijke ordening in Nederland’, Vrije Universiteit Amsterdam, 2023.
Caldera Sánchez & Å Johansson (2011), The price Responsiveness of Housing Supply in OECD Countries, OECD Economics Department Working Papers No. 837, 2011.
Centraal Planbureau (2019), Het bouwproces van nieuwe woningen.
Centraal Planbureau (2020), Beweging op de woningmarkt: Prijzen en volumes.
P Eichholz, L Kattenberg & N Kok, ‘Neem prikkels tegen samenwonen weg om het woningtekort te verkleinen’, ESB 107(4809S), 2022, pp. 46-50.
P Hilbers & C Eijking (2022), ‘Star aanbod en stimulering van vraag stuwen huizenprijzen in Nederland op’, ESB 107(4809S), Mai, 8, pp. 30-34.
I&O Research, Verkenning rollen op de woningmarkt: Rolverdeling tussen Rijk, provincies, regio’s en gemeenten, 3 maart 2020.
I&O Research, ‘Negen op tien Nederlanders: Sprake van ‘wooncrisis’’, 2 November 2023, accessed on July 4, 2024.
M Korevaar, ‘Historisch gegroeide discrepanties brengen de woningmarkt uit balans’, ESB 107(4809S), pp. 24-29.
Ministerie van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer, Nota Ruimte: Ruimte voor ontwikkeling, 2004.
De Nederlandsche Bank, ‘Woningmarkt en samenleving gebaat bij betere balans tussen koop en huur’, 9 April 2020.
De Nederlandsche Bank, Vier ingrediënten voor een evenwichtigere woningmarkt, 2021.
Organisation for Economic Co-operation and Development (2022), ‘OECD Tax policy studies: Housing taxation in OECD countries’, July 21.
Planbureau voor de Leefomgeving, Middeninkomens op de woningmarkt: Ruimte op een krap speelveld, 2017.
Planbureau voor de Leefomgeving, Grote opgave in een beperkte ruimte: Ruimtelijke keuzes voor een toekomstbestendige leefomgeving, Den Haag, 2021.
Rijksoverheid (2020), Ruimte voor wonen: Brede maatschappelijke heroverweging, April, 20.
F Schilder & J Conijn, ‘Middeninkomens en het middensegment: De ontbrekende schakel op de woningmarkt’, ASRE Research papers, 2015.
Sociaal Economische Raad, Hoe wonen werkt: Een sociaal-economische verkenning, nr. 9, December 2022.
Sociaal Economische Raad, Nota Ruimte, 2004.
Stec Groep (2023), De potentie van splitsen en optoppen, 20 maart.
Strategies in Regulated Markets & Finance Ideas, Waar moeten opa en oma wonen? Gemeentelijke woonvisies en handelingsperspectieven onderzocht, 2020, p. 7.
WJ Verheul & F Hobma, ‘Institutionele ruimte voor wonen: De woningcrisis en achterliggende systeemkwesties op de agenda’, Bestuurskunde 2022 (31) 1, pp. 3-18.
