Christine Whitehead The Dutch Housing Market – current

Rooilijn
Jg. 47 / Nr. 6 / 2014
The Dutch Housing Market – current issues and ways forward
P. 452
Christine Whitehead
The Dutch Housing Market –
current issues and ways forward
Christine Whitehead is Professor of
Housing Economics at the London
School of Economics. She has been
involved in housing since her PhD,
initially working with econometric
models of the housing market. Her
main interests now lie in the interface
between housing and housing finance
markets and the role of government
policy. For 20 years she was head of
the Cambridge Centre for Housing
& Planning Research at Cambridge
University. Christine Whitehead
discusses her views on the Dutch policy
response to the housing crisis, owning
versus renting, and shared ownership.
Is purchasing a house still a sensible
investment, and what can help you to do
so: grandparents or shared ownership?
What fascinates you in housing and planning?
“A very big issue is that planning is fundamentally a
legal framework. There is a set of rules, and even if they
are stupid, that’s what you follow. You may try to get
them changed, but you have to follow them, whereas
housing is not a legal framework in the same way. We
obviously have lots of laws saying what local authorities
must do, but it is different. There is always a tension
between the housing people trying to get what they
want in housing, and the planning people saying, “but
we are meant to be working in this formal environment” which are very different. So twenty years of that
was quite interesting.”
How do you feel about how the Netherlands responded to the crisis? Do you think they did it in a correct
manner?
“Well, it was a terrible shock to them when the social
housing sector started to have problems. They thought
that social housing people were well behaved and
they learned otherwise. A lot of what has been -and
is- wrong has to do with the macro economy. The
Dutch banking system is very open, and as your
imputed income tax went down in real terms and your
right to mortgage interest relief went up, you ended up
being massively over-indebted both as a country and
as individuals. As an answer, there have been a lot of
short-term measures such as allowing people relief on
two homes because they can’t sell one of them. These
are responses to particular issues, helping the middle
classes, which is not always a bad thing to do. More
fundamentally, your government has taken the opportunity to try to restructure and this has probably left the
system in the doldrums for longer than other countries.
This may be very brave, but it may also be very foolish.
At the moment, house prices are still decreasing,
activity in the housing market is pretty low and you are
not showing any great signs of improvement. Very, very
small glimpses, but you are not in the position that you
would want to be in the present time.”
How did government policy exactly delay recovery in
the Netherlands?
“Although it is far too early to say whether they have
done the right thing or not, I certainly think they have
imposed quite a lot of additional costs. It may be that
it was impossible to do anything else in this situation.
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Interview: Christa Hubers and Iris Roodheuvel
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Christa Hubers and Iris Roodheuvel
When you go back there are many path dependencies.
For example, you gave the housing associations vastly
too much money. At exactly the moment that you want
to reduce this you discover that they are not behaving
terribly sensibly as well. I think that the system is
probably strong enough to cope, but you are doing
some things incredibly slowly, like reducing mortgage
tax relief for existing borrowers.”
And within the field of planning?
“Your planning system always used to be regarded as
working extremely well. Local authorities would take
on the land and put in services and then sell it on so
they got money out of it. But at the moment - and this
is not just because of the financial crisis - you are not
building very many houses. That seems to be partially
related to the fact that that way of planning is no
longer working.”
No. All municipalities bought land thinking that they
could develop it if the economy would be great.
“Yes, so they overstretched themselves. In 2006, unlike
macro economists, most housing economists did
expect a crisis. We did not expect it to be an enormous
crisis. We thought there were ways of keeping it fairly
calm. Which it turned out there were not. But when
it did happen, some of the immediate effects were
not as bad as we expected, because interest rates were
extensively reduced. People could afford to pay their
mortgages. In addition, the labour market worked
differently and people weren’t let go. Young people
may not have found jobs and people may have lower
incomes, but unemployment did not rise in the way
that was expected. We stretched it in a way. I don’t
think anybody in 2008 thought that we would still
fundamentally be dealing with the crisis in 2018. And I
think we will be. I don’t think we will be out of it in the
next year or so.”
What did housing economists foresee?
“Well, housing economists were aware that in a very
large number of countries, there was a consistent rise in
house prices right across the board, especially in Spain,
Photo: Iris Roodheuvel
Ireland, some parts of Scandinavia and the United
States. They were very well aware, but whether they
knew exactly what was causing it is a different matter.
These rising house prices were being fuelled by debt.
The Dutch have around 120% of GDP in debt and the
Danish even more: the two countries we always viewed
as being ‘perfectly well behaved’. We felt that this was
not a sustainable situation. People were also beginning
to draw back. You could see in the mortgage figures
that they weren’t taking on as much mortgage debt as
they were being offered, although they were still taking
too much. Developers were also pulling out. I think we
all thought that this would lead to some form of crisis,
but we weren’t expecting the fall of Lehman Brothers.
We weren’t expecting Americans to say “right, we are
not going to rescue that!”.”
What are your thoughts on home ownership in
today’s economic climate?
“Colleagues in Delft and I have written a lot about
why people choose owner-occupation. I think there
are quite fundamental reasons why people want
owner-occupation, and these can apply right the way
down the income scale. I think the core issue is vertical
integration. That is to be able to say that “I am my own
tenant and my own landlord” and therefore I can make
a joint decision in a way that has to be contractual in
both the social rented sector and the private rented
sector. An enormous amount of the tensions around
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The Dutch Housing Market – current issues and ways forward
rental come from the way that that contract is played
out, and the inflexibilities that lie within it. For instance,
if you are a social tenant then people will be doing these
types of improvements to your home, whether you
want them or not. Like changing the window frames.
Somebody will be telling me that it is good for me. Well,
I want to tell myself what is good for me in that sense. So
owning your own house instead of renting it eliminates
all those sorts of tensions. In principle home ownership
also has the benefit that you can structure your housing
costs over your lifetime in relationship to your income.
Coming up to retirement age, you hope your mortgage
will be paid off, and therefore your housing costs will
be greatly reduced. This is also why governments like
home ownership. And secondly, Mrs Thatcher used to
say “give them a mortgage and then they will behave”.
People do not want to lose their house so they have got
to keep the value up by improving and looking after it.
Equally, people are not giving up their jobs because they
need to be able to pay the mortgage.”
What about the disadvantages? Is buying a house at
the moment actually still a good investment? Or was
it ever?
“The question is whether owning a house is too
expensive further down the income scale, so that you
are not able to eat or do other things? There are also
people who don’t want home ownership for other
reasons, such as single people, people who move around
a lot, or older people who want maintenance work done
for them. So you end up with categories of people who
are very likely to want owner-occupation and categories
of people who are very likely not to want it. Inflation is
what really determines whether it is worthwhile to buy
a house. During the last thirty years we have had a lot
of inflation. Whereas rents go up with inflation, home
ownership is a historic cost to yourself, so to that extent
you benefit from rising inflation. Would I buy at the
moment? I would be very careful about what. Don’t buy
anything unless you are prepared to live in it for five
years. Don’t think you are going to sell it on quickly. In
the end, it depends an awful lot on what your lifestyle
is. Nowadays, lifestyles are much more flexible. And the
issue is whether if you are going to move to the other
side of the country, whether you want to then become
a landlord here by renting out your current house,
and becoming a tenant somewhere else? This creates a
much more complex way of looking at housing systems.
Divorces, separation, lifestyle changes of all sorts do
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mean that renting is increasingly suitable. Nonetheless,
the vast majority of people still settle by the age of forty.”
What about renting? Does that still provide a reasonable alternative to home ownership?
“You are the only country that actually has rent controls as supposed to rent stabilization. In other words,
you’ve got these fixed rents in relationship to points, I
think up to 700 euros. One very good thing about the
Netherlands is the consistency between the two rental
tenures, social and private. However, I think policy
makers might need to ask the question of whether they
should be entirely consistent, and what you are trying
to do for the group with a rent capacity of between 700
and 1000 euros? That is the area where young people
with jobs can’t find proper rental housing in major
urban areas and you are making life quite difficult in
that context. Your government needs to deal with the
issue around the 700-1000 euro rent capacity in the
major cities.
Furthermore, for some people it is becoming difficult to
access the social rental sector. These people don’t have
a choice to go into owner-occupation because the risks
are too large for them. Consequently, they end up in
the private rental sector, and probably not a very good
part of it. There isn’t enough adequate private renting,
especially in Amsterdam. You’ve got a dysfunctional
system for young people and for people who are not
well off. It’s not just a Dutch problem - we all face the
same problem, every country. It is becoming much
harder to become an owner-occupier unless you’ve
got good parents, or grandparents – grandparents are
much better, much more prepared to help. We have
made owner-occupation much more difficult, but we
haven’t built a private rental sector which is doing any
of the real job and providing an attractive alternative to
buying a house.
Another major concern is the elderly. Definitions of
‘elderly’ change, but clearly, in most countries the
private rental sector is not a very good option for them.
In most countries that have seen rapid housing cost
inflation it is quite difficult for older people to imagine
how they are going to continue to pay the rent and the
service charges. Service charges are a big issue. It is
possible that a situation will arise in which there are an
awful lot of 65 year olds, who are sort of middle class but
can’t afford to rent adequate housing. And rent controls
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Interview: Christa Hubers and Iris Roodheuvel
have other costs especially to those trying to find homes
for the first time. In this case we will have to develop a
quite different type of housing.”
Such as?
“We are going to have to have some sort of shared
equity, or a more stable type of private renting, but we
are not very good at the private renting. The problem
is that somebody has to pay that rent. In the case of
many of the elderly it will have to be the government,
and the government does not like that. This also results
in uncertainty among the elderly as to whether they
will continue to do so. It obviously comes back to the
situation of whether governments have got the capacity
to expand their social housing sector in the way that
that might imply. That is probably not so realistic in
these times.
It seems to me that the best of the realistic solutions
would be to try and develop a version of owneroccupation with extra securities, as that is a model
that we know how to do. I am not over the moon about
owner-occupation, but as long as people pay off their
mortgages before they retire it is not so bad – indeed it
provides security and a personal stake in the home. It
is what seems to be more realistic in a sense that we are
more likely to get more housing and more people living
in it for a longer period of time, than if we do that within
a very dysfunctional private rented sector, which is what
most countries have.”
How exactly would you define shared ownership?
“Well, there are many possible definitions. Basically,
in Britain we use the term shared ownership for when
people buy 25% or 50 %, or even a bit more, of the
property and a housing association owns the remainder.
They can then climb the staircase: buy more if their
incomes rise. The intention has always been that they
would become full owners. Now, the reality of the
world is that incomes at the bottom end of the scale are
not increasing, so people remain shared owners for a
long while, maybe for ever. In this case, the problem is:
how can they move house? In a sense it becomes more
like social renting as moving becomes more difficult.
Another possible form of shared ownership is shared
equity, in essence an equity mortgage. This is more
common in the rest of the world. You put down say a
5% deposit, you’ll get a traditional mortgage for say
75%, and then you get 20% as equity. So you don’t pay
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interest on it or you pay low interest, and somebody else
shares the risk if prices decrease. And again, the option
of ‘climbing the staircase’ is open. Conversely, you can
also increase the percentage assigned to the secondary
owner (e.g. the housing association). In an inflationary
environment it worked extremely well for governments
because they made a lot of money out of it, which was
used to finance housing association investment.”
Would you encourage these kinds of constructions?
“Well, I think that in principle shared ownership or
indeed shared equity, for risk sharing is good. Shared
ownership can reduce the costs of access to owneroccupation, stabilize the system and reduce some of the
risks. It also matches with people’s financial capacity
more effectively than very large subsidies, as these
sometimes go to the wrong people. However, developers
run a lot of projects like this because they find it is an
easier way to sell houses. They then make a package for
the equity and sell it on into the market. My problem
is that governments do it because they want to lower
subsidies to enable people to access owner-occupied
housing. It may not even be a subsidy at all if the house
price goes up. People do it because they want to own a
home. Often they will take on maybe a larger home and
therefore a larger mortgage. However, the economics
of it is that it should be about risk sharing rather than
increased consumption. It ought to be about the fact
that instead of having this one asset which is yours
and the drug dealer may come next door: you’ve got
somebody else who takes some of the equity risk if
house prices fall, but you also give up some of the equity
if prices rise. In market terms, it is a mechanism for
enabling you to share risk between an individual who is
not in a particularly good position to bear that risk and
institutions that are able to diversify. In reality, however,
shared ownership is very difficult to organise. Although
there are products available their market share is not
very large. To be perfectly honest, I think governments
often organize shared ownership in such a way that has
increased rather than decreased risks because people
remain over-indebted and have too small an initial stake
in their home. People are able to afford to buy a bit more,
as they have reduced some of their risk, but they still
have an awful lot of risk here.”
Christa Hubers ([email protected]) is a postdoctoral researcher at
Tilburg University and Iris Roodheuvel ([email protected]) is an
urban sociologist. Both are editor of Rooilijn.

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