The residential paradox - Development of new property starting to stall as the housing market booms - Savills
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The Netherlands – Autumn 2019
S P OT L I G H T
Savills Research
The residential paradox
Development of new property starting to stall as the housing market booms
Spotlight residential Spotlight residential
Question At which locations is residential property
development currently the least feasible? And which
areas are promising locations to invest in, given the
demand and supply fundamentals?
Introduction It seems
paradoxical: the demand for
POSSIBLE POLICY
MEASURES Government housing policies
housing in the Netherlands Other possible policies under Announced policy changes
remains strong, supply is consideration by the national
government:
limited, house prices and rents
continue to rise, and as a result
an increasing number of
As long as the mortgage interest
rate and national policies on
the loan-to-value ratio (LTV;
government currently has no
plans to reduce the LTV. In other
areas several changes to the
2 €1 billion will be made
available as a tax reduction
on the landlord levy. The amount
(international) investors are Compulsory currently at 100%) remain national housing policy for the will be made available in phases
looking for opportunities in the occupation A
unchanged, there is no real coming parliamentary session over ten years (flexibly – on
Dutch residential market. So far, requirement for
reason to expect any sudden have recently been announced. average €100 million annually).
so good: the investment climate home owners to
reside in that home. fall in the demand for housing Some of these policy changes
3
for the Dutch residential sector and house price decreases. could create more uncertainty in The exemption of
seems healthy. Currently, mortgage interest the market. temporary housing from
rate increases remain unlikely the landlord levy.
Normally, a situation of high in the near future since the Still, most of these policies are
demand and limited supply
incentivises property
developers to scale up the
Tax Exemption
Exemption of the
ECB has recently reinstated its
quantitative easing programme
and has again reduced the
favourable for investors in the
residential market, such as: 4 Allowing higher rental
price increases for people
who continue living in a social
1
property-transfer
construction of new homes. official interest rates. €1 billion will be made housing house/flat when their
tax for first-time
However, at the moment this is available for the construction income has in fact become too
buyers. Investors,
not the case. Property by contrast, may The LTV will also remain at its of affordable homes in areas with high to be eligible for social
development is actually face higher current level, since the Dutch a severe housing shortage. housing.
Economic fundamentals
becoming less viable in an property-transfer
increasing number of locations. taxes.
This is mainly due to a
combination of construction
costs, excessive land prices,
remain stable
and building requirements and Performance on key economic
The basic demand for housing in the Limited LTV A limit
regulations for new Netherlands is strong, and is being indicators 19Q2 YoY % change on the loan-to-value
developments, which are driven by demographic factors. The ratio applicable to
pushing up construction costs demand for housing can also be buy-to-let
Key
and cutting returns. This is expected to remain strong in the Netherlands mortgages.
resulting in an increasing share long term (more on this later). In the Eurozone
of unviable new residential short term, any possible weakening
developments. in the housing market will therefore
likely be down to falling consumer
So, in light of the healthy confidence and an increasing risk of a Taxes A new
investment climate combined more generalised economic slowdown. GDP method of taxing
with the increasing difficulties However, this risk does not appear Current 10% rental income from
of property development, at imminent at the moment. account 8% Investments buy-to-let.
2
6% Future policy measures The influence that Currently the WOZ value
which locations is residential
Although consumer confidence in the 4% that are less favourable for the market value determines about 15% to 45%
property development 2%
currently the least feasible? housing market and economic growth investors include: (WOZ value) of homes can of the rent of social housing
Labour 0% Consumption
And, feasibility aside, which in the Netherlands are weakening costs -2% have on determining the in Amsterdam according to
areas are promising locations to
invest in, given the demand and
slightly, the Dutch economy is still
showing above average growth (+1.9% 1 The future options for
municipalities to cap rents
maximum rent for social
housing through the social
research conducted by RIGO.
supply fundamentals?
YoY – 2019 Q1) within the Eurozone,
and unemployment remains very low
(3.4% of the labour force). Mortgage
Job vacancy Inflation
for rental housing in the
unregulated sector based on
a percentage of the market
housing points system
(woningwaarderingsstelsel
- WWS) which is used to
3 Buy-to-let private
investors will pay higher
taxes due to a change to the
This analysis reveals that the Export
interest rates also remain historically value of homes as assessed determine the maximum tax on capital returns.
most attractive locations for low (currently an average of 2.24% on by each municipality (the permitted rent will be
residential investment are also new mortgages), as a result of which ‘WOZ’ value). capped.
the least feasible locations for households can afford to pay more for
residential property their home.
development, hence the great
paradox.
€1 billion
The most attractive locations for residential investment are also made available for the construction of affordable
the least feasible locations for residential property development homes in areas with a severe housing shortage.
savills.nl/research 2 3
Spotlight residential Spotlight residential
The expectation is that the current housing
shortage will ease somewhat from 2020
onwards, as the backlog in housing
production is slowly made up after 2020.
Current and future national housing shortage in the Netherland, in relative terms REGIONAL
The housing shortage is expected to peak in 2020, after which it is expected to ease DIFFERENCES IN
THE MISMATCH
Key Housing shortage - Netherlands (No. of dwellings) Number of households Housing shortage - Netherlands (%) BETWEEN
SUPPLY AND
DEMAND ARE
10,000,000 4.0% GROWING
Due to urbanisation
9,000,000 and other demographic
3.5% trends, some
municipalities are facing
8,000,000 more severe housing
shortages, while other
3.0% municipalities have
an oversupply of
7,000,000
housing. The map below
10,000,000 4.0% shows that the largest
2.5% quantitative housing
6,000,000
9,000,000 shortages can be found
3.5% in ‘student cities’ cities,
8,000,000 which are home to
5,000,000 2.0% major universities, such
3.0%
as Groningen, Nijmegen,
7,000,000
Wageningen, Utrecht
4,000,000 2.5% and Amsterdam. These
6,000,000 1.5% cities are struggling
to house their
5,000,000 2.0% constantly growing
3,000,000
and increasingly
4,000,000 1.0% international student
1.5%
2,000,000 population. Currently
3,000,000 (2018-2019 academic
1.0% year), the national
2,000,000 0.5% student population
1,000,000
totals almost 748,000
0.5%
Y-Towers (c) Team V, a visualisation by Zwartlicht 1,000,000 (+2.4% YoY), of which
86,000 are international
Supply and demand
0 0%
0 0% students (+12.2%
2018
2018 2019
2019 2020
2020 2025
2025 2030
2030 2035
2035 2040
2040 2045
2045 YoY). Major housing
shortages, in relative
terms, can also be found
The current population of the Netherlands is estimated at 17.29 Source PRIMOS (ABF)
in municipalities which
million (2018) people, and there are 7.94 million households. house a large number
of migrant workers,
Normally, each individual household The future demand for housing 90,000 homes less than the current housing Based on the current housing shortage and future demand national policy goal and accommodate the expected demand
such as Zeewolde and
requires its own home, and the number Based on national demographic forecasts, shortfall. The expectation is that the current for housing, the government is aiming for the construction for housing. Developers currently hold enough land for an
Steenbergen. But even
of households therefore serves as a good the future demand for housing has been housing shortage will ease somewhat from of 75,000 dwellings annually until 2025 (excluding the estimated 400,000 dwellings, but this is mainly suited to
when these extremes
indicator for housing demand. estimated at approximately 672,000 homes 2020 onwards, as the backlog in housing average annual number of withdrawals of roughly 11,000). greenfield development, something that local governments
are removed from the
in the period until 2030. When expected production is slowly made up after 2020. Of Currently this goal is not being met. In 2018, 73,500 are increasingly reluctant to support in order to protect open
picture, it becomes
On the supply side, the national housing new-build is subtracted from future demand, course, the housing shortage will only be dwellings were added to the housing stock: 66,000 homes space in the countryside. A recent court ruling regarding
clear that other larger
stock currently totals 7.81 million there will be a housing shortage of 200,000 reduced if the desired construction volume through new developments and 7,500 through conversions. the Dutch implementation of the EU Nitrates Directive
or medium-sized
dwellings. Taking into account regional homes by 2030 (2.4% of the total housing of approximately 75,000 homes per year is The goal is unlikely to be met this year too (66,000 homes has resulted in a planning crisis. This development can be
Dutch cities which are
differences in oversupply and shortages, stock). That shortfall is approximately achieved. But is this realistic? are expected to be built this year). In the first quarter of expected to seriously delay the pipeline of new residential
not home to a large
this means a current housing shortage of 2019, only 12,500 construction permits were issued. This developments still further, creating added pressure on
university (e.g. Breda,
around 294,000 dwellings (3.8% of the was the lowest number in three years and the fall was the the housing market. The court ruling, however, mainly
The Hague, Arnhem
Dutch housing stock). This shortage is greatest in regions with the most severe housing shortages. affects construction projects in the vicinity of Natura2000
due to very limited construction activity The housing shortage will only be reduced if the Moreover, Dutch municipalities have zoned new residential protected nature areas, and the consequence of the court
and Zwolle) are also
contending with
during the last economic recession, desired construction volume of approximately developments for only 300,000 dwellings in the period ruling for residential development in regions with the most
significant housing
among other. between 2019 and 2024, which is insufficient to achieve the severe housing shortages is still unclear.
75,000 homes per year is achieved shortages.
savills.nl/research 4 5
Spotlight residential Spotlight residential
Price development and affordability
QUALITATIVE Quantitative housing shortage in the Netherland in relative terms The shortfall in the Dutch housing market, in combination with the low mortgage Annual rent
MISMATCH Housing shortage as a percentage of local housing stock interest rate, continues to result in upward pressure on house prices. increase by rental
In addition to a housing segment
quantitative mismatch So far in 2019 (until August), around 140,000 homes were with falling consumer confidence in the housing market, this
between supply and sold (-3% YoY). In this period, the average house price in is now leading to some levelling off of price increases. % YoY growth
demand, there is also the Netherlands increased to €316,000 which is almost 40%
The central location in
2016
a qualitative mismatch combination with the large higher than the low point reached during the last recession For an increasing number of homebuyers, current house
in certain regions as student population has (June 2013). prices are becoming increasingly unaffordable. This is
a result of changing intensified the pressure on especially evident among first-time buyers. Potential new
consumer preferences. the Utrecht housing market. House prices are becoming increasingly unaffordable entrants to the housing market are increasingly staying in 0.3%
This includes the The demand and supply mismatch and low interest rates their student homes for longer. As a result, the pressure on Inflation (CPI based)
increasing demand for are the two main reasons why house prices have been rising the rental sector has also increased, and rental prices in the 1.9%
smaller residential units much faster than wages in recent years. This also means that unregulated sector are increasing significantly above inflation Total rent increases
due to the changing affordability, in relative terms, is decreasing. In combination in the past few years. 2.2%
demographics of Unregulated sector
the Netherlands (the House price growth in the Netherlands is now levelling off, having peaked in 2018Q3 1.6%
ageing population and Regulated social
House price YoY percentage growth per quarter housing sector
an increasing number
of single person
4
4
4
4
4
2
4
3
2
2
3
4
2
3
2
3
2
2
3
3
2
3
1
1
1
1
1
1
1
households). Regions
1
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
In addition to housing
14
14
14
14
16
16
16
16
19
19
18
18
18
18
15
15
15
15
13
13
13
13
12
12
12
12
17
17
17
17
with no quantitative
2017
shortages in the major cities, 15%
mismatch may therefore the pressure on the housing
still face a qualitative market in the province is also
10%
mismatch, which is increasing. This is due to lack of 1.4%
especially evident from new developments, and is also Inflation (CPI based)
the generalised shortage increasingly due to demand 5%
1.6%
of care-assisted from labor migrants who are
Total rent increases
dwellings suitable for looking for suitable housing in 0%
locations such as Steenbergen. 2.3%
elderly persons in many
Unregulated sector
regions. -5%
1.1%
Regulated social
-10%
housing sector
-15% Key The Netherlands Amsterdam The Hague Rotterdam Utrecht
2018
Source CBS, Land Registry
Relative affordability of housing in the Netherlands (2019)
Relationship between average annual household income and the average house price. 1.7%
Inflation (CPI based)
While incomes increased by approximately a half between 2.3%
1990 and 2019, house prices have tripled. Total rent increases
In other words, in the 1990s people required four to five 3.1%
times the average annual income to buy a house of average Unregulated sector
price in the Netherlands. This has now increased to nine 1.7%
times the average annual household income in 2019. People Regulated social
with an annual median gross income of around €38,000 can housing sector
finance about 4.5 times their own income (€180,000).
This illustrates how housing has become less affordable in
the Netherlands in recent years.
In addition to large
shortages in the
2019
Randstad, the shortages -
in student cities such as Inflation (CPI based)
Quantitative housing shortage Enschede are the
Required times average annual income 2.5%
< -10% greatest.
< 5.50 Total rent increases
-5% - -10%
5.50 - 6.00 3.3%
0% - -5%
6.00 - 6.50 Unregulated sector
0% - 5%
6.50 - 7.00
5% - 10% 2%
7.00 - 9.50
< 10% Regulated social
> 9.50
housing sector
Unknown
Source Savills Research Source Savills Research
savills.nl/research 6 7
Spotlight residential Spotlight residential
New-build market The housing market is in danger of coming to a
standstill: in areas where housing is desperately
New-build homes becoming increasingly expensive as needed, project development has become
a result of troublesome property development. increasingly difficult
In addition to the house price increases of existing owner-occupied
homes that are rising, new-build homes are also becoming increasingly
expensive as a result of rapidly rising construction costs, land prices and
the cost of compliance with building regulations. The average price of a
new-build home in the Netherlands currently stands at €387,000 (+17%
YoY), which is significantly higher than the average price of an existing
home (€316,000). New-build homes are therefore increasingly becoming
too expensive for the average consumer and, as a result, fewer new-build
homes are being sold. In the second quarter of 2019, sales of new-build
homes fell by as much as 13% YoY.
In response, property developers are reducing the returns they require, Method
but even so, an increasing share of new development still turns out to
be financially unviable. New-build homes are currently increasingly To answer the question where property
expensive to build due to high construction costs and land prices, but development is least viable, Savills has produced a
above all due to the cost of increasing government requirements and residential property development viability scan for
regulations (also see previous section on policy). developers .
This raises the question; in which locations in the Netherlands is To highlight the average degree to which residential
residential new-build the least viable? new-build has become unviable, we look at the
relationship between construction costs, material
costs, land prices, additional development costs and
sales prices.
property
development
viability scan
Map Which locations in the Netherlands are least viable for residential property development?
Source Savills Research
Key Above average degree of financial feasibility Below average degree of financial feasibility
savills.nl/research 8 9
Spotlight residential Spotlight residential
Investment market Graph Prime yield compression of Dutch residential portfolios of varying size
Rental prices that are outpacing inflation and shortages in the residential Key Deal size (euro) Trend
Source Savills Research
housing market are leading to increasing market opportunities for investors.
7.50%
Figure Investment volumes in Dutch residential investment product
7.00%
10 Key Domestic capital Foreign capital Average 6.50%
9
6.00%
8
7
Gross initial yield
5.50%
6
x billion €
5 5.00%
4
3 4.50%
2
4.00%
1
0 3.50%
2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
3.00%
Key Office Industrial Retail Residential Other
2.50%
2016 2017 2018 2019
100%
Transaction date
90%
80%
70%
60%
50%
40%
Due to growing interest from investors, gross initial yields
30%
have also seen significant compression. Since 2014, yields have
20% compressed by 160 basis points. At present, the sharpest gross
initial yields for prime residential real estate have gone as low as
10%
3%. These ever compressing prime initial yields increasingly match
0% levels traditionally only achieved in prime commercial real estate.
2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD
This provides evidence of a market which has matured
quickly in recent years. In the past, (foreign)
Source Savills Research investors were mainly interested in large
residential portfolios. Currently, Dutch
portfolios of various types and sizes
It is not just the pressure on the Dutch volumes in 2018, caused by many large half of 2019 (+3.9% YoY), of which a record- are being traded for increasingly
housing market which is responsible for portfolio transactions, 2019 also started well breaking 68% involved foreign capital. By far sharp, and ever compressing,
stimulating interest among investors. In for the residential investment market. The the largest transaction involved the purchase prime initial yields.
recent years, rents have also risen sharply total investment volume in Dutch residential of the Vermeer portfolio of 9,544 units by
(2.3% to 4.9%) and well above inflation every real estate reached €2.8 billion in the first Heimstaden for almost €1.4 billion.
year, which is positive for investors’ direct
returns. This has led to rising investment
volumes over the last couple of years. Investors are eager to enter the Dutch housing market.
Because new construction is lagging behind, the pressure
Residential investment volumes
on existing residential investment product is increasing
After record-breaking residential investment
savills.nl/research 10 11Spotlight residential Spotlight residential
Update: Savills attractiveness scan
The Dutch residential market is booming, but due to urbanisation and demographic
changes, local differences are becoming ever sharper.
To be able to compare the attractiveness Figure 2019 ranking Savills attractiveness scan – top 20
of investment in residential rental product
between local markets in the Netherlands,
Savills has produced its residential Savills Attractiveness Index
Rank 2019
attractiveness scan for investors. To highlight
the attractiveness, we look at the relationship
between supply and demand and the share of
rental homes in the total housing stock.
1
The residential attractiveness scan
Since the previous edition of the ranking,
Wageningen
2
scarcity in the market and house prices have
continued to increase sharply. 3 Groningen
As a result, while previously market
opportunities were largely confined to the 4 Amsterdam
5
big cities and their satellite towns, such as
Leiden
Amsterdam and Amstelveen, the ranking
6
shows that market opportunities can now
be found in locations increasingly further Utrecht
7
away from the G4 cities, such as in the big
cities in Brabant, in the region of Arnhem Maastricht
8
and Nijmegen and even in cities such as
Leeuwarden. Nijmegen
9
In this year’s edition of the ranking,
Wageningen takes the top spot. The other Diemen
municipalities in the top three are Groningen
and Amsterdam. The main reason for their
high ranking is the significant mismatch
10 Delft
between supply and demand in these areas,
combined with a relatively large rental 11 Vlieland
housing stock.
12 Rotterdam
The great paradox
A comparison of the residential investment
The Hague
13
attractiveness scan with the residential
property development viability scan reveals
Arnhem
14
that many of the attractive residential
investment locations are also the least viable 15 Eindhoven
locations in terms of property development,
hence the great paradox. 16 Tilburg
Vaals
17
Amstelveen
18
19 Leeuwarden
Schiedam
20
Breda
Source Savills Research
savills.nl/research 12 13Spotlight residential Spotlight residential
Key findings DELOR SANCTUMINA
Map Which locations in
1
Latibus quia
In the short term, consumer the Netherlands are least eturepe rferferitate
confidence in the housing
viable for residential conet, acorem.
market and economic growth in
property development? Icimus verum
the Netherlands are weakening evendipid eiuntem
slightly, but at present this hici
does not seem to be causing an
imminent risk for the weakening
of the housing market. In
the longer term, driven by
demographic developments and
a shortfall in housing production,
and hence a shortage of supply,
the fundamentals of the Dutch
housing market remain strong.
2 The most important risk
factor currently concerns
government policy. Several
Evelibus
secaboreptat que
changes to the national
seque velesciunti a
housing policy for the coming
velenih itatisimet re
parliamentary session have lam hicia seque pres
recently been announced, some exceperum. quae
of which could create more volorum
uncertainty in the market.
3 Taking account of regional
differences in oversupply and
shortfalls, the current housing
shortfall is 294,000 dwellings
(3.8% of the Dutch housing
stock), but regional differences Source CBS, Ministerie van Binnenlandse Zaken en Koninkrijksrelaties, RaboResearch, PRIMOS (ABF), EIB, BAK, PDOK, VU, Savills Research
are significant. Key Above average degree of financial feasibility Below average degree of financial feasibility
4 The shortfall in the Dutch Source Savills Research
housing market combined
with the low mortgage interest Outlook
rate continues to result in
upward pressure on house Development of new property starting Savills World Research
prices.
to stall as the housing market booms We provide bespoke services for landowners, developers, occupiers and investors across the
lifecycle of residential, commercial or mixed-use projects. We add value by providing our clients
5 House price increases have
outpaced income growth,
resulting in lower affordability in
To highlight in which locations residential new-build has become unviable, Savills has produced a
residential property development viability scan. The scan shows that property development is least viable
with research-backed advice and consultancy through our market-leading global research team
relative terms. in cities in Noord-Brabant and the Randstad, both in the cities and surrounding suburban towns.
6 Normally, a situation of high
demand and limited supply
incentivises property developers
Paradoxically, these are also the locations where market demand (housing shortages) is the strongest,
and which thus, are the most attractive residential investment locations.
to scale up their construction Although enough capital is available, the supply of current and future residential investment product
activities. However, this is not will be limited due to decreasing viability. The extent and the increasing number of government building
currently occurring. Property requirements and regulations (including the recent court ruling regarding the Dutch implementation
development is becoming of the EU Nitrates Directive) delay the pipeline of new residential developments still further. Hence, the Bas Wilberts Ronald Koemans Martijn Onderstal Jordy Kleemans
unviable in an increasing number residential paradox is here to stay. Head of Alternative Associate Alternative Co-Head of Head of Research
of locations due to rapidly rising Investments Investments Valuation & Consultancy
construction costs, land prices +31 (0) 20 301 2011 +31 (0) 20 237 9909 +31 (0) 20 301 20 20 +31 (0) 20 301 20 94
and the added cost of building b.wilberts@savills.nl ronald.koemans@savills.nl martijn.onderstal@savills.nl jordy.kleemans@savills.nl
3.8% The current housing shortfall is 3.8% of the Dutch
regulations.
housing stock, but regional differences are significant. Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK,
continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has
been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form
is prohibited without written permission from Savills Research.
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