210413-Housing-Market-Monitor-April.pdf (201 KB)

We have again revised our estimates for the housing market upwards. For this year, we assume an average house price increase of 7.5%. Earlier, we assumed an increase of 5%.

For next year, we expect an increase of 2.5% instead of 1%. The estimates for the number of transactions will remain unchanged for the time being.

Transaction figures for the first two months of the year were indeed high. However, we think that this is temporary, as first-time buyers up to the age of 35 postponed their purchases due to the lower property transfer tax rate as of 1 January. This year, house purchases will fall by 10%, next year by 5%.

The number of transactions will fall as unemployment is expected to rise. If the government withdraws its support measures when the economy reopens, companies will restructure and job losses will follow.

A weaker income outlook will affect the housing market, first through a decrease in transactions and then through weaker price growth. In addition to the expected deterioration of the labour market, there is another reason to expect a decline in the number of transactions: the lack of new construction. Partly because of the protracted nitrogen crisis relatively few building permits have been issued in recent years. The limited flow to new-build homes is slowing down transactions on existing homes.

The lack of new builds contributes to higher valuations on the housing market, especially when demand is strong as it is now. The demand for homes has increased because the pandemic has underlined the importance of housing, because the government has made adjustments, including lowering the transfer tax rate, but above all because the low mortgage interest rate has pushed down mortgage costs and thus contributed to better affordability.

In recent months, government interest rates have threatened to rise on the back of higher inflation. But the ECB brought this rise in interest rates to a halt by buying up even more securities. The ECB’s decisive action reinforces our expectation that mortgage rates will remain low for the time being. But the beneficial effect of low interest rates will diminish if they do not fall further. Therefore, and because we do not exclude that the next cabinet heeds the call of, among others, the Dutch Central Bank (DNB) to adjust the tax benefits of home ownership, we expect a somewhat lower price increase next year.