Dynamic Credit Dutch Housing Market Update Q1 2024Dynamic Credit Dutch Housing Market Update Q1 2024

Dynamic Credit Dutch Housing Market Update Q1 2024

Jasper Koops - Head of Portfolio ManagementJasper Koops30 April 2024 at 17:00

The Dutch housing market is experiencing a growing trend in housing prices and financial institutions predict even further increases in 2024 and 2025. Meanwhile, the approval of the Affordable Rent Act creates uncertainties in the rental market, as while it may reduce rental costs, landlords may be prompted to sell their properties creating a reduction in rental properties and market pressure. Additionally, financial research shows that despite Dutch homeowners having the financial capacity to fund sustainability upgrades, their concerns regarding limited subsidies and return on investment hinder widespread adoption.

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Rising house prices, relatively stable mortgage rates and tightening spreads

The Dutch housing market is seeing an increasing trend in housing prices, with an increase of 2.40% QoQ and 3.80% YoY in the first quarter of 2024. Meanwhile, mortgage interest rates decreased in January and remained relatively stable in February and March, resulting in an overall decrease of 19 basis points QoQ and 39 basis points YoY. Mortgage spreads also tightened by an average of 33 basis points in the first quarter, driven by uncertainty about inflation and resulting in lower spread levels QoQ and QtD as swap rates increased while mortgage rates remained relatively unchanged.

Approval of the Affordable Rent Act creates uncertainties in the Dutch rental market

The Dutch House of Representatives has approved the Affordable Rent Act, which could potentially reduce rental costs by an average of EUR 190 per month for up to 300,000 properties. However, landlords are expected to sell their properties instead of complying with the rent cap, causing a reduction of rental properties and worsening conditions for tenants who cannot afford or are unwilling to buy a home.

Experts in the real estate field, including the Advisory Division of the Council of State and advocacy group Vastgoed Belang, have expressed concerns as they argue that the government has insufficiently investigated the causes of the housing shortage or the potential impact of the legislation. They warn that the proposal could lead to further reductions in the supply of rental properties and pressure on the market.

Construction target for 2030 seems to be lagging behind

The Dutch housing market continues to experience a severe shortage. The government has set a target to achieve 900,000 new constructions between 2022 and 2030, but the number of building permits issued has been decreasing. In 2023, only 54,900 building permits were issued opposed to 64,600 in 2022. Alongside that, around 73,300 new constructions were completed, which is not enough to meet the set target for 2030. The stock of unused permits has also increased, indicating a likely decrease in new constructions in 2024 and 2025.

Expectations for housing price developments shifted

Financial institutions in the Netherlands have increased their expectations for housing price developments in the country, predicting an average increase of 6.23% and 5.65% for 2024 and 2025, respectively. The improving affordability and tight housing market supply are listed as primary factors for this increase. This marks a reversal of market expectations, as housing prices were initially predicted to decrease in the first half of 2023, but are now expected to increase in the coming two years.

Sustainability update

The majority of Dutch homeowners have the financial ability to fund sustainability upgrades for their residences, according to the latest research from DNB. However, concerns regarding return on investment and limited awareness of available subsidies impede widespread adoption. The European Union has announced the adoption of new Energy Performance of Buildings Directive (EPBD) targeting full decarbonization by 2050, with the Netherlands seeing a 6% decrease in greenhouse gas emissions in 2023 compared to the previous year. Nevertheless, an AFM report highlights the growing impact of physical climate risks on the housing market, with estimated costs to homeowners resulting from foundation and flood risks. There is a need for improvement in information provision to enable homeowners to anticipate upcoming risks.

Disclaimer Dynamic Credit Partners Europe B.V. (‘Dynamic Credit’) is a registered investment company (beleggingsondernemingsvergunning) and a registered financial service provider (financiëel dienstverlener) with the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten). This presentation is intended for informational purposes only and is subject to change without any notice.The information provided is purely of an indicative nature and is not intended as an offer, investment advice, solicitation or recommendation for the purchase or sale of any security or financial instrument. Dynamic Credit may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented herein. Dynamic Credit cannot be held liable for the content of this presentation or any decision made by a third party on the basis of this presentation. Potential investors are advised to consult their independent investment and tax adviser before making an investment decision. An investment involves risks. The value of securities may fluctuate. Past returns are no guarantee for future returns.

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Jasper Koops - Head of Portfolio Management
Jasper Koops
Jasper Koops