The Dutch rental market has continued to tighten over the past quarter, driven by the recently enacted Affordable Rent Act and the ban on temporary rental contracts amongst other factors. While the number of new rental properties entering the market has plummeted by nearly one-third, a notable increase in high-income first-time buyers is reported. This shift is largely due to tenants' inability to afford purchasing their rental homes, leading landlords to sell these properties to higher-income buyers once vacated. Even though the new Schoof Cabinet may implement some policy adjustments, no major changes are expected in the immediate future.

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Housing shortage increases further, alongside a cautious change in trend for building permits

The Dutch housing shortage has intensified with a current deficit of 401,000 homes, up by 11,000 from the previous year, representing 4.9% of the total housing stock. An estimated 451,000 households are seeking independent residences, including first-time buyers and immigrants. Despite the availability of some uninhabited homes, many are not accessible due to being second homes or temporarily vacant. To alleviate this growing shortage, an estimated 1.3 million new homes will need to be built over the next 15 years, but recent declines in building permits suggest the shortage may worsen before it improves.

In response to the housing shortage, the new Schoof Cabinet aims to add 100,000 new homes annually. Recent data from Statistics Netherlands (CBS) shows a cautious uptick in building permits issued in the first five months of 2024, with an average of 5,915 permits per month — nearly 28% higher than the same period in 2023. Despite this improvement, the number remains more than 9% lower compared to 2021, indicating that further increases in permit issuance are necessary. Additionally, the first quarter of 2024 saw a 34% rise in newly built home sales compared to the previous year, although still substantially lower than the average from 2018 to 2022. The price index for new homes also rose by 1.4%, falling short the 3.8% increase for existing homes.

Strong surge in mortgage offers and house prices, while forecasts improved this quarter

In the second quarter of 2024, approximately 120,000 mortgage offer requests were recorded, a 27.7% increase YoY. About 75,000 of these were for purchases, up 24%, with the average mortgage offer amount rising by 9.5% to EUR 361,000. Notably, mortgage offers utilizing the portability option surged by 45% to 21,700. The profile ‘Starter Hoog’ saw a 42% increase, becoming the dominant first-time buyer segment. Concurrently, the Dutch House Price Index (HPI) rose to 135.4, indicating an 8.60% YoY increase in house prices, with the average transaction price at EUR 441,000. Housing transactions also grew by 7.7% YoY, totaling around 48,000.

In the second quarter of 2024, house price forecasts improved substantially, with banks predicting a stronger recovery from the 2022 downturn. The average market consensus now anticipates a 7.42% rise in house prices in 2024 and a 4.46% increase in 2025, driven by robust wage growth and expected decreases in mortgage interest rates. However, challenges such as insufficient new construction, low supply of existing homes, and regional disparities in affordability persist.

Volatile yet stabilizing mortgage interest rates and spreads

Mortgage interest rates initially decreased in 2024, but saw a reversal in the second quarter, with an average increase of 13 bps, partially offsetting the previous quarter's decrease. Compared to the same period in 2023, rates were still down by 28 bps. Spreads tightened by 10 bps in Q2 2024 due to faster increases in swap rates than mortgage rates, but widened by 17 bps in July. Despite some volatility, spreads in 2024 have been more stable compared to 2022-2023.

New Affordable Rent Act takes effect amid record rental price increases

The ‘Affordable Rent Act’, effective from July 1, 2024, introduces major changes to the Dutch rental market, including new regulations for the middle rent sector and a revised housing value system (woningwaarderingsstelsel or WWS) tied to energy labels. Landlords must adhere to these rules, with municipalities enforcing compliance. Renters now have the right to request rent reviews from the rent assessment committee within the first six months of a lease, with binding decisions for both new and existing contracts. In the second quarter of 2024, national average rental prices in the unregulated sector hit a record high of EUR 18.79 per square meter, reflecting a 9.9% YoY increase. The number of available rental properties decreased substantially, contributing to higher prices. Furthermore, the trend of rental properties being sold is also impacting the rental market supply.

A push for regulatory changes in the financial market

Recent reports have highlighted extensive mortgage fraud linked to criminal activities. Suspects have been arrested for using fraudulent mortgages to purchase properties in Amsterdam, which were then utilized for illicit purposes. This revelation has sparked a push for regulatory changes to enhance information sharing between mortgage lenders and government bodies to prevent such fraud in the future. Additionally, the Dutch Authority for the Financial Markets (AFM) has introduced ten new principles for credit providers. These principles are designed to enhance IT change management and credit approval processes, safeguarding consumers against over-lending and ensuring the integrity of financial services.

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.