Rented housing stock decreases despite increase in construction production
18 February 2016
Despite significant demand, the stock of rented housing will not increase without further measures. Construction levels remain insufficient to close the gap between supply and demand. In addition, too many properties are being withdrawn from the market due to the sale of individual units by housing associations and investors, as well as demolitions. Even an increase in construction production and a record level of available capital has failed to make up for the consequences of the crisis. These are one of the results from research conducted this year by Capital Value in cooperation with ABF Research and ING Real Estate Finance.
Number of households growing faster than previously predicted
The research took into account a growth in the number of households of 70,000 per year, which is higher than in the years previous. Possibly, the forecasts may have to be adjusted upwards over the coming years due to the increasing numbers of asylum seekers who have not yet been included in the figures. Excluding this adjustment, the number of households in the Netherlands is expected to grow from 7.7 million to 8.2 million by 2025 and 8.5 million by 2040. The largest growth is foreseen in the number of single person households. It is expected that this group will expand from 2.9 million to 3.3 million by 2025.
Increased construction production is mainly focused on the owner-occupier residential market
A robust recovery in construction production is expected in the coming years, from 70,000 homes in 2016 to 80,000 in 2018, the majority of which will be residential properties. Construction production bottomed out in 2013, when only 26,000 building permits were issued. In 2015, the number of permits totalled approximately 58,000. The sharp increase was mainly for the owner-occupier sector, while the number of permits issued for rental housing remained at the same low level (around 16,000 homes).
Despite an increase in new construction, the rented housing stock will shrink without further measures
The total housing stock is expected to grow by 316,000 homes over the coming years. This growth will be almost entirely in the owner-occupier sector. While it is expected that housing associations and investors will construct approximately 27,000 to 32,000 new rental properties, housing associations in particular will also demolish older properties (possibly 13,000 to 16,000 properties annually). In addition, housing associations have indicated that they intend to sell individual rental units (around 15,000 per year). The sale every year of individual units by investors is resulting in a further decrease in the total rented housing stock. The result is a shortfall in construction in the rented sector.
Increasing shortages, regional differences
On balance, the number of houses being added nationwide is not keeping pace with the increase in the number of households. This leads to the continued tightening of the housing market and bigger housing shortages. There will be regional divergences relating to the differences in demographic growth. In 2021, for example, the shortage will be most acute in the regions around Utrecht (7.3%) and Amsterdam (8.4%). Nationally, this shortage is estimated at 3.7%.
318,000 households live in suboptimal conditions
Due to limited housing production during the crisis years, the number of households that are unable to live in regular homes has increased to approximately 318,000. Not only does this group often lack the resources to buy a home, but there is also a lack of affordable rented housing. On an annual basis, demand in the rented sector outstrips supply. Around 104,000 households are unable to find suitable rented housing in the regulated rented sector. Meanwhile in the owner-occupier sector, supply and demand show a more parallel annual development. This is partly because the new-build programme is particularly aimed at decreasing the existing mismatch in the owner-occupier sector.
Unprecedented amount of capital available but supply remains insufficient
Research by Capital Value has shown that over EUR 5.5 billion are available for investments in rental housing for 2016. The banks surveyed also confirmed that there is a significant amount of capital for financing rental properties. Dutch pension funds are the main driver for new-build rental housing in the non-regulated sector. In 2015, they invested EUR 1.6 billion in new rental properties, thereby doubling the amount spent in 2014. In 2015, their investments involved an estimated total of 6,500 new-build properties.
According to Kees van Harten, Managing Director of Capital Value, “Pension funds were able to invest more in new-build in 2015, but also say that the invested amount could easily be doubled on an annual basis provided there is sufficient supply. Municipalities, construction companies and project developers are providing an inadequate number of rental properties, while there are currently very good opportunities to decrease shortages and reduce waiting lists.”
Housing associations must focus on the target group and core area
The new Housing Act encourages housing associations to focus on the construction of social rental housing in their own core areas. In order to achieve these ambitions, resources must be freed up for new-build. One way this can be done is for housing associations to sell complexes to investors that are outside their own core area or target group. When asked about their sales plans, around 35% of the housing associations surveyed said they are considering selling complexes to investors; approximately 16% are reviewing their options. Earlier this year, Capital Value demonstrated that some 300,000 housing association properties are located outside their core area. Practically all the investors surveyed indicated a willingness to work with housing associations and said they are also interested in purchasing existing properties and subsequently maintaining their rented status. The significant demand among investors means a positive development in the value of properties housing associations have for sale.
Important role for municipalities in correcting rental housing shortage
As a result of the new Housing Act, the role of housing associations in realising rental housing in the non-regulated sector will be minimal. Municipalities will therefore have a major and more important role to play in addressing this segment’s shortages through their land policy. To this end, there should be less of a one-sided focus on the owner-occupier sector.
According to Marijn Snijders, Managing Director of Capital Value, “Municipalities will have to devote more attention in their programming to the construction of rental properties, even if this means less revenue from land sales. In addition, in performance agreements with housing associations, consideration should be given to the possibility of cooperating with investors. Municipalities will also have to increase their regional cooperation to better align the qualitative and quantitative supply. A broad-based rented sector with sufficient affordable rental properties is of fundamental importance to the functioning of the housing market.”
For more information, contact Capital Value.
International pension funds want to invest more than EUR 12 billion in Dutch residential market by 2021