Currently, in much of the Netherlands, it is almost impossible to get rental housing. The rental market has really totally exploded. Hundreds of thousands of people, out of desperation, no longer know what to do to get rental housing, and it seems to be getting even harder by the week.
Just what is causing this huge shortage of rental housing and what needs to be done to solve it?
We explain it to you simply here. But we’ll keep it simple. Very simple. Because it must also be and remain simple for people to be able to arrange a roof over their heads.
Rental housing providers
We start at the question, “Who are the landlords of rental properties?
In short, there are 2 providers of rental housing.
- The social providers: housing associations. These are non-profit.
- The commercial providers. These include pension funds, real estate funds, real estate companies as well as private (private) real estate investors. These do have a profit motive (they want to make a profit).
How do you get social housing?
To get a social rental house in the Netherlands at (let’s say) your 22nd birthday, you actually have to have registered around your5th birthday with an organization that is active in offering social rental houses in your neighborhood. Consider organizations such as Woonservice.nl, WoningNet, WoonNet, Arcade, Pré Wonen, etc.. According to a 2021 NIS study, the wait time in some municipalities is as long as 17 years. By the way, you often cannot register until you are 18 years old. In 90 municipalities, the waiting time is already 7 years on average, so this rises to 17 years of waiting time. So if you register on the 18th, you might have social housing between your 25th and 35th birthdays. Nice to start dating then so.
Buying a house directly
Buying a house right away is unfortunately not possible for a lion’s share of people. Of course, borrowing capacity for a mortgage loan counts heavily in this. Many people simply cannot borrow enough or pay the monthly expenses necessary to purchase a suitable home for sale in their area. Many of these people have been waiting interminably long for social housing or earn TOO MUCH to qualify for social housing and earn TOO LOW to buy.
But there are also a lot of people who already have a good income with sometimes a lot of savings, but who cannot buy yet because they have just started a new job, are self-employed (ZZP-er) or are Expat.
Finally, you also have a target group that could MAY buy, but does not WANT to buy because, for example, they are not yet sure if they can or want to settle in a certain permanent place right now. Think of people who might want to embark on another foreign adventure.
Buying instead of renting is not an option for a huge target group.
Free sector rental property
So many people search on websites like Pararius.nl and Funda.nl for a somewhat affordable rental property above the ‘liberalization limit’ of €808.06 per month. The ‘what limit’? Don’t worry, we’ll explain what ‘liberalization limit’ means in a moment. But what you need to know right now is that in the Netherlands you’re not going to find a home of anywhere around €810, either. That is impossible. If you look at the big cities, just keep in mind it’s at least double (about €1600) for a house for up to 2 people. And even then, you are probably in line with 60-80 other viewers who want to rent that €1600 rental property and will even overbid on that rent just to get the property.
There is a huge shortage of this type of free-sector housing and this shortage is growing by the day. Owners of rental properties are currently selling these properties en masse. This is causing the supply of rental housing to dwindle more and more, and making it harder by the day to find rental housing.
A surplus of real estate investors
Until about 2022, there was not much of a problem when it came to renting free-sector housing. Until 2022, (too) many homes in the Netherlands were bought by people who bought them only to rent them out. Financially and fiscally, buying a rental property was interesting (a little too….) until 2022. And that’s why (too) many people did. Something had to change because all owner-occupied housing was in danger of being gobbled up (in the eyes of the government).
A shortage of real estate investors
The government then took a number of measures to make it harder for real estate investors. The measures were intended to make it easier for first-time buyers who wanted to buy a house on the housing market (less competition from real estate investors) but also to make renting fairer.
The reason why there is no more rental property to be had
Now to properly understand why a lot of landlords are selling their rental properties and you have almost no rental property to get, there are some changed rules that you need to understand.
Return on equity is too low.
A lot of rental properties belong to individuals who used their savings to buy these properties to make returns for retirement, among other things. We can only explain this by example.
We will assume for a moment that someone has paid for a rental property entirely from savings and no longer has a mortgage on it.
The WOZ value of that rental example property is €315,000. The property is worth a lot less because it is rented out. Previously, the WOZ value of a rental property counted at roughly 65%, but since 2023, it will be 95%. So the value for which this property now counts for tax purposes is (95% of €315,000 = ) €300,000.
The landlord rents this property for a bare rent of €1250 per month. (This is a realistic rent on such an investment, by the way).
Since 2023, the government has stated that if you have a rental property, you make a 6.17% return on it per year. You pay 32% tax on this 6.17%.
Using the 6.17% notional return x 32% tax rule, there is (300,000 x 6.17% x 32%) = €5923 in tax to be paid each year. That’s €493.6 per tax month. In this case, the real estate investor still keeps €750 per month. That seems interesting, but that’s only a 3% return. Investing with a return of only 3% is of no interest to any investor . And so this landlord is going to sell his property.
Return is negative in most cases
It gets worse, however. In the above example, we assume that the landlord does NOT have a mortgage. In most cases, landlords WOULD have a mortgage. Often people put in only 30% of the purchase price of a rental property in savings and take out a mortgage loan for the remaining amount.
For a 10-year fixed investment mortgage loan, one pays (reference date 6-9-2023) 6.7% interest (source).
If a real estate investor buys a €300,000 home and he needs to borrow 70% of that purchase price, he needs to borrow €210,000 at 6.7% per year. That’s a total interest of €14,070 per year and that’s another €1172 interest per month. That same real estate investor must pay a tax of 6.17% x 32% = €1777 per year = €148 tax per month on the part he put into the property himself (30% of €300,000). Add to that the monthly interest of €1172, the cost to the landlord per month €1320 while the rent is only €1250. So a negative return.
And this does not even take into account costs for maintenance, the CoE, municipal taxes, management, etc. etc.
The result: the landlord can only do 2 things: sell the property or raise the rent substantially.
The Knock Out Battle
The real knockout blow for private landlords, however, is the change in the housing valuation system due to the shift in the liberalization limit.
We explain simply what we mean by this. Every property in the Netherlands has x number of rental points.
Rent points are actually scores you can give to your property. On the Rent Commission website, you can calculate how many rent points your property has. You then have to fill in how big the rooms are in the house, what the WOZ value is, what the energy label is, how long the countertop is, what facilities are in the kitchen and bathroom, etc. etc. From that calculation comes a score. A point number.
You then put that score next to a table from the central government that shows the “reasonable rent” associated with that number of points. Suppose you calculated that your property has 137 rental points. Then look in the then-current rent point schedule (read how to get there in this blog ). The rent associated with 137 points is €815.48. Every year the government redefines from HOW many rent points you as a landlord MUST use the rent points from the rent point scheme and therefore you cannot charge a higher rent. This is called the LIBERALIZATION GRANTS. The liberalization limit is now (in 2023) at €808.06, and according to the rent point scheme now in force, 136 rent points belong to that. If your property has more than 136 rental points (note: at THIS moment) then your property is in the ‘Free Sector’ and as a landlord you are free to ask the rent you want (a market rent). Thus, with a rent score of 137 rent points (as read in the aforementioned example), you would be allowed to charge a market rent (free sector).
Where things are going wrong now is that the government wants to move the liberalization limit from 137 to about 187 rent points. This would mean that for a vast majority of all rental properties in the Netherlands, rent may now not exceed €1000. With that, in 1 fell swoop EVERY RENTED HOUSE in the Netherlands would be a huge loss for the owner.
The owner/lessor of that property has to pay 6.7% interest to the bank, has operating and maintenance costs, and on top of all this he faces a tax rate of 32% on a notional return of 6.17% than he is nowhere near achieving.
In short, some private real estate investors are still holding on to what they have and trying to offset incredible tax cost increases with higher rents. But all rent in 2024 is going to violate what is allowed to be charged in rent.
Selling is the only solution for many.
Any advice on how to solve this problem?
There certainly is. In brief:
The government should simply start taxing the actual returns made. So rental income minus expenses. In addition, the increase in the liberalization limit to 187 rental points should be taken off the table immediately. And the transfer tax increase to 10.4% should be partially scaled back. And landlords should continue to have the option of first renting a property for “fixed term” up to a maximum of 24 months rather than being able to immediately rent indefinitely on their own.
The Buyout Protection Act is an excellent law and does not need to change. Feel free to share and duplicate this and let’s hope for a fairer housing market for all.