Research A Capital Value production An analysis of the Dutch residential (investment) market 2017
Summary In 2016, the development of the housing market was turbulent. Key events included a historic residential investment volume of around 4.1 billion euros, a decline in building production due to a lack of new plans, faster-than-expected growth in the number of households and the achievement of pre-crisis price levels in Utrecht and Amsterdam. In 2017, it will be up to investors, housing associations, developers and municipalities to tap into developments on the housing market. Number of inhabitants surges In 2016, the number of inhabitants in the Netherlands experienced a sharp rise by approximately 111,000. Around half of this population growth is the result of positive net foreign migration. Increased population growth is forecast for the coming years due to the increase in asylum-related migration. The CBS (Statistics Netherlands) expects that the number of inhabitants in the Netherlands will expand by 372,000 from 2017-2022. In addition to growth in the number of inhabitants, the number of households will also increase substantially, rising by an anticipated 310,000 over the coming years (2017-2022). The surge will be seen primarily among singleperson households aged 55 and over (approximately 204,000). Housing shortage to peak in 2018 For a number of years now, the production of new-build dwellings has lagged behind development of households. The increasing housing shortage raises concerns. It is estimated that the rise in the number of dwellings in the period 2009 through 2015 lagged behind the increase in the number of households by between 56,000 and 87,000. In 2015, there was a shortage of 134,000 dwellings, and building production will remain below the increase in the number of households over the coming years. It is noteworthy that in 2016, the number of building permits granted declined to approximately 51,000 dwellings, while in 2015 around 53,000 permits were granted. It is difficult to increase building production in the short term given the lack of planning capacity. At the start of 2017, the statistical housing shortage was estimated at 178,000 dwellings and is forecast to amount to 200,000 at its peak in 2018. This situation is expected to change only from 2019. From that year, the number of dwellings built each year will outstrip the number of additional households and the shortage will slowly ease. Over the coming years, the housing shortage will be greatest in the COROP regions of Greater Amsterdam, the Zaanstreek region, Flevoland, Delft and the Westland region, the Haarlem conurbation and Utrecht. In these areas, shortages will reach approximately 4% in Utrecht to 6% in Greater Amsterdam. No region is expected to see a decline in the number of households. Rented housing stock will shrink over the coming years Despite the expected increase in building production, the number of rented homes is expected to shrink, according to researchers from ABF Research. Precisely how the rented housing stock develops will depend on landlords and particularly on housing associations, as well as the way the latter lets and/or sells individual units. This survey takes two scenarios into account: one focused on the allocation of dwellings to the target group and the other focused on the allocation of dwellings to market demand. Both scenarios indicate that the stock of rented housing will decline by 15,000 to 39,000 homes as a result of the sale of individual units to housing associations and investors as well as the demolition of outdated dwellings. Both housing associations and investors want to build more rented homes over the coming years but the number of building permits granted for rented homes fell in 2016 compared to 2015. Number of senior citizens up sharply, requiring specific building programme The number of households of 75 years and older will increase sharply over the coming years, rising with 180,000 during the period up to 2022. Nearly half the increase in the number of people over age 75 will take place in the Randstad conurbation. After 2022, when the first baby boomers reach age 75, this increase will accelerate. In light of (expected) mobility restrictions, a portion of these households will be looking for a suitable home or to adjust their current home. The next five years will see an increase of 75,000 to 80,000 households occupied Research An analysis of the Dutch residential (investment) market 2017 5
by people in the age category of 75 and over with a mild to severe mobility restriction. A total of approximately 100,000 households with a mild to severe mobility restriction are involved, whereby part of the demand will be focused on the non-regulated rental segment. In addition to homes with no stairs, this involves mainly dwellings in clusters (assisted living facilities, sheltered housing and service flats). Housing construction for this target group has been insufficient in recent years, making it difficult to find appropriate housing. A growing number of investors wants to invest in homes for senior citizens. Seventy-one percent of pension funds say they want to invest in new-build for seniors and/or assisted living homes. A number of foreign investors are also specifically targeting this segment due to the increasing demand. In the construction of new-build dwellings, not only the quantity but he quality (type of residence) must be considered. Forecast for 2017-2022: shortage of inexpensive owner-occupied and mid-priced rented homes Over the coming five years, an estimated 1.28 million households will look for a home but only an estimated 1.15 million will be available each year. In absolute terms, there is an annual shortage of approximately 130,000 dwellings. The biggest shortages are expected in the inexpensive owner-occupied sector (< 220,000), where there will be a shortage of between 141,000 and 155,000 dwellings. In the non-regulated rental sector, the shortage will be between 9,000 and 70,000 homes. As a result, households that cannot find suitable housing will stay in their current home or make do with a home that is less suited to their housing preferences. The non-regulated rented segment is dependent on housing association sales of dwellings that are or will be non-regulated as well as rental price adjustments. With just a few new-build additions to the stock, the shortage in the non-regulated rented segment will remain significant. Meanwhile, the regulated rental segment is expected to experience a surplus over the coming years of between 11,000 and 74,000 dwellings. The surplus will arise due to the flow through of households to the owner-occupied sector and the above-inflation rent rises for higher incomes. This makes the regulated rental segment less attractive for those living in dwellings that are too cheap for their income level. The recovering owner-occupied housing market and the rise in real earnings have also had an impact on the flow through from the regulated rental sector to the inexpensive owner-occupied segment and the non-regulated rented segment. New-build It is expected that 76,000 dwellings will be constructed per year over the coming years (from 2018). Given the significant demand for owner-occupied housing, a majority of the new-build will consist of dwellings in this sector. In both scenarios described in the survey, this is quantified at 56,000 dwellings. Approximately 20,000 rented homes are expected to be built each year. Around 10,000 to 12,500 for the regulated rental market and some 7,500 to 10,000 dwellings for the non-regulated rental market. For an efficient flow through in the housing market, it is particularly important that there is additional construction in the inexpensive owner-occupied segment and the non-regulated rented segment. These segments will be facing the biggest shortages over the coming years and new initiatives will be needed for these segments. A historic residential investment volume in 2016 and more capital available in 2017 The year 2016 was historic for the residential investment market. Institutional, private and international investors invested approximately 4.1 billion euros in Dutch rented homes, an increase of approximately 33% compared to 2015. Dutch institutional investors made the most important contribution, investing approximately 3 billion euros and purchasing around 13,000 dwellings in 2016. Institutional investors invested mainly in new-build dwellings in the mid-price rented segment. This number could have been significantly higher if the supply had been sufficient. Returns are under pressure due to the limited supply and substantial demand for suitable products. Investors therefore maintain lower initial yields for new investments. In 2016, private investors invested mainly in existing structures. Yet there is also increasing activity among private investors in new-build and redevelopment projects. In addition, private investors are showing more interest in larger projects of between 5 and 10 million euros. 6 Research An analysis of the Dutch residential (investment) market 2017
International investors remained very active in the Dutch market in 2016, especially in the expansion of existing portfolios. Meanwhile, new international parties also entered the Dutch market in 2016. Investing in Dutch property continues to be an interesting prospect due to lower interest rates, growth in the number of households and an attractive risk-return profile. The investors surveyed indicated they have a total (including Dutch and international) of more than 6 billion euros available for the purchase of rented homes in 2017. Once again, this amount is higher than indicated in previous surveys. If the supply is insufficient, there is a risk that foreign investors will invest their capital in other countries. Housing associations implement the Housing Act and can invest more The new Housing Act went into effect on 1 July 2015 and has led to considerable changes. In 2016, housing associations were assigned a housing area where they are permitted to carry out their core activities: the construction, rental and management of regulated rented homes. Their primary focus will be on the service of general economic interest (SGEI) activities. Over 18 months after implementation of the new Housing Act, most housing associations are working on creating their core portfolios. Increasingly, rented homes that are or will be non-regulated are being sold as individual units or entire complexes. Compared to previous surveys, a larger percentage (54%) are considering sales of entire complexes. This corresponds with one of the recommendations of the Netherlands Environmental Assessment Agency (Planbureau voor de Leefomgeving) to sell parts of the stock as entire complexes. Increasing the supply of mid-price rented homes cannot be achieved only through new-build. In order to reduce the shortages, it is also essential to use the existing supply. Housing associations can now make use of the opportunities by taking advantage of the momentum on the residential investment market. Institutional and international investors have a record amount of capital available. In addition, a majority of the housing associations are now in a positive financial situation. This provides housing assocations with the possibility of investing in regulated rental homes and of making their older stock more sustainable. This trend towards sustainability will increase in importance over the coming years. Research reveals that in 2015, 54.8% of the housing association stock was older than 35 years. Building permits granted to housing associations reach a low and many housing associations are opting for a targeted scenario In their annual prospective information (dpi), housing associations have indicated the developments they expect to see in their housing portfolio. These include the target of adding 20,000 dwellings to their stock over the next five years. However, there is a big difference between the number of building permits granted to housing associations in recent years and the construction forecast. For instance, only around 4,100 building permits were granted to housing associations in 2016; a figure that has never been so low in recent years. Another development is the decline in the number of affordable rented homes. The number of dwellings in the inexpensive rented segment (< 403.06) will decline by an average of 4.5% over the next five years. This decline is due mainly to rent adjustments as well as the fact that, under current market circumstances, it is increasingly difficult for housing associations to add new-build to this segment. Housing associations also expect that the stock of rented homes above the non-regulated threshold will increase by approximately 13% through 2018. This will occur largely through rent adjustments. Here, too, it is unclear whether this development will actually take place. Of the housing associations surveyed, 49% indicated that they were considering letting those dwellings that will be non-regulated, under regulated conditions. The reasons for this are the fact that the housing associations must assign 95% of their housing stock in an appropriate way and that they currently feel less need from a financial perspective to raise rents. One possible consequence is that fewer dwellings from their existing supply that can be let under non-regulated conditions based on the number of points under the WWS (system by which the rental value of residential Research An analysis of the Dutch residential (investment) market 2017 7
property is assessed), actually end up in this segment. Given the shortages that will arise in this segment, it is recommended that supply and demand, both qualitative and quantitative, be further clarified and that policy be aligned to this situation, both locally and regionally. Housing developers will have to create new plans Housing developers have now had a few good years since the crisis and the recovering demand for owner-occupied and rented homes has enabled them to once again construct more dwellings. A large part of the constructed new-build concerned old plans that were never carried out due to the crisis. Indeed, there was a peak in the number of building permits granted in 2014 and 2015. In 2016, the number of permit requests for new-build declined and a lack of solid planning capacity has meant that housing developers have been able to construct fewer dwellings in 2016 than in previous years. In light of the tense situation on the housing market, housing developers will have to create new plans over the coming years. The development of new-build can take years, so a relaxation of the procedures and obtaining land positions is key. Municipalities, investors, housing associations and housing developers will have to work together to increase building production in the short term. As stated above, it is essential here to consider the quality and affordability of the product, not just the quantity. For an increase in dynamics in the housing market, it is vital that more inexpensive owner-occupied dwellings and more mid-priced rented homes are built. 8 Research An analysis of the Dutch residential (investment) market 2017
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