The Housing Market System

From regulation to broad-based stimulation

For almost a decade, the Dutch housing market has been under sustained pressure. The housing shortage has reached 396,000 units (ABF Research), with profound social and economic consequences. In election season, it is no surprise that every political party is promising ambitious housing programs to close the gap — each following its own path and principles. The question, however, is whether these plans address real constraints? Or will the plans stall at treating symptoms, offering only populist quick fixes instead of real solutions?

Planning Capacity, Affordability & Systemic Adjustments

Political proposals offer a range of improvements, which can be grouped into three key themes: planning capacity, affordability, and the housing market system. In this third paper, we focus on the latter – the systemic proposals for the housing market.

Room for the Market or a Return to Public Housing?

Party programs reveal three strategic directions: maintaining the current market structure, expanding it, or shifting towards a public housing model with a stronger role for housing associations – or similar entities.

The PVV, SP, and GroenLinks-PvdA advocate for a more prominent role for housing associations. Their programs propose that associations should be responsible for a substantial share of new rental housing development. To enable this, they suggest fiscal reforms such as abolishing corporate income tax for housing associations. This would create greater financial capacity to build both social and mid-market rental homes.

Besides, the parties are calling for more flexible European regulations to unlock financing for guaranteed mid-market rental housing. At the same time, they propose tighter rental regulations, which would make the investment climate less attractive for institutional and private investors. As a result, the responsibility for rental housing development may shift almost entirely to housing associations.

On the other hand, parties such as VVD, JA21 and (to a lesser degree) CDA want measures aimed at improving the investment climate for private and institutional investors. Their plans include:

• Giving greater weight to property values in the housing valuation system;
• Removing the notional return calculation (Box three);
• Reversing the Affordable Rent Act;
• Reintroducing temporary tenancy contracts.

These plans aim to make rental housing investment more attractive for institutional and private investors. JA21 goes further still, calling for a return of the landlord levy, which would curb the financial capacity of housing associations and reduce their role in new housing delivery.

Regulation vs. Stimulation: Where Does the Solution Lie?

Almost every party focuses on either regulatory or incentive-based measures targeting housing associations or investors. The central question remains: which approach delivers the greatest societal value? And how do we unlock sufficient development capacity to realize 100,000 new homes annually?

Ultimately, it’s not regulation but capital that determines the pace. Without adequate investment power – public or private – ambitions risk remaining theoretical. The debate is therefore not only about who is allowed to build, but more importantly, who can afford to.

Sufficient capital requires contributions from private buyers, housing associations, and private and institutional investors.

Recent research by ABF Research shows that over the past decade, 51% of new-build homes in the Netherlands were owner-occupied. This highlights the pivotal role private households play in financing new residential developments, primarily through mortgages. To meet the national target of 100,000 new homes annually, this ratio implies the need to deliver approximately 51,000 new owner-occupied homes each year.

However, this distribution of 51% contrasts with the current emphasis on social housing, where the two-thirds affordability norm is a guiding principle. Insights from recent publications on planning capacity and affordability reveal both the opportunity and the necessity to increase the share of owner-occupied homes. Doing so would not only diversify the housing supply but also enhance the financial feasibility of development programs.

Housing associations also play a vital role in delivering new residential developments. During the financial crisis years, they proved to be a key safety net, stepping in to support new construction when many private buyers were unable or unwilling to invest in new-build homes.

However, production by housing associations has been significantly lower over the past decade compared to previous years and current ambitions. This decline is closely linked to the introduction of the landlord levy in 2013, a stronger focus on sustainability upgrades for existing stock, and the ongoing effort to keep social housing affordable.

According to self-reported data from housing associations, financial capacity is not the sole reason for the low output of new-build rental homes. In fact, the same data shows that over the past five years, housing associations had sufficient financial resources to deliver between 20,000 and 30,000 homes. This indicates that limited capital is not the primary constraint.

Despite this available funding, the majority of new rental housing additions in recent years have come from institutional investors, who financed 20,160 homes between 2017 and 2021. Since then, however, production has declined due to increased national and international regulations.

As a result of these policy changes and their impact on the investment climate, we expect new-build output to remain at current levels. While capital is still available, it is now largely sourced from Dutch investors. Under current conditions, investor-led development is expected to be limited to 8,000 to 10,000 homes per year—well below the estimated need of 20,000 to 30,000 homes annually.

Major changes to financing conditions in the owner-occupied housing market are unwise

To meet the target of 100,000 new homes annually, the housing market system must facilitate sufficient capital flows. Analysis shows that key capital providers are not directing enough funding toward new-build projects, and the underlying issues vary by stakeholder.

Private households generally have both the demand and financial capacity to purchase homes. While current interest rates have a stronger impact than in the past—especially for long-term construction projects exceeding 18 months—double housing costs remain a barrier to buying new-build homes. A less restrictive policy on mandatory mortgage repayment could offer a solution.

However, increasing capital flows from private households into new-build homes is primarily a matter of supply. This is evident from the recent surge in new-build transactions following a dip caused by rising interest rates. The main reason for low sales volumes in the new-build market is a lack of sufficient supply, as outlined in the article on planning capacity.

The owner-occupied housing system does not require large-scale reform. What is needed is a long-term vision that avoids disrupting current demand. One example is the gradual phasing out of mortgage interest tax relief over a twenty- to thirty-year period. This extended timeline minimizes the impact on demand while reducing market dependency on subsidies.

It is also important to maintain stable borrowing standards. This helps prevent consumers from overextending themselves during times of scarcity, which can drive prices even higher.

Finally, a gradual adjustment of the loan-to-value (LTV) ratio to 95% or 90% is advisable. This is a common standard across Europe and offers better protection for first-time buyers against the risk of negative equity in the event of a price correction.

These structural adjustments will inevitably influence demand for both owner-occupied and rental housing. The less attractive the fiscal incentives and financing conditions, the lower the long-term demand for owner-occupied homes.

If this is the direction we pursue for the future housing market, it will require a greater supply of rental homes outside the social segment, or the acquisition of existing owner-occupied homes for rental purposes.

Fiscal reform and mandatory income-based rent increases to unlock financing capacity for housing associations

Housing associations continue to structurally underdeliver new-build housing. To meet the agreed ambition of at least 30,000 new social rental homes annually, a significant catch-up is required. Previous reports suggest that 25,000 homes per year may be sufficient, considering the limited long-term structural demand.

The challenge remains substantial. Between 2008 and 2013, housing associations scaled back many land positions, increasing their reliance on municipalities and private developers. Expanding planning capacity could help stimulate housing production by associations.

Housing associations report having sufficient funding available for additional new-build projects. At the same time, the combination of large-scale sustainability goals, demolition and redevelopment efforts, and the need to keep rents affordable continues to strain investment capacity. Rising maintenance and operational costs are further reducing available capital for new development.

A corporate tax exemption appears to be a logical step. Aedes estimates that this measure could increase investment capacity by up to 150,000 new homes.

This scenario comes with a condition: mandatory income-based rent increases, replacing the current voluntary approach. At present, only 40% of housing associations apply income-based rent adjustments, often up to the maximum rent allowed under the housing valuation system. To avoid this ceiling, alternatives such as market-based rents or a maximum housing cost ratio—as proposed by Nibud—could be considered. These measures would improve access to social housing and ensure that the available stock is better allocated to households with the greatest need.

Long-term: Transition housing allowance into an income-based housing subsidy

In the long term, it is essential to reduce the number of (implicit) subsidies within the social rental segment. The cost of the current system continues to rise. On the one hand, this is due to the growing budget for housing allowance, which has now reached €5.2 billion. This figure is expected to increase further, partly due to the expansion of the housing stock eligible for this subsidy.

However, the greatest challenge lies in implicit subsidies. The average rent for a social housing unit is €582 per month (Aedes, 2023), or approximately €8.30 per m². In comparison, unregulated rental homes average €17.91 per m². This means each social rental unit represents an implicit subsidy of €9.60 per m² per month.

When applied to the entire social housing stock managed by housing associations, the total implicit subsidy amounts to roughly €18 billion—on top of the €5.2 billion in direct housing allowance. This gap is expected to widen in the coming years. Starting in 2026, rents in the social sector will increase by a maximum of the three-year average inflation rate, while market rents historically rise slightly above inflation. As a result, the difference between regulated and market rents will grow, further increasing the implicit subsidy. This has several major consequences:

• The cost of building social housing continues to rise, increasing the unprofitable portion of projects and making it harder to offset these costs with revenues from owner-occupied homes in mixed developments.
• Local and national taxes must increase to sustain housing subsidies.
• Renters’ housing costs continue to rise steadily, while homeowners with mortgages see their costs decline over time due to repayments and falling interest.
• These differences widen the gap between renters and homeowners—not only in monthly housing costs but also in wealth accumulation.

To address these issues, it is advisable to transition toward an income-based housing subsidy over the long term, rather than one tied to the type of housing. This would give households greater freedom of choice—allowing them to decide whether to rent or buy.

Homeownership also offers key advantages. In addition to potential value appreciation, housing costs typically decrease over time, and after thirty years, households may even be free of housing expenses. This shift in demand toward owner-occupied housing can help reduce wealth inequality and ease pressure on income taxes over time.

From regulation to stimulation: unlocking investor potential

Investors are the final link in achieving the target of 100,000 new homes annually. In recent years, this group accounted for approximately 20,000 new-build homes per year. Since 2022, however, there has been a notable decline. Increased regulation and unstable government policy have played a key role—particularly for foreign investors.

Currently, investors in Dutch residential funds are withdrawing due to the mandatory corporate tax following the removal of the FBI (Fiscal Investment Institution) status. This change affects return expectations, making it more attractive to allocate capital elsewhere with a more favorable risk-return profile.

This tax impact applies only to foreign investors in these funds. Dutch investors remain exempt. As a result, foreign capital is not only avoiding the Dutch market—it is actively exiting existing funds.

To reverse this trend, the following measures are needed:

• Align the tax treatment of foreign pension funds with Dutch pension funds.
• Reassess the transfer tax.
• Ease rental regulations.
• Strengthen the role of private investors.

The current disparity in tax policy between foreign and domestic investors risks drying up liquidity for new housing developments in the medium term. Over the past decade, approximately 32% of new-build rental homes were financed by foreign capital—making this funding stream critical for future housing delivery.

While the transfer tax does not directly affect new-build transactions, it does impact existing stock. Institutional investors typically sell older assets to reinvest in newer, more sustainable developments. The transfer tax reduces available capital in these transactions, indirectly limiting investment in new construction.

Rental regulation also requires more flexibility. A recalibration of the housing valuation system (WWS) is needed, with stronger alignment to WOZ values, which better reflect both property quality and location.

Private investors have played a significant role in housing delivery and should continue to do so—especially in the rental segment. Adjustments to rental regulation will help, but the taxation of assets in Box 3 is also critical. The current layering of fiscal and regulatory measures results in negative returns for private investors, causing rapid shrinkage of the rental stock—particularly the flexible segment that many households will rely on in the coming decades.

Ultimately, the goal is to re-engage investors through targeted incentives. Stability and predictability are key. With the right measures, both domestic and foreign investors can be drawn back into Dutch residential development—unlocking the capital needed to truly deliver on the 100,000-home ambition.