The Netherlands’ largest cities have introduced restrictions on investors from renting real estate they buy. The share of owner-occupiers grows and the neighborhood population changes. But rents have increased while house prices didn’t go down.
In the Netherlands’ largest cities, homeownership has recently become somehow more accessible for middle-income households as many municipalities discourage investors from buying affordable real estate. However, more than a year after the policy started to be enforced, housing prices didn’t necessarily drop, while rents seemed to increase with shorter supply.
The first results about the consequences of the restrictions applied in the Netherlands on real estate investors were published on June 15 in a study carried out by the University of Amsterdam and the Erasmus University Rotterdam, with the help of data from the Dutch Land Registry up until March 31, 2023.
The “Opkoopbescherming” (purchase protection) law can strongly discourage investors from buying real estate: Any property with a value below a cap set by municipalities cannot be leased for four years after its purchase.
The Netherlands passed the law as concerns grew about investors driving up the real estate market by pricing out home-buyers and decreasing neighborhood livability because tenants are more likely to stay for shorter periods and be less mindful of their neighbors, for example.
Most large Dutch cities applied a four-year rental ban
House price increase in the Netherlands has been regularly among the five highest of the European Union in recent quarters, according to Statistics Netherlands. Prices of Dutch real estate, new and existing properties combined, grew by 13.4 percent in 2022, adding to a 15 percent growth in 2021.
Announced in the summer of 2021, the details about how the policy would be implemented locally only became effective on January 1, 2022.
The policy was drawn up at the national level. But it is up to municipalities to decide whether to implement the law, select the area and the property’s tax value below which buy-to-let activity is forbidden for four years after purchase.
All Dutch cities with more than 200,000 people introduced an investment-restriction policy in 2022, and most of them have decided to cover their entire housing stock below a price cap.
Rotterdam, the second-largest city in the Netherlands, was the first to introduce the policy but almost the only one to only apply it partially. Rotterdam’s policy covers 27 percent of the city’s housing stock, while Amsterdam’s covers 60 percent of its housing stock.
In Rotterdam, the price cap was set at 355,000 euros (388,000 dollars) in regulated neighborhoods where more than 90 percent of properties fell under the cap. In The Hague, the price cap was set at 255,000 euros (278,000 dollars), which limits the protected properties to the cheapest ones, as real estate sells for 20 percent more on average in the city.
Easier access to homeownership, but not cheaper
The study found that residents had a higher chance of buying homes in neighborhoods where real estate investors were excluded. Nationwide, about 2,000 houses were sold to buyers, which otherwise would have been sold to investors.
In Rotterdam specifically, the city with the oldest comparable data, the study found the policy reduced investor purchases on regulated properties by about 75 percent. It is equivalent to a 23 percentage point reduction in the share of investors in real estate purchases. The research shows a similar effect nationwide, although only with a ten percentage point reduction.
Moreover, investors didn’t seem to transfer their search to nearby neighborhoods where restriction didn’t apply, a phenomenon otherwise called the “waterbed effect” (pushing down the waterbed mattress in one place and the water will rise elsewhere).
But prices in the real estate market didn’t decline, which implies real estate investors may not contribute to rising housing prices, researchers suggested. It would go against the widespread concerns that investors drove prices up.
For Matthijs Korevaar, Assistant Professor at the Erasmus School of Economics, investors usually have a more solid financial background — larger borrowing capacity, no resolutive conditions, etc. — which can give them an advantage in front of sellers compared to household buyers who need a high mortgage. Investors would pay similar prices but have better chances of buying a house thanks to their finances.
An alternative explanation given in the report is that banning investors led to increased demand from owner-occupiers, partially motivated by the area’s gentrification.
More than the consequences on house pricing, the study suggests that the ban has a more evident influence on the composition of the neighborhood, whose population becomes older and wealthier.
Rental prices increased by 4%
Renters are usually younger, with lower income and are more likely to have a migration background. And the Opkoopbescherming law seems to affect them negatively.
As a consequence, while access to homeownership for middle-income households improved, on the other hand, it damaged housing affordability for lower-income families, “undermining some of the intentions of the law,” the report highlighted.
In Rotterdam, rents have increased by approximately 4 percent in regulated neighborhoods compared to the city’s non-regulated areas since the implementation of the policy. It accounts for about 50 euros (55 dollars) more per month on average on the rent. Results would need further confirmation with data on more cities over an extended period.
While “buying property is not an option available to everyone,” young households and migrants are particularly vulnerable to the change of the law restricting the private rental sector.
On average, residents of investor-owned properties in the Netherlands are three years younger and 20 percent less likely to hold Dutch nationality than owner-occupiers.
