House prices expected to go up by 6 percent in 2024 and 5 percent in 2025

• Housing market continues its recovery, thanks to lower interest rates and rising incomes

• January and February transaction numbers up by 13 percent compared with the same period in 2023

• Uniform climate label would offer better reflection of climate risks in house prices

Sentiment on the housing market improves for second consecutive calendar quarter

The sentiment on the housing market improved in Q1 of 2024, driven by the resilient Dutch economy. House prices continued to recover, as higher wages and falling mortgage interest rates helped to restore confidence. With the outlook for the housing market improving for the second consecutive calendar quarter, in the latest issue of its Housing Market Monitor ABN AMRO has raised its pricing estimate from 4 percent to 6 percent for 2024 and from 3.5 percent to 5 percent for 2025. Transaction numbers are also increasing, and in January and February the figures were as much as 13 percent higher than during the same period last year. The principal factors driving this growth are the decision to raise the maximum value for the Dutch NHG mortgage guarantee scheme and a trend among non-commercial lessors to sell their properties. With interest rates and taxes up, and rents expected to become subject to restrictions, letting residential units is currently less attractive than it was. However, few new building permits are being issued, and as a consequence few new homes have been built, and so ABN AMRO maintains the same estimates for transaction numbers: 0.5 percent in 2024 and 3 percent in 2025.

Transaction numbers up, but limited by lack of new development

Transaction numbers are still low. Few existing homes are on the market, and despite recent additions the supply of new residential units remains limited. This is blocking the housing market. However, first-time buyer numbers are stable, boosted by a higher tax exemption: the home value on which first-time buyers do not have to pay property transfer tax is now 510,000 euros, against 440,000 euros in 2023. In addition, this group are less affected than they were by buy-to-let investors, as they are selling their rental homes. As those properties shift into the owner-occupied segment, this creates more opportunities for first-time buyers. Another contributing factor is that mortgage interest rates are falling. The European Central Bank is expected to start lowering its interest rates in June, to 2.75 percent by the end of this year and to 1.5 percent by the end of 2025. This will allow mortgage rates to fall further, making homes more affordable. Even so, ABN AMRO highlights the importance for first-time buyers of being aware of the quality of properties. With energy prices falling and the housing market so tight, buyers are increasingly accepting homes with a lower energy label.

Potential for price shocks as a result of climate change

Although falling mortgage rates and higher incomes mean that buyers can borrow more, the housing market remains as tight as ever, ABN AMRO finds. “Residential construction in the Netherlands is not keeping pace with the government’s ambition to build a million new houses over the next ten yeas,” explains Philip Bokeloh, ABN AMRO’s Housing Market Economist. “Although 73,000 homes were built in 2023, the ambition calls for at least 115,000 new houses to be built every year. It is vital to make more efficient use of the current supply and build more homes. The Dutch House of Representatives is handling the bill for the new Dutch Housing Act (Woonwet). If the bill becomes law, this might give residential construction a boost by handing the central government control to determine how many houses to build, where to build them and who to build them for.”

Many homeowners with mortgages will struggle more to remain compliant with the tax rules governing home-ownership. It will also become more difficult for the tax authorities to monitor that compliance. The tax system needs to be overhauled. “Delaying reforms will increase the risk of house price shocks,” continues Bokeloh. “Climate change poses the same risk. Homeowners know little about climate risk or about what they can do to minimise the impact. Requiring home buyers to make sustainability improvements and introducing a uniform climate label could help to improve their awareness, and mean that the risks are better reflected in the value of homes.”

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