A long time ago, students finished their study and got a mortgage to buy themselves a nice house. Nowadays, this sounds like a fairytale. For most students, buying a house seems far away. Student loans are high, therefore mortgages are low and this is happening while housing prices go through the roof. Spring 2020, the average price of a house in the Netherlands went to 344.000 €, resulting in a new record. And since most students from Groningen move to Amsterdam, they can expect to pay way above this average price.
Housing prices have been increasing for 23 years straight.
From 1985 to 2008, the housing prices have been increasing for 23 years straight. This resulted in a price increase of 115% (adjusted for inflation). From 2009 until 2014 the prices have decreased, but now the tide has turned again. Housing prices are going crazy the last few years. But what fuels these rising housing prices?
1. Low interest rates
As you might know, interest rates are currently on a historical low level. So now it is cheap to borrow money, mortgages are also going up. These higher mortgages give buyers the budget and confidence to pay more for their house.
2. Real estate investors
Now interest rates are low, investors have to look for returns elsewhere. One place to find their return, is real estate. Real estate has shown reliable returns in the past and seems like a good substitute for interest returns. More professional investors are buying themselves into the Dutch housing market. BlackRock is a newcomer in the Dutch real estate market, who just bought a real estate portfolio in Amsterdam for 500 million. This immediately makes them the fourth-largest homeowner in our capital. This kind of companies do not have a great reputation, when it’s about the housing market. Worldwide there are many stories about BlackRock exploiting their tenants, to maximize their profits.
3. Rising construction costs
There have been many fallbacks in construction work in the previous years. On top of that, the government has sharpened sustainability regulation, which causes construction costs to be significantly higher. This is fueling the price of newly built homes by up to 20%. In the past however, rising construction costs were in line with the economic growth. So the rising construction costs, have only been of significant effect for the last few years. When construction companies have learned to cope with the new situation, it is expected that its impact on the final price will decrease.
4. Lack of housing supply
Currently there is a shortage of 315.000 houses in the Netherlands. New regulation prohibits many building projects from taking off. Therefore, housing corporations are blaming the government for the housing shortage. In practice, this means that when a house becomes available for sale, way more people are interested. Home brokers use this situation to increase the final price, by forcing buyers into a bidding war. Now the budgets of people are higher due to the low interest, it often appears that people overbid on the asking price of a house. In the past this would have been unthinkable, but today it often is needed to be able to win a bidding war.
There is a fundamental difference between the crisis in 2008 and the crisis today.
Will the prices drop now, just like in the financial crisis?
Experts are not sure about how the housing market will develop in the upcoming year. They point out that there is a fundamental difference between both crises. In 2009, it was very hard to get a mortgage. Today, there are no difficulties when you want a mortgage. This is good for the consumer, but it also keeps prices high.
So, is it easier for us students to buy a house in the upcoming years? Currently, it does not look like it. Luckily the aggressive growth of housing prices will be tempered by the economic weakening. But being a young homeowner in the Netherlands, still seems like fiction.