In 2021, society faced the second year of dealing with the consequences of COVID-19 pandemic. The impact of government measures and high levels of uncertainty resulted in fragile market conditions. However, despite this uncertainty, the Dutch economy recovered strongly and the unemployment rate remained low. At the same time, the housing market remains tight. The price levels of owner-occupied homes reached new highs and the prices on the rental market continued to rise. The strong market fundamentals for the residential investment market are driving high investment volumes. Meanwhile, the affordability of housing is under increasing pressure and consumer confidence remained negative in 2021. Given the pressure on affordability and the increasing shortages, the housing market remained high on the political agenda.
Vesteda Housing Market Indicator, actual as per Q4 2021
Vesteda Housing Market Indicator, Q1 2018 - Q4 2021
The average score of Vesteda’s Housing Market Indicator (HMI) in 2021 reflected the robustness of the Dutch economy and the housing market. The HMI remained steady at around 7.2 in the first three quarters of 2021. However, the HMI dropped significantly to 6.5 in Q4 2021. The sharp increase in inflation to 5.7% in December had a significant impact on the economic driver of the HMI. Energy price developments in particular contributed to higher inflation at the end of 2021, which resulted in a total annual inflation rate of 3.8% relative to 2020 (CBS).
Consumer Price Index the Netherlands, 2015-2021
Source: Statistics Netherlands
Following a historical contraction in gross domestic product (GDP) of 3.7% in 2020, the Dutch economy recovered strongly and rapidly, as GDP growth came in at 4.8% in 2021. Support measures, both nationally and internationally, had a positive impact, together with the (partial) re-opening of society. GDP growth was even higher in 2021 compared to pre-COVID-19 levels. The lack of resources and staff is limiting growth. Furthermore, consumer sentiment about the economy remained negative throughout the year.
Despite the pandemic-related uncertainty in 2021, the unemployment rate remained at a historical low in 2021. By the end of the year, unemployment had declined to 3.8% of the labour force, the lowest monthly rate since the start of measurements in 2003.
The housing market remains tight and the affordability of housing continues to decline. At year-end 2021, the prices of owner-occupied homes stood 20% higher than at year-end 2020, which was the largest price increase since 2000 (CBS). Prices on the rental market also continued to rise, although at a more moderate pace. We did see a temporary easing in the high rental segment, due to lower demand from expats and self-employed tenants.
The current housing shortage will probably not improve in the short term. The supply of new development locations remains limited, there are long lead times for developments and there is limited capacity to scale up building processes. In a reaction to this, national and local governments are now looking for ways to intervene and we expect to see a continuation of the trend towards more regulation in the liberalised rental sector in the coming years.
Given the ongoing demand for rental homes, appetite among investors remains high. The attractiveness of the Dutch residential investment market, in combination with the availability of Dutch and international capital and low interest rates, has led to yield compression over the past few years. Moreover, the investment market remained strong, both for residential complexes and individual unit sales. The investment volume is expected to reach another record in 2021: €4.8 billion in new-build rental homes, resulting in a total of 16,700 homes (Source: Capital Value).