Market developments
The housing market started to recover and showed growth throughout the year. The investment market sentiment has been gradually improving, while on the consumer side, both the rental and owner-occupied housing sectors are showing signs of renewed market dynamics. This resurgence is primarily due to an improved economic climate, characterised by stabilising inflation rates and interest rates, although these remain on an elevated level, coupled with substantial increases in household incomes. Consequently, we have observed a sharp rise in both market rents and the prices of owner-occupied homes. However, this positive trend also highlights the housing market's most pressing issue: the substantial disparity between supply and demand. The current housing supply significantly lags behind demand, resulting in a situation where a considerable portion of Dutch households face challenges in securing suitable and affordable housing. This supply-demand imbalance will remain a key focus area for both policymakers and the investment market moving forward.
Inflation 2022-2024 (CPI) and wage growth (CAO)
Source: Statistics Netherlands
Despite a significant decline in inflation in the Netherlands and the eurozone, this remains above the targeted 2%. The European Central Bank (ECB) raised interest rates ten times in the period from July 2022, reaching a level of 4%, to curb demand for goods and services and reduce inflation. This strategy proved effective, leading to a substantial decline in inflation. Consequently, in June 2024, the ECB lowered interest rates for the first time since July 2022, followed by a number of further reductions. However, consumer goods and services were still 4.1% more expensive in December 2024 than the previous year, slightly up from 4.0% in October, as reported by Statistics Netherlands (CBS). The annual inflation rate for 2024 was 3.3%. The Netherlands has experienced higher average wage growth than the rest of the eurozone, primarily due to labour shortages in various sectors.
Both wage growth and broader economic conditions, including supply constraints and strong demand, have contributed to inflation in recent years. Rent increases, which are partly tied to average wage increases in the Netherlands, have made a significant contribution to inflation. Lastly, the persistent high demand for products and services relative to production capacity, coupled with a tight labour market, continues to exert upward pressure on wages and prices from the demand side of the economy.
Average mortgage rates in the Netherlands remained relatively stable in 2024. Mortgage rates have increased significantly since early 2022, due to higher inflation expectations in the eurozone, leading to a rise in capital market rates. For example, the average 10-year mortgage rate with NHG (National Mortgage Guarantee) rose from 1.11% in early 2022 to 4.27% within 12 months. In 2023, mortgage rates stabilised at a higher average level. More recently, there has been a slight decline in rates. The 10-year rate with NHG fell to 3.40% from 3.77% one year ago (source: Hypotheker).
Mortgage interest rate vs government bond yield NL (10 years)
Source: IEX, BLG wonen
The impact of the lower mortgage rates and increase in household income was also reflected in a sharp increase in owner-occupied house prices. In 2024, the prices of existing owner-occupied homes in the Netherlands saw a significant increase, rising by an average of 8.7 percent compared to 2023. This marked the largest year-on-year increase in over two years. The housing market had previously reached a peak in July 2022, after which prices began to decline for a period. However, house prices have been rising again since June 2023. At the end of 2024, average prices had surpassed the previous peak of July 2022 to a level of €450,000, indicating a robust recovery and growth in the Dutch housing market (source: Statistics Netherlands).
On the investment market, the overall transaction volume for the year saw a substantial 59% growth compared to 2023. In total, some 28,500 properties were sold, with domestic investors accounting for the majority (85%) of these transactions. New-build rental properties accounted for 45% of the total transaction volume, representing €3 billion. These investments have the potential to facilitate the construction of approximately 12,000 new rental units in the coming years. The transaction volume in new-build increased by 25%. While both housing associations and institutional investors increased their investments by 52% and 32% respectively compared to the previous year, these levels remain insufficient to meet the targets set by the government. Furthermore, both existing portfolios and recent acquisitions of existing properties are increasingly being sold to private owner-occupiers, leading to a gradual decline in the rental stock over time.
The housing shortage continues to rise, due to the sale of rental homes, limited new construction, and a growing population. In the third quarter of 2024, building permits were granted for 12,400 new homes, representing an increase of one thousand units compared to the same period in the previous year. However, this figure indicates a significant decrease of 6,500 homes (-34 percent) from the second quarter of 2024. During the same period, 17,100 newly constructed homes were completed and delivered to the market. The number of approved building permits serves as a key indicator for future housing construction activity. Unfortunately, the current figures do not present an optimistic outlook for addressing the persistent housing shortage. This trend suggests that the supply of new homes may continue to lag behind demand in the near and medium term, potentially exacerbating the existing housing deficit (source: Statistics Netherlands, Capital Value).
Building permits vs realised buildings 2015-2024
Source: Statistics Netherlands, Capital Value
Vesteda Housing Market Indicator
The above-described market dynamics over the past year are further reflected by Vesteda's Housing Market Indicator (HMI). The HMI provides an overview of the most relevant drivers on the Dutch housing market from a residential investor's perspective. In 2024, the HMI remained fairly stable at 5.9, with a temporary increase to 6.3 in the third quarter of 2024.
The housing quadrant, in particular, saw a significant increase from 5.9 to 7.8, primarily driven by rising house prices. However, while the housing quadrant improved in 2024, other aspects of the market showed mixed results. Affordability for consumers declined, putting pressure on the consumer quadrant. In terms of the economy quadrant, economic growth improved, but the score for inflation fell due to persistently high inflation levels. The sustainability quadrant saw a decline in the score, due to an increase in carbon emissions from households. Overall, the Housing Market Indicator (HMI) remained relatively stable. However, the underlying drivers of the HMI present an inconsistent picture, reflecting the complex and sometimes contradictory trends in the housing market.
Vesteda Housing Market Indicator, actual as per Q4 2024
Source: Vesteda
Vesteda Housing Market Indicator, Q1 2021 - Q4 2024
Source: Vesteda
New government and Affordable Rent Act shape housing policy
In 2024, a political transition occurred in the Netherlands with the installation of a new coalition government. After a complex formation process, the new government was sworn in on 2 July 2024. This government formation included representatives from multiple parties, with four deputy prime ministers appointed, one from each participating party.
Concurrently, the previously announced Affordable Rent Act was implemented and this came into effect on 1 July 2024. This act, aimed at addressing high rental prices in the Netherlands, applies to all new rental contracts signed on or after this date for rental homes scoring 186 points or less according to the housing valuation system. The law represents a significant step by the Dutch government in the regulation of rental prices. Even though we support the goal of this law and we are pleased that there is now clarity, we believe that regulation is not a solution to the problems in the housing market. The new regulation also impacts Vesteda, however we will continue with our strategy of investing in affordable and sustainable homes.