Dutch economy grows, but strongest growth seems to be behind us
Last year was another good year for the Dutch economy, with strong GDP growth of 2.6%. This made 2018 the fourth year in a row that Dutch economic growth outperformed the Eurozone average (2.0% in 2018), although we did see a slight weakening from the 2.9% recorded in 2017. The slowdown in growth was the result of weakening consumer spending, less robust growth in investments in new residential real estate, falling gas production, as well as growing uncertainty about the imminent Brexit and global trade. Last year saw a slight drop in consumer confidence, but this is still (much) higher than the long-term average. Unemployment fell to 3.9% in 2018. On the back of the tightness on the labour market and higher inflation (1.6%), wages increased by more than 2% in 2018.
Marked regional differences in growth of households through to 2030
The Dutch population increased by some 104,000 to 17.3 million in 2018, a similar level of growth as that seen in 2016 and 2017. The majority of this growth (85%) was due to positive net migration, and to a much lesser extent to natural growth (births minus deaths: 15%). The number of households increased to around 7.9 million in 2018. The number of households is expected to increase by an additional 550,000 in the period to 2030. This forecast growth will be driven almost exclusively by the growth in the number of small households: one-person and two-person households (primarily in the over-65 age group). The target group families is set to remain more or less the same across the Netherlands.
There will be marked regional differences in household development through to 2030. Population growth will be highest in the primary regions in which Vesteda invests. All household groups, with the exception of single people and couples younger than 30 years of age, are expected to increase in absolute terms in the primary regions in the period to 2030. The strong growth in the number of small households is expected to put increasing pressure on relatively small, affordable homes in most urban areas.
Forecast household growth, by household composition and age in the three regions and the G4 cities (Amsterdam, Rotterdam, The Hague and Utrecht) as a whole
Singles & Couples
Source: Socrates 2017. Figures rounded off to the nearest 100.
Flattening house price growth in the large cities, overflow to surrounding municipalities
More than 214,000 existing owner-occupier homes were sold in 2018. This was more than 10% less than the number of homes sold in 2017. The number of homes up for sale increased by 5% in the fourth quarter of 2018, when compared with the same period in 2017. This was the first time in 4.5 years that the number of homes for sale had shown a year-on-year increase. We also saw a slight increase in the number of new-build homes in 2018: estimates put the number of new-build homes at almost 70,000 (compared with 63,000 in 2017). However, the total production of new homes stilled lagged the 80,000 new-build homes that are needed on an annual basis. House prices went up by an average of 10.3% in 2018, taking the average transaction price to the record level of €298,000. For comparison, the average value per home in our portfolio was €244,000 at year-end 2018.
We saw something of a waterbed effect at a regional level (see figure below). House price rises seem to be gradually levelling off (for instance: in Amsterdam, prices were up 8.0% versus 13.5% in 2017. Due to the pressure on affordability in the big cities, more and more households are moving to overflow areas, which is pushing up house prices in these areas. On the back of this development, house prices increased in all residential regions for the first time since the financial crisis.
Price development of owner-occupier homes sold based on NVM regional division
Source: NVM 2019, processed Stec 2019.
Pressure on rental homes remains high, primarily in Amsterdam
The shortage of homes in the rental market continued in 2018, resulting in rising rental prices (see figure below). The pressure on affordability in urban owner-occupier markets remained just as high last year, which is forcing households to switch to rental homes. And although housing corporations have been given a little more room in the liberalised rental sector, this has not resulted in any increase in the number of homes available or downward pressure on rental prices. Lenders tightened their mortgage requirements considerably last year. This has hit first-time buyers the hardest – they still have relatively little savings – and this group is now more open to alternatives, such as liberalised sector rental homes.
The graph below shows that average rental prices per square-metre are higher in Amsterdam than in the other G4 cities and, on top of this, are rising faster than anywhere else. Outside the G4 cities, average prices per square metre are still lower, but prices are also still rising in these areas.
Over the past few years, local authorities have been pressing for a larger share of government-regulated and liberalised segment rental homes in new-build residential developments. A number of municipalities and regions – including some outside Utrecht and Amsterdam – have set quotas for the number of homes that need to be affordable for low and middle-income households. They are also drawing up rules for maximum rents and rent increases, all with the aim of keeping homes affordable for all.
Monthly rental prices per m² measured twice-yearly, divided into Amsterdam, other G4 cities (Utrecht, The Hague, Rotterdam) and outside the G4
Source: MSCI 2019. H2 2018 based solely on transactions Q3 2018.
Competition is pushing up prices and compressing initial yields
Last year saw a record €8.5 billion in transactions in Dutch residential rental properties. That is more than 60% more than in 2017, and the highest level of investment ever seen in Dutch residential rental properties. These investments were in both existing and new-build rental homes and included investments from both Dutch and international investors. Rental homes remain a highly popular investment product, thanks to their low risk profile and stable returns. The former Delta Lloyd portfolio that Vesteda acquired from NN Group was the largest transaction in 2018. This €1.5 billion transaction gives a slightly distorted picture because it was mainly just an exchange from a direct stake in Dutch residential real estate into an indirect stake since the purchase price was paid largely in equity.
Investors acquired 12% more new-build homes in 2018, when compared with investments in 2017; investors acquired a total of 19,000 new build homes. However, demand is still outstripping supply and the market offers too few investment opportunities for the available capital. This once again led to higher prices and lower initial yields in 2018, primarily in popular cities and areas. Market experts expect this trend to continue in 2019.
CPB – December 2018 estimate
NVM – Housing market figures 2018 – Q4
Rabobank – Dutch Housing Market Quarterly
Colliers – Dutch Housing Market Sector Report
‘Dutch residential investment market is breaking all records’, Capital Value (December 2018)
Colliers – Residential Investment Attractiveness Index (2018)