Housing Market Monitor: more housing market reforms

by: Philip Bokeloh

  • On 9 October, the new government presented its coalition agreement, including its plans for the housing market.
  • Cabinet Rutte III wants to implement structural reforms by speeding up the pace of mortgage interest relief reduction.
  • However, its plans for the biggest bottleneck, the housing shortage, remain vague.

 

 

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The new government is reducing the fiscal benefits for homeowners. However, the price effects remain limited. What helps is that the economic circumstances are much better compared to the last time housing market reforms were implemented. In addition, households are being compensated in various ways, such as lower income taxes.
We therefore maintain our price forecasts of a 7.5% increase in home prices this year and 5% in 2018. We note that the housing market is becoming more sensitive to interest rate increases due to the reduction of mortgage relief. However, in the short term we do not foresee a strong rise in interest rates, given the recent announcement by the European Central Bank that it will continue its buy-back program in 2018. This announcement has made a rise in price forecast more likely.
As regards home sales, we continue to expect a modest decline of 5% next year, after an increase of 15% this year. The change in trend is mainly attributable to the shortage in supply. The number of homes for sale has steadily declined as transactions have increased. As a result, buyers find it increasingly difficult to find a suitable home.