Over the past 18 months, the Dutch housing market faced a correction after a decade of stable growth. This cooling trend is largely attributed to increased mortgage interest rates and inflation. However, recent publications from NVM and Central Bureau of Statistics (“CBS”) indicate a turning point. Average home transaction prices increased in Q2 2023 compared to Q1. The shift is driven by multiple factors, including stabilising mortgage interest rates, record wage increases, and ongoing challenges in the construction sector.

Rising interest rates cause housing market slowdown

In response to the high inflation that emerged after COVID, the European Central Bank (ECB) has been raising its official interest rates since 2022. As a result, homebuyers found themselves faced with reduced affordability as higher interest rates led to diminished borrowing potential. Consequently, the demand for homes decreased, leading to a housing market slowdown. This decline was also influenced by uncertainties surrounding the broader economic landscape.

As of mid-2023, the Hypotheker (the leading Dutch mortgage intermediary chain) reported that interest rates have stabilised in the first half of 2023, and are expected to decline towards the end of the year.

Housing market on the rebound in 2023

The Dutch housing market is showing signs of renewed strength. The NVM, the Dutch real estate broker association (whose data typically precedes official figures from CBS), reported a median sale price of €410,000 in Q2 2023. This marks a modest 2.8% increase compared to Q1 (Figure 1). Realtors sold more than 34,000 pre-existing homes, a 20% jump from Q1 2023 (Figure 2). Furthermore, listings increased by 29% compared to the previous quarter.

This trend has more recently been substantiated by CBS, who reported a month-on-month increase in the housing market index from June to July 2023 of 0.5%. While the year-on-year index development is down 5.5%, the month-on-month uptick indicates that a turning point in the housing market might have been reached.

As Lana Gerssen from NVM emphasises, dynamism is returning in the housing market, beneficial for both buyers and sellers. With economic stability and wage growth, buyers are seizing more opportunities and growing in confidence, while homes across all price ranges are selling more swiftly.

The optimistic outlook is driven by consistent wage increases across various sectors. The CBS reports that collectively negotiated wages have increased with 5,7% in the second quarter of 2023 – the largest increase of the past 40 years. With rising incomes, many potential homebuyers now find themselves in a more favorable position to delve into the housing market, thereby increasing demand. This is particulary true for those who were previously sidelined due to affordability challenges during the period of spiking interest rates.

However, ABN AMRO indicates that home affordability remains only moderate. The ratio of net housing costs to net incomes is notably higher than historical averages. Some of the market corrections required for better affordability might come indirectly via wage growth.

Limited construction output continues to strain supply

Despite these encouraging indicators, the housing market still faces challenges, especially on the supply side. The construction sector’s underperformance has been a critical factor in the persistent housing shortage. The sluggish rate of new housing projects has failed to keep up with rising demand. In addition, the Economic Institute for Construction (EIB) anticipates that the pace of home construction will decrease even more sharply than initially projected. According to EIB estimates, there will be a 6.5% reduction in homes built this year, a significant drop from their previous 3.5% prediction. Finally, the unstable political environment, especially after the recent government’s downfall, has brought about policy uncertainties that deter decision-making and sector investments.