Squeezed out of the market: Why is renting hard in the Netherlands?

The Dutch government is rolling out a law to cap excessively high rental costs. Economists are divided on the subject.

Speak to housing experts in the Netherlands and many will paint you a gloomy picture. As in other EU countries, rental costs are skyrocketing, supply is constrained, and homeownership remains unattainable for many. According to the most recent data from the country’s national statistics office, rents rose by an average of 5.4% year-on-year in July 2024. That’s the largest average rent increase since 1993.

For those who can’t afford private rentals, social housing is designed to provide a necessary fallback. The average wait time, however, amounted to seven years in 2023 – with those totals rising in cities with more demand. Research from the Dutch research firm ABF suggests that the Netherlands is short of around 401,000 dwellings this year.

A supply shortage is therefore at the heart of the Dutch housing dilemma, although experts also point to a complex knot of state policies. Balakrishnan Rajagopal, UN Special Rapporteur on the right to housing, offered a condemning conclusion last year. Following an 11-day visit at the government’s invitation, he noted that the housing mess stemmed from “a series of poor policy choices”.

He pointed out: “Housing is a human right. Housing is not a commodity or charity from government or anyone else. The Netherlands needs a paradigm shift towards recognising this.”

Affordable rental act

In July of this year, the Affordable Rental Act came into force in the Netherlands. “This is a huge milestone”, said Hugo de Jonge, housing minister at the time. Jonge argued that the law would support tenants currently dealing with unaffordable rents although, he stressed, renting out property would remain profitable.

The act works by capping rents on a points-based system. Housing is divided into three categories – low, middle, and high value – with more points given to more desirable properties. This can be based on criteria such as size, location and the availability of outdoor space. High-value rentals are unregulated, whereas properties in the two lower segments have price caps.

Although the law came into effect in July, the law will be fully enforceable on 1 January 2025 – giving municipalities time to prepare. Landlords can then be fined by the municipality if they do not stick to the rules.

Split opinions on the cap

Those concerned about the effects of the new act often argue that renting as a landlord will become less profitable. If landlords then decide to withdraw their properties from the rental market, this could reduce supply – arguably making it more difficult for those looking to lease.

Klaas Knot, the president of the Dutch central bank, made headlines earlier this year when he criticised the Affordable Rental Act. “I don’t want to make a political judgment about a law that was ultimately adopted by parliament. But I do look at the consequences,” Knot told Dutch press agency ANP in Washington. Knot added that the government would be wise to reverse the act.

Not all economists, however, support this conclusion. Richard Ronald, professor of housing at the University of Amsterdam, told Euronews that landlords selling up isn’t reducing the supply. Instead, it is just moving homes to the owner-occupied sector. He added that solely increasing the supply of rental houses also doesn’t seem to be moderating prices – meaning the Affordable Rental Act has its place.

“Since 2011, the stock of private rental housing in the Netherlands has actually increased significantly,” he said. “The problem is that this has been driven by the liberalised sector.”

Starting over a decade ago, a chunk of social housing was gradually sold to private landlords in the Netherlands – a move designed to attract investment. About a quarter of homes in the country’s four big cities are now owned by investors. Although the supply of rentals increased, the free market over-inflated prices, stoked by increased demand. This was driven not only by migration but also by lifestyle choices, with more people living in smaller households.

This created a problem for the “squeezed middle” cohort, said Arend Jonkman, planning researcher for the Netherlands Environmental Assessment Agency. For those earning too much to access social housing – but too little to afford free-market prices – stock became increasingly inaccessible. That was despite a boost in supply.

Supply and demand

Thierry Wever, senior advisor with research group RIGO, also told Euronews that outcomes aren’t always predictable when it comes to housing in the Netherlands. “We’ve built quite a complicated and regulated system… so the normal economic relationship between supply and demand doesn’t work in the same way.”

In theory, if landlords feel obliged to sell because of rental caps, this could add to owner-occupied stock. This could therefore make buying a house more achievable as market demand shifts from renting to buying.

Even so, several economists warn that the Affordable Rental Act cannot be expected to boost owner-occupied stock to such an extent. If house prices don’t come down significantly, this means that the “squeezed middle” cohort will still be locked out of the market, holding insufficient resources to secure mortgages.

In terms of general housing supply catching up to demand, construction barriers can also complicate this process. Obstacles include the availability of labour, environmental regulations, and the cost of building materials.

One criticism of the Affordable Rental Act is that it could disincentivise the building of new rental housing if investors expect a reduced financial gain. There are, however, construction incentives built into the housing act – meaning that the rules apply differently to new properties.

Not a simple fix

While the rental act is controversial, it is arguably too soon to choose a camp. “If you change the market, it requires some time to reset,” said Marja Elsinga, professor of housing at the University of Delft. “I think that’s the situation we are in now.”

Darinka Czischke, an associate professor in housing – also at the University of Delft – agreed that it’s too soon to make a judgement call. “It will be interesting to see how this new act interacts with other housing policy measures.”

As well as rental caps, there are a whole host of other regulations that affect the Dutch housing market. For instance, generous mortgage tax relief has been blamed for giving an unnecessary boost to high-income households, inflating property prices. Several cities also ban property owners from renting out homes below a certain value. Intended to deter investors from “hijacking” affordable homes, such bans arguably disadvantage tenants by reducing rental stock.

“This is the part that gets lost in the sound bites,” concluded Czischke, “when people say the rental act is intrinsically good or bad.”