💼 Netherlandlords
briefcase | invest smarter | Issue #132
Don’t forget to check out Briefcase head writer Brad on the Real Estate Syndication Show…
Last week, we asked you if banning landlords was a good idea. Here’s what you had to say…
🤔 The Opkoopbescherming Law
The surge in housing prices over the past 5 years has become a growing concern for many, and several factors contribute to this new reality. One significant aspect that deserves attention is the influence of rental properties on the escalating cost of housing.
On one side of the spectrum, many blame greedy landlords for the high costs of rent. Others (including this publication) blame increased material, labor, and regulatory costs for increasing prices.
It’s simple economics…
🏦 Fact: Governments earn about 3x the income from new housing than developers.
💸 Cuz…Fees and taxes account for an astounding 40% of development costs.
🚧 A higher cost to build means rents and housing prices stay high.
📉 Otherwise, if rents and prices were artificially low, no one would build, and our supply issues would worsen.
For a moment though, let's take the position that 🤑 greedy landlords are causing high shelter costs.
Yea! Let’s run them out of town!
🤑 Greedy Landlords: Those Fokkers!
Ban landlords? Yup, that’s exactly what the Netherlands did using a federal law called ‘opkoopbescherming’.
Say it with us now…OP-KOOP-BESCHER-MING. Now, say it again without smiling 😊.
And thankfully, the good people over at the University of Amsterdam and Erasmus University kept a close eye on what happened next in their paper titled, Buy-to-Live vs. Buy-to-Let: The Impact of Real Estate Investors on Housing Costs and Neighborhoods.
Don’t worry, we read all 47 pages, so you don’t have to.
We pulled an all-nighter fueled by Oreos, windmill puns, Rockstar cotton candy energy drinks, and ultimately regret.
For starters, the study found that most Dutch landlords were happy to get rid of their rental properties……Cuz everything clogs.
You’re welcome for that one. And now that we have your attention, here’s what we know about the landlord ban experiment.
🛑 Netherlandlords
On January 1st, 2022, the Dutch government passed legislation allowing municipalities to ban the rental of formerly owner-occupied homes that are below a predetermined value.
In effect, they banned real estate investors from buying rental homes. Many local jurisdictions, including Rotterdam and Amsterdam, followed suit and enacted local bans.
Amsterdam, for instance, introduced the ban on homes with a listed value of up to €512,000 (about 60% of all owner-occupied homes). The Hague and Rotterdam enacted the same ban on homes valued at less than €355,000. Utrecht as well, with a listed value of under €487,000.
🛑 The Good
The study found some positive impacts resulting from the local ban on investors. Mainly, this revolved around access to housing. More first-time homebuyers were seen in areas that implemented the ban.
This seems like an obvious outcome. If you ban one buyer segment, the others will fill that vacuum. So, having fewer investors does improve housing access for home buyers.
🛑 …And Good Intentions
Policy-makers hypothesize that reducing investor activity will reduce speculation, and housing prices and rents will drop. So what happened?
For properties under the price cap, the study finds an insignificant effect on housing prices (they went up by 0.1%).
Rotterdam neighborhoods that implemented the ban dramatically reduced rental supply, pushing up rents by 4%. Or, as we like to say, rental supply pulled a ‘Vincent Van Gone’.
This (unintentionally) pushed lower-income earners out of these neighborhoods and encouraged higher-income earners to move in.
Unfortunately, neighborhood composition became less equitable, going against the intentions of the original law.
TLDR: Although investors reduced the resale housing supply, they do keep rental prices lower by increasing rental supply. Investors also improved rental housing accessibility for lower-income and immigrant population segments.
So how do we solve that first observed drawback of increasing accessibility for first-time homebuyers?
So What? Big bad landlords are not the problem with our housing fabric. The problem has always been the housing supply.
If governments across the globe would simply implement policies to encourage supply, they would put downward pressure on prices and rents and improve access to housing for all.