The housing market has been shaken up in recent months by the new transfer tax rates, intended to help starters in the overheated market. Buyers under the age of 35 eagerly took advantage of the ‘starter exemption’ for the first three months of this year, which meant that they did not have to pay transfer tax and could save thousands of euros on their buyer costs.
Figures published by the Land Registry on Wednesday show that under-35s accounted for 61 percent of all housing transactions during this period – normally this is around 45 percent. The total number of transactions rose sharply from January to the end of March, and was almost 30 percent higher than the same period a year earlier, as it turned out at the end of April.
The price of existing owner-occupied homes was more than 11 percent higher in March than a year earlier, the largest price increase since 2001. The influence of the under-35s on this increase appears to be considerable. From January to March, the Land Registry registered a striking number of housing transactions of more than 400,000 euros with this group, while they normally focus on cheaper homes. At the end of March, their average purchase price even peaked at around 475,000 euros, more than one and a half tons more than in January.
An explanation for this may be that a large proportion of the under-35s who made use of the ‘starter exemption’ were not starters at all. About 40 percent already owned a house and is therefore actually an instantaneous water heater.
Investors also hoarded
The Dutch housing market has stalled further and further in recent years. Due to a focus on buying instead of renting, a shortage of hundreds of thousands of homes, low interest rates and ever-rising rents in the private sector, purchase prices have been rising record after record for years. The throughput is also low, so starters have great difficulty in entering the owner-occupied market at all.
In order to improve the position of starters in relation to investors, the previous cabinet decided at the end of 2020 to differentiate the transfer tax, which was 2 percent for homes at that time: all buyers under the age of 35 could receive a one-off exemption from January to March. to get. Since April 1, this only applies to houses up to 400,000 euros – the average house price for this group is therefore likely to fall again. Other buyers who move into their purchased home pay a 2 percent transfer tax, and investors (buyers who currently own two or more homes, as well as buying for rent or a vacation rental) have been paying 8 percent since January.
Anticipating the measure, some of the under-35s postponed their home purchase at the end of last year until after 1 January. At the same time, many transactions have probably also been brought forward, in order to be able to make use of the full exemption until April 1. Private investors foresaw the higher rate, and made their move at the end of 2020. Since 2009, both small and large players have not bought as many homes in one quarter as then, the Land Registry wrote in the economists’ magazine at the end of April. ESB.
The legislative change that has now been implemented could count on little enthusiasm last year. If the supply is so low and cannot be increased quickly by, for example, building, starters will use the money that they do not pay in transfer tax to make a higher offer, according to criticism from researchers and brokers, among others. “It is well-intentioned, but in a market that is so tight and in which buyers tumble over each other, it has little effect and boosts the market further,” says a spokesman for the Dutch Association of Estate Agents on the phone.
“The cynical view is that the starter is not helped by it, and older home owners see their home become more valuable and that they are the winners of this policy,” says Cody Hochstenbach, city geographer and researcher at the University of Amsterdam.
A 2019 study, conducted by the Dialogic research firm on behalf of the Ministry of Finance, was also critical of the original plan. For example, in addition to the aforementioned price hike, it foresaw problems in defining an investor and pointed out that it would be detrimental to construction for housing associations to be labeled as such. The higher taxes can weigh on their budgets. Investors can also find constructions to avoid higher taxes, according to the report.
Furthermore, the authors found that there is every indication “that the differentiation of transfer tax is very probably not efficient”. The costs would be around 200 million, “between 15,000 and 80,000 euros per additional home transaction for a purchase starter.”
Nor was the original plan feasible, the authors wrote. To check whether someone is really a starter, it must be tested whether someone already owns a home. But, says Reg Brennenraedts, one of the authors, “the notary is jointly and severally liable for the payment of the transfer tax. He therefore wants to be 100 percent sure whether someone is a starter or not. The Land Registry can indicate this with 99 percent certainty, but there are a number of cases where it could be different. ” For example, there is no data on people who have bought a house abroad, older buyers sometimes do not appear in the digital databases of the Land Registry, and it is complicated when a house is inherited, for example. “Because they are liable, there is a risk that notaries will have to pay for it out of their own pocket in the event of a mistake,” said Brennenraedts.
Also read this series about where prices rose the fastest in the Netherlands
The bill was therefore amended. A starter must now indicate that he will use the house as his main residence, may only use the exemption once, and must be younger than 35 years. With the latter amendment, the bill did become feasible. But it comes at the expense of efficiency, as the large proportion of under-35s moving on who bought a house with the exemption in recent months shows. In addition, almost 20 percent of ‘real’ start-ups are older than 35 years, and therefore cannot claim the exemption.
Glorification of home ownership
Ultimately, it remains to be seen what the real effect of the differentiation will be and whether the higher proportion of young buyers will be lasting. That the market anticipates a rate change if it could have been foreseen. In addition, the Land Registry expects that the number of transferring persons with an exemption will decrease in the coming years, because everyone is only allowed to use it once.
The question remains why the Senate and House of Representatives, despite all the criticism, nevertheless approved the amendment. In any case, it is clear that there was a hurry. For example, the Ministry of Finance points out that a maximum house price of 4 tons was only chosen later in the autumn of 2020, as a condition for the start-up exemption. To accommodate first-time buyers who had already planned to buy a house, the maximum did not start until April 1. And in the first three months of the year, wealthy starters and home movers could also buy a house of well over 4 tons with the exemption.
City geographer Cody Hochstenbach, who is currently writing a book about the housing crisis, would rather see more attention for the broader political line of the past decades than for seemingly loose measures such as the transfer tax. “Home ownership has been glorified since the late 1980s. You can build up capital with it, it stands for independence and is something to be proud of. Renting, on the other hand, is throwing away money. ” By expanding home ownership, you reduce the welfare state, according to the researcher. The idea is that people with sufficient equity have less entitlement to social benefits.
Hochstenbach does advocate a heavier tax on home ownership and a commitment to decent rental alternatives. “That glorification of home ownership has become so dominant that we have reached the point where we think we can only help starters by giving them some money to borrow even more and inject even more money into the housing market.”
‘Give starters a fair chance on the housing market’