Dutch house price fundamentals

Abstract

This paper discusses house price developments in the Netherlands, specifically focussing on the question whether current house prices in the Dutch owner-occupied market are likely to decrease. We analyse three aspects of the question based on a literature review: (1) whether there is a house price bubble ready to burst; (2) whether house prices will decline in response to the credit crisis that started in 2007; and (3) whether it is likely that house prices will decrease as a result of reforms in the tax treatment of home owners. The outcomes of the two available Dutch models predict that even without fiscal reform (and before any effects of the global financial crisis make themselves felt) prices in the housing market will probably come under pressure in the sense that contrary to the previous decades growth of real prices will be zero. Changing the fiscal treatment of owneroccupiers would cause real house prices to decline over the next years. The timing of such measures may be considered most unfortunate now that the global credit crunch seems to be affecting the Dutch economy as well.