Buy-to-let market growth in The Netherlands: facts and figures

The number of buy-to-let houses has long been increasing in The Netherlands. Economists Paul de Vries and Ruben van Leeuwen expect on the basis of new data that this development continues: the future prospects for this segment of the housing market are positive. Important drivers are the extremely attractive financial returns and the increasing demand for this type of rental housing. At present, about 5% of total housing stock in the Netherlands – 372,000 homes – and this stock of buy-to-let homes represents a total value of approximately 65 billion euros.

The size of the market

In order to estimate the market size, we make the very first use of the Living Research Netherlands 2015 (WoON 2015). Our analysis shows that 323,000 homes (4.4% of total housing stock) are rented by private individuals. If we analyze older WoONdata, then the average annual increase in market volume over the period 2006-2015 is 7.6% and over the past three years is even 10.5%.

Important for the Dutch rental market and the financial returns to be achieved, the distinction between homes is below and above the liberalization threshold of 710.68 euros per month. Under this monthly rent, homes are regulated and the owner must pay the landlord levy to the Realm. This tax is approximately equal to two month rentals (0.491% of the total WOZ value of all regulated homes). The purpose of the landlord levy is to reduce the size of the leased sector. Above the liberalization limit no charge is imposed. The non-regulated rental sector is also bound to much less strict rules. The majority of the rental homes are within this bracket.

As a total market size, we estimate the buy-to-let market at 65 billion euros.

Regional differences

Looking at regional differences, it is clear that the buy-to-let market has a market share especially in the four major Dutch cities (Figure 2). In Amsterdam, buy-to-let is the largest (12% of the housing stock) and the smallest in Rotterdam (7% of the housing stock).

In Utrecht, the rent level of the buy-to-let property is highest (average 736 euros), followed by The Hague (731 euros) and Amsterdam (706 euros). Rotterdam is lowest (550 euros). We can also calculate with the help of the point system if renters demand the maximum rent. This shows that in Amsterdam the ratio between the current and the maximum rent is the least divided.

Comparison with Land Registry figures (Kadaster)

The Kadaster can find out if the owner of a home actually lives in the house. If a private individual owns two or more homes, but others are registered in the second or next house, it is likely that there is a buy-to-let construction. If no one lives in the second or next home, then these are assumed to be either holiday homes or homes for sale. According to this count, private individuals currently rent (fourth quarter 2016) approximately 268,000 buy-to-let homes.

Some individuals are professionally involved in the rental of their small housing portfolio. For this purpose, they have established a legal entity. An estimate can also be given to the size of this group. For this we used a maximum of fifty homes per landlord. Then there are about 104,000 homes.

We therefore come to the conclusion that there are (268,000 + 104,000 =) 372,000 homes to be rented which we can label as buy-to-let properties. This is about 5% of total housing stock. This percentage is slightly higher than estimated on the basis of the WoON2015, but that is easily explained. The living time of the WoON is in 2015 and the Kadaster count is current. With the assumed rapid growth of this sector, 5% seems to be a good estimate of market size. There’s a difference between the portfolio of individuals and individuals leasing from a legal entity. The natural persons mainly have a portfolio of less than 10 homes.

Growth by increased supply

For decades, the private rental sector, and thus the buy-to-let sector, had no chance of growth. The Dutch government stimulated the purchasing sector and supported the regulated rental sector. Recent reforms on the housing mortgage market and the new housing act ensure that the buy-to-let market gets more space while low yields in financial markets combined with low mortgage rates have triggered individuals to invest in the housing market.

There is also more offer of buy-to-let homes. The low interest environment, in particular the low interest rate on savings, makes investment in homes financially more attractive. In addition, during the crisis period the rent has simply gone through while the house price has fallen sharply. In other words, a profitable return on housing can be achieved. In addition, the revised housing law (July 2016) provides considerably more opportunities for temporary lease contracts of two to five years or temporary lease contracts that depend on, for example, the tenant’s age.

Future developments

Our expectation is that the number and share of buy-to-let homes will increase in the coming years. We see a trend that private individuals with the ability dare to buy rental homes and then rent out. Furthermore, the growth of this market is a reason for mortgage providers to develop special buy-to-let mortgage products. In the Dutch cities of Amsterdam, Rotterdam and Utrecht and the Expat city of The Hague, the supply of buy-to-let houses is growing.

Source: MeJustice, article by Paul de Vries and Ruben van Leeuwen, (translated selection)
Published: January 3rd 2017