The economic boom in the Netherlands persists. In 2017,
GDP growth reached 3.3%, the highest growth rate in 10 years.
It is expected that economic growth levels off in the next
years, to 1.9% in 2020, but remains above potential. As the
solid economic performance continues, cyclical tensions rise to
the surface. Corporate utilisation rates are high and the
labour market tightens. In a growing number of sectors
businesses are reporting shortages of staff and other
resources. This will put a drag on economic activity, mostly
through rising wages and prices.
Flaring up protectionism, culminating into a trade war
between the United States versus China and the EU, poses a risk
to projected economic developments. Mutually imposed additional
import tariffs weigh on international trade and dampen
confidence, thereby putting a drag on the world economy. An
escalating trade conflict can have severe effects for the Dutch
economy, given the open character of Dutch economy. On the
positive side, economic growth in the Netherlands is more and
more driven by domestic demand; for a substantial part a result
of favourable conditions in the housing market.
The Dutch housing market is gaining firm momentum and has
bounced back to the record prices seen in 2008. House prices in
the major cities have already risen above their 2008 levels. A
spill-over effect from the major cities is now also being
observed: prices in the surrounding regions are also rising
sharply. Partly owing to the current low interest rates, homes
are generally still more affordable than before the crisis, but
financing costs for first-time buyers in the cities have now
risen to above their pre-crisis levels. Residential properties
in the cities are increasingly being bought by private
investors. This may contribute towards a growing private rental
market, but it is also driving up prices.
Despite the sharp rise in house prices, mortgage lending
growth has remained subdued to date. This is partly
attributable to more redemption payments being made (either
scheduled or voluntary) and buyers increasingly
using their own funds to pay a deposit on their new home. If
house prices continue on their current growth path, it stands
to reason that mortgage lending growth will gain momentum again
and financial stability risks may increase.
Several years ago, the economic slowdown and the housing
market correction were mutually reinforcing. In the same way,
the economic upturn and the housing market revival are now
feeding each other. This procyclicality may be accompanied by
unnecessarily high economic and social costs and is related,
among other things, to the fact that mortgage interest tax
relief and borrowing limits in the Netherlands are generous by
international standards. The scheduled accelerated phasing out
of mortgage interest tax relief will have a dampening effect on
procyclicality. Further reduction of the loan-to-value (LTV)
limit for residential mortgage loans is desirable, as the Dutch
LTV limit remains very high from an international perspective.
The current scarcity on the housing market should be remedied
by increasing the housing supply, especially in the middle
segment of the rental market.