In the Netherlands the current economic crisis is most acutely felt by those trying to sell their house: Nobody’s buying. This is not a huge surprise, given the governments measures to curb mortgage lending (no more mortgages of 120% of the value of the house) and unclarity about the future of tax deductibility of mortgage interest.
But there’s another reason, one that is left unspoken by all, but which all know to be true: Houses aren’t worth the prices asked for.
In recent years the OECD published a report stating that house prices in the Netherlands were overvalued by 20%. When I read that, I was convinced this was a underestimation. That conviction is now corroborated by a report by William Xu-Doeve: The Overvalued Housing Market in the Netherlands: A Conspiracy of Silence (pdf).
The report concludes that the housing market for owner-occupiers in the Netherlands is overvalued by around 100%. House prices are twice as much as is sustainable in the long term. In addition, mortgage related household debt is already in excess of 100% GNP and easily exceeds Mediterranean sovereign debt levels. And it is still increasing.
The cause of this aberration is firmly put on the doorstep of government. Government interference in the housing market since the late 1980’s have destabilized the market, causing prices to spike. The current crisis has seen house-prices drop a little (the report puts it at 5% year on year). But there is no sign yet of a downward price-correction of around 50%, something the author thinks necessary to bring housing market prices back in line with long-term sustainable levels.
However, such a price correction, whether in the form of an uncontrolled crash or a long down-ward slide, will prove to be destructive for the economy, the financial sector and for Dutch society.
Isn’t that just lovely news on a Sunday morning?