The key question
Does cheaper housing lead to a better chance of finding a house?
The expansion of the WWS points system will have the most impact in the most urban areas. For young house-seekers in particular, young singles and young couples, this will sound like good news. Young house-seekers, who generally have lower incomes than older house-seekers, are most prevalent in more expensive urban regions. They are also the group with the highest net ‘rental quote’: the percentage of their income that goes to paying net rental costs.
On average, single people aged under 35 spend about 31% of their income on net rent. Taken together with other living costs, and in more expensive urban locations, an even larger proportion of their income is spent on living expenses.
So much for the theory; what will it mean in practice?
We expect that regulating rental prices in this way will not facilitate the search for a rented home. This is because we expect demand to rise and the growth in supply to stagnate. We will now examine this in more detail.
Since the largest effect, in terms of the downturn in rental prices, will be seen in the most popular large cities, more households will qualify for these less expensive dwellings and demand for them will therefore rise.
Moreover, given the high rental prices typical of popular urban centres, from a financial perspective any cheaper housing in these locations will become even more attractive. Geographically, this will mean that the demand will increase for dwellings on much more desired locations, as they have became more affordable for more households. More households will thus compete for the same dwellings, with less through-flow and long waiting lists as a result. This will have an outsized effect on neighbourhoods with a higher share of multi-family dwellings especially. Normally, the attractiveness of the area was reflected in the WWS-points through the WOZ-value, but is limited due to the WOZ-cap.
For house-seekers, the rental market will also become more financially attractive than the purchase market, which has become much more popular in recent years. This effect will doubtless be amplified still further by rising mortgage interest rates, which will put even more pressure on the affordable rental market.
These effects will not be limited to existing housing stock. Steep rises in building costs and high land prices have made new-build projects less attractive to developers and investors. Building projects are being put on ice, and this can be seen in the number of construction permits issued in the first six months of 2022: a clear drop compared with the first six months of 2021.
The consequence of expanding the WWS points system is that certain projects no longer meet investors’ yield requirements. Partnering instead with investors or housing corporations that would be satisfied with lower rental returns makes sense from the perspective of affordability, but this is wishful thinking.
Higher costs make projects in this sector unprofitable, and in times of a serious housing shortage the question is whether it might not be better to build more expensive homes than no homes at all. It seems likely that the proposed policy will have an adverse effect. Moreover, investors with a higher yield profile are likely to opt to sell empty rental properties to users. The result: a smaller rental market.
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