The Plan to Keep Amsterdam Homes Affordable

(Bloomberg) -- As Amsterdam house prices soar and investors seek to spend more in the Dutch capital, its left-leaning government is in a quandary: How does it keep the city affordable for locals?

The city of about 845,000 people -- famed for its canals and bicycles and home to firms such as Adyen NV, ING Group NV and Royal Philips NV -- has been adding about 10,000 new inhabitants every year since 2008. Locals worry that an influx of people fleeing Brexit and expats from elsewhere will put pressure on a market already facing short supplies.

The Plan to Keep Amsterdam Homes Affordable

In the midst of all that, Amsterdam’s new government in May presented ambitious plans to add an extra 7,500 houses a year through 2025. At the same time, the city wants a third of newly built homes to be earmarked for social housing, with rents of no more than 711 euros ($825) a month, which threatens to make the market unattractive for both investors and builders. Laurens Ivens, 41, the socialist party city official in charge of housing, is unmoved.

“We don’t want to become like New York, with a lot of rich and poor people and few in between,” he said in an interview at his office on the Amstel river. “That’s why we try to steer things through new construction.”

Currently, rent on more than 40 percent of housing in Amsterdam is capped at 711 euros a month, while the incomes of about half of the Amsterdammers would entitle them to move into such homes, Ivens estimates. Households with a gross income of 60,000 euros a year -- which is about 75 percent of the city’s population -- can’t find a place in Amsterdam without assistance, Ivens said. For the socialist politician, this imbalance justifies the city government’s focus on adding lower and middle income housing.

Another challenge faced by Amsterdam is the shortage of rental houses in the so-called middle segment -- defined as places that go for between 711 euros and 971 euros a month -- partly as a result of people buying-to-let and transforming apartments into places with more rooms for more people at much higher prices, according to the official. In that segment, a further 1,670 new regulated rental houses will be constructed annually, he said.

“The city has become more expensive because more people want to live here, but also because many parties want to invest here,” he said. “We’re dealing with a property market and the capital market here.”

He said that last year the increase in houses in Amsterdam outpaced that in households, yet prices jumped. In the second quarter this year, housing prices rose 19 percent compared to a year earlier, according to Dutch association for real estate agents NVM.

Investors Protest

The additional government regulation in the housing market has drawn criticism from investors such as Gertjan van der Baan, Vesteda’s chief executive officer. The executive said by capping the supply freely available on the market, the city government is fueling further rises in property prices.

While Ivens has heard such complaints, he doesn’t see investors backing off from tenders on projects. For him, a bigger worry is a shortage of construction workers and building sites. “At this point I’m more worried about the builders than if investors are willing to invest,” he said.

Even if all the elements to house everyone that wants to live in Amsterdam coalesce, the question remains whether that’s what the city wants, Ivens said. The challenge for the city is that it’s hitting its limit on several fronts, especially as it strives to maintain its character as a place where people cycle to work and social cohesion is valued.

As prices rise, the city keeps risking a bubble. Amsterdam is among the six cities in the world most at risk of a property bubble, according to a ranking from UBS Group AG.

No Bubble

“Whether there’s a bubble or not, that’s a part of the risk for investors, but also for home owners and the city,” Ivens said. “I do take that seriously. At this point I don’t see any signs of a bubble in the coming years.”

That isn’t stopping him from counseling people he knows not to buy.

“I don’t advise my friends to buy a house at this point,” Ivens said, “because I think we’ll have to reach peak market at some point, but when I look at the market I see prices rising further.”

©2018 Bloomberg L.P.