The price everyone pays to make Dutch housing unaffordable

 

The price everyone pays to make Dutch housing unaffordable

September 5, 2024 Senay Boztas

https://www.dutchnews.nl/2024/09/the-price-everyone-pays-to-make-dutch-housing-unaffordable/

 

There is one tax benefit in the Netherlands that costs every working person an extra 1.5% in income tax. But it only benefits a certain group.

 

It’s a perk for home owners, and one that many European countries have already  abolished.

 

It’s called mortgage interest tax relief, and it inflates house prices by allowing people to borrow more. (People in countries like the US, notes the economist Matthijs Korevaar, think the Dutch are crazy for their 100% mortgages, Europe’s highest per-household loans.)

 

Benefits around home ownership seem like a perk for the people. But they are really a subsidy for the banks: the taxpayer picks up some of the bill of mortgage payments, so banks can lend more. Higher mortgages benefit nobody more than mortgage lenders.

 

1.5% extra income tax

Pieter Omtzigt gets very upset about the unfairness of the “expat” highly-skilled tax ruling – a ruling that, by the way, exists to allow Dutch businesses to pay lower salaries while recruiting necessary international talent.

 

But, despite commissioning a report on housing that recommended scrapping hypotheekrenteaftrek tax perks to tackle the housing crisis, Omtzigt is remarkably quiet on this. There’s no suggestion the budget will tackle it either.

 

According to a secret government document on the effects of different tax cuts – revealed in a freedom of information request – tax perks for home owners could be abolished and save every taxpayer at least 1.5% in basic income tax.

 

Everyone who is renting privately, or in social housing, in other words, is paying 1.5% extra in income tax to support just over half of the population owning a house.

 

For years, the Netherlands has been asked to get rid of this tax break: by the European Commission, the IMF in its latest financial stability report, the Dutch central bank.

 

Social unrest

Why should homeowners benefiting from the tax break care?

 

Actually, it’s the most unfair tax you could imagine. See your neighbour in that €2 million house on the corner, with the loan of more than €1 million? That person is getting more tax back for his house. The government is literally paying him to be richer and take more risk.

 

It also promotes cavalier behaviour around risky debt. Perhaps you think that only poor people have problematic loans. The Netherlands is now offering 110% plus mortgages – leaving recent buyers up to their necks in debt. Which, by the way, you have to repay even if the house price drops, your foundations need repairing, or you lose your job. A column in the Financieele Dagblad this week rightly said Dutch house prices are “unsustainable” and also a risk for social unrest.

 

It’s also daft to have high debt for a long time. If you read the fine detail of your mortgage, you will be paying back €1.75 for every €1 you borrow on a typical 30 year mortgage right now. That’s a lot of money. With or without a tax break, you are poorer overall with this long-term debt than in paying it off quickly.

 

 

Unsustainable debt

Home ownership tax breaks simply pump house prices. They benefit the richest home owners most. They tax the young – with ever less hope of getting a house – for older generations sitting pretty in theirs. And most of all, it’s tax money that goes straight into the pockets of the banks. Generous of the Dutch people to support their banks so much, of course, although I’m not sure they realise it.

 

Because even if you sell a house, making a profit, you probably still have to buy again – and the highest ever Dutch house prices right now are based not on prosperity and a blooming economy but on a bubble of unsustainable debt.

 

Yes, there are fewer houses than the demand – partly due to immigration but also to Dutch people ageing and living in smaller households, plus most of all, too little building. But with 100% mortgages (and, recklessly, no requirement from mortgage companies for a technical building survey), the prices are determined by what people can borrow.

 

And what people can borrow is pumped by these tax breaks.

 

A genuinely right-wing government would remove the home ownership perk, because it distorts a free housing market. A left-wing one would remove it to tackle social inequality.

 

You could phase it out, or restrict it for houses worth more than the NHG mortgage guarantee limit. You could introduce capital gains tax for private property, to get back some of the taxpayers’ money that has been poured into them.

 

It’s time for the Dutch government to stop blaming other people for the Dutch housing crisis, remove these perks, restrain risky lending and stop the dangerous price spiral.