New housing regulation increases housing shortage

Erasmus School of Economics

The Netherlands is facing a housing crisis with high demand for housing and a stagnating supply leading to higher housing prices. Matthijs Korevaar, Assistant Professor at Erasmus School of Economics, together with Jasper H. van Dijk, shares his vision on the Dutch housing market in the Volkskrant (17 January, 2024).

The authors explain how politicians try to tackle the rising rent prices by regulating housing rents. Yet, regulation always yields winners and losers. For instance, a new law in the Netherlands which makes fixed rental contracts the norm will offer more security for tenants yet increase risks for landlords. In contrast, the Dutch government recently also regulated the buy-to-let market and lowered the property transfer tax, causing more people to buy houses to live in themselves. This led to more scarcity in the market for rental housing which increases the rental prices, the authors explain. 

To compensate tenants for these higher prices, the government wants to make housing rents more affordable by setting a price cap on some of the houses on the unregulated housing market. However, the authors note, a price cap will cause higher demand for rental homes while lowering the supply and thereby causing an even higher shortage. 

Vicious circle

Korevaar and van Dijk fear a vicious circle where the negative side effects of one policy measure repeatedly have to be solved with another measure. They conclude by explaining how the most effective policy to tackle the housing crisis is to build more houses. Meanwhile, the government should focus on other measures than the demand side such as encouraging people to live together.

For the whole item by the Volkskrant, 17 January 2024, find the file below

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