Real Estate in the Randstad
People - Investing
Saturday, 26 July 2008 17:12

In the central and west part of the Netherlands, the Randstad, house prices are among the highest in the world. Currently most economists predict that these prices will go up even further. Their motivations are the growing economy, the current dutch tax system, building regulations and the growing population there. Remarkably they predict falling house prices in many other parts of the Netherlands, such as in Groningen (north) and in Limburg (south), again because the population there will decrease.

Though the population in the Randstad will increase in the coming years a decreasing population is predicted from 2040.

As with any prediction new developments can cause it not to happen. For example if you know that the population in the Randstad will decrease in 2040 then this will affect real estate prices many years before 2040. Something similar is going on with the oil price now: the oil price has gone up because people expect a shortage in the coming years.

In any bull market some people are on the sell-side. These people get out of the market and cash-in their profits. Let's see who is on the sell-side in the Dutch house market:

  • Obviously many pensioners are on the sell side. They sell their house and buy a smaller house back, outside of the Randstad, or they rent a house. This is getting easier, banks are now offering sell-and-buy-back contructions.
  • Many people try to get jobs outside the Randstad such that they can buy a bigger or cheaper house. This might become easier because in the internet era many services can be provided from any location. Currently however many people commute to the Randstad every day. Commuting will get more difficult due to rising fuel prices.
  • Many companies try to change their business such that they can sell their expensive real estate in the Randstad.
  • A large percentage of the houses and appartments is own by semi-government institutions and are rented out to people with low salaries. At least in theory, in practice many people with high salaries live in such houses too. These organisations have sold some houses already. If the house prices continue to go up these institutions will sell more houses. Especially in Amsterdam, where these institutions own more than 50% of the houses this may have a high impact on the real estate market. It could also happen that these institutions are forced to sell houses. Such pressure may come for instance by right wing politicians or by the European Community.

Right now the prediction of a growing population seems to be the most important argument for ongoing rising house prices in the Randstad. I am not so sure, because many previous estimates of the population in the Netherlands turned out to be wrong and the high house prices themselves limit population growth.