The Adverse Effects of the New Dutch Affordable Rent Act on the Rental Housing Market and Renters.

The new legislation that aims to reduce rent by regulating mid-segment rentals, overlooks the broader issues of housing shortage and limited new construction, and potentially would worsen the rental property scarcity for new tenants rather than alleviating it, as demand remains high.

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Recently, the majority of Dutch Members of Parliament voted in favour of the Affordable Rent Act that, if approved by the Senate, would modify the current system used to categorize rentals and regulate the maximum rents, to expend and cover the mid-segment rentals in The Netherlands.

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This system, known as the housing valuation points system (WWS), currently dictates that properties scoring above 142 points are considered free-sector rentals with no capped rents, while properties with characteristics that do not exceed the point system’s threshold are classified as social housing, with a maximum rent of €879 per month (the current rent liberalization threshold).

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The new legislation, which would come into effect on July 1, 2024, will increase the rent control threshold to 186 points, extending the rent-controlled bracket to cover the mid-market segment, with a cap of the maximum rent to €1,123 per month, depending on the number of points a property is worth.? It is anticipated that this adjustment would lower rents for about 300,000 properties by an average of €190 per month and bring an additional 113,000 properties under rent control.

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Officials in Amsterdam estimate that with these new rules, only 25% of private rental properties in the capital will score above 186 points and remain in the free market. The intent is to make rents fairer, aligning them more closely with the quality of the property.

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However, as I noted in a previous article, expanding rent controls could actually reduce the limited supply and availability of rental properties at a time when demand is already high. This could have unintended negative impacts on the rental market, particularly exacerbating the shortage of available rentals.

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While considering recent various legal and fiscal changes, alongside other regulations and restrictions by the local municipalities, such measures might prompt landlords to sell off smaller rental properties to private owners (who are obligated to reside in it). ?

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This would reduce the number of affordable rentals available, leading to fewer rental properties on the market within the existing already limited rental-housing sector pool. With fewer available rental properties and the current limitations imposed on increases of the annual rent, fewer tenants would leave their current rentals.

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Bearing in mind that these new measures would only apply to new tenancies, the problem of lack of rental properties would leave many potential tenants without the possibility for a rent-controlled property, while the rents for those rental properties above the new threshold would surge.

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In essence, while the legislation might benefit some (new) tenants by making rents more commensurate with property quality, it does not address the underlying issues of housing shortages and growing demand, potentially leaving many without viable rental options. ?By focusing on rent control without increasing the supply of affordable rentals or encouraging new housing developments, the government is not tackling the root causes of high rents and could even make things worse.