In his opening speech at the DNB housing market seminar, Klaas Knot shares his view on how housing prices can become a problem for broader economic wellbeing, and thus form an area of interest to central bankers. A more balanced and suitable supply of housing is needed. The new Dutch housing agenda is a promising example of the leading role our government should play on the Dutch housing market.
The city with the highest house price rises in the Netherlands and, last year, also in the Eurozone. I live here, so I have witnessed the soaring prices at first hand. Amsterdam, like many capital cities, has led the rebound in the Dutch housing market, which started in 2013. Prices here began to take off, and within a few years were growing at annual rates of over 15%. It is the same story in other large cities in the Netherlands. And more recently, the rest of the country has followed this trend, so house prices are rising
everywhere.
My work takes me all over the globe, to the world’s major cities. Many of you come from these cities, in Europe: London, Paris and Stockholm, but also Washington, Seoul and Sydney. And similarly, I have seen with my own eyes similar housing market dynamics in these locations, as they are becoming increasingly popular. This is why we invited you all here, to discuss some serious questions. Do we agree on the analysis of the problems in this field? Could we learn from each other’s best practices? Is there one solution?
My view
But first, please allow me to share my view. As a resident, as the president and of course as an economist.
While the increased popularity of cities worldwide may be good news for these places, and for homeowners, it also poses challenges. Demand for urban housing is strongly outstripping supply. This leads to the surge in housing prices that we are seeing. At the same time, it also puts pressure on rental markets. And although supervisors, central banks and governments have strengthened mortgage regulation since the crisis, the risk of a credit-driven boom always looms. After all, homeowners are often willing to take on more debt to be able to live in the city. We haven’t yet seen a credit boom in the Netherlands, but in some other countries house price growth is coupled with strong mortgage growth. Urban demographics are changing as a result. Young, well-educated people are drawn to cities, often chasing a limited supply of housing. Due to the housing shortage, middle-income households are at a disadvantage: too rich to qualify for social housing, not rich enough to buy a house. They need to rely on the rental market.
And although supervisors, central banks and governments have strengthened mortgage regulation since the crisis, the risk of a credit-driven boom always looms. After all, homeowners are often willing to take on more debt to be able to live in the city. We haven’t yet seen a credit boom in the Netherlands, but in some other countries house price growth is coupled with strong mortgage growth.
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You can read the full version of the speech of Klaas Knot here.
Source: https://www.bis.org
