Housing Affordability Policy Options: Dutch Rental Housing Associations

Housing affordability is an issue in cities around the world, and Albert Saiz performs yeoman’s work in pulling together a wide range of policy options and examples from many cities and countries in “The Global Housing Affordability Crisis: Policy Options and Strategies” (IZA Policy Paper No. 203, October 2023).

It’s nearly impossible to summarize the Saiz paper. He lists 30 different housing programs used around the world. He characterizes them in terms of local versus national implementation; supply versus demand orientation; public versus private ownership; and de jure versus de facto impact.” He points out that housing assistance programs can be focused in different ways: for example, is the goal to have affordable housing for sale to the middle class, or affordably priced rental units for the working poor, or available shelter for the homeless? Where will the affordable housing be located; in particular, should it aim to help people live in more expensive parts of urban areas? What should be the quality of “affordable” housing? Should the goal be to redevelop neighborhoods with a mixture of affordable housing and amenities, or on support for lower-income renters wherever they locate, or to support builders operating at smaller scale across many locations? And what about the role of nearby public amenities, schools, social programs, and jobs?

One reasonable takeaway from this report is that “affordable housing” has become such a big-tent term that it can obscure details. Here, I’ll focus on the comments from Saiz about one case study that may be unfamiliar to non-European readers: the Dutch rental housing associations. He writes:

Dutch Housing Associations (HA) are private, nonprofit enterprises that develop and manage affordable housing in the Netherlands. They account for approximately 75% of the three million rental homes and 35% of the entire housing stock, per 2016 estimates. HAs must lease 80% of their vacant units to low-income families and 10% to people with intermediate incomes. Ten percent can be leased to high-income families, which allows the associations to cross-subsidize their social mission. A government-regulated point system determines each unit’s rent, always substantially at below-market levels. Twenty-five percent of the total points are based on the tax-assessed market value of the property and 75% on the dwelling characteristics (Schilder and Scherpenisse, 2018). The higher the number of points, the higher the allowed rental price. Points are also awarded based on factors such as size of the housing, facilities, and energy efficiency. The point system provides incentives to partially fund improvements with rental revenue growth. Subsequently, rents can only increase at a prespecified percentage annually (currently 3.3%). …

HAs gained financial independence through policies in the 1980s-1990s that decentralized, deregulated, and denationalized social housing. The most notable was the 1995 Grossing and Balancing Agreement, by which housing associations’ outstanding debts were written off against future government subsidies. Combined with strong prices in the housing market, this helped infuse associations with substantial equity. HAs utilized a revolving fund model that—in addition to their equity—is sustained through rental revenue from tenants and sale proceeds from parts of their stock to investors. Excess funds are reinvested into renovating existing buildings, developing new affordable housing units, or developing neighborhood regeneration projects.

For example, it is possible for HAs to nimbly sell properties in the most expensive neighborhoods and exchange them for larger housing portfolios in middle-class areas. However, the tradeoff between affordable housing and social outcomes comes to the forefront in these cases … The associations do not require outside investors and can accept a lower or zero return on their equity. These, and their lower credit costs, allow them to charge lower rents (Schilder and Scherpenisse, 2018). Importantly, they do not utilize direct government subsidies. Instead, they benefit from cheap loans obtained through a three-level guarantee structure …

This triple guarantee system has allowed the WSW [the Guarantee Fund for Social Housing] to maintain top credit ratings and gain access to public capital markets. HA finances its debt at large discounts. The approval for a WSW guarantee is based on the creditworthiness of the association, whose financial position is evaluated based on its assets. If admitted, the association must meet certain solvency requirements. … While driven by a social mission, the system currently relies on sophisticated financial know-how, professionalism, and prudent underwriting. To reach that point, nonetheless, excessive financial risk-taking from some HAs had to be curtailed (Aalbers et al., 2017). …

The CFV [Central Fund for Social Housing] operates as the chief financial regulator of the HAs. Financial assessments of key metrics such as loan-to-value and interest coverage ratios are made through mandated due diligence, involving annual reports and supplementary information. The CFV provides early-warning signals to the national government when an association is experiencing financial weakness. A distressed association cannot attain WSW guarantees, but CVF provides interest-free loans for three years until self-sufficiency. During that period, another CFV member will take on management responsibilities and engage in financial restructuring if necessary. …

In my view, the Dutch HAs model represents one of the most successful housing policies worldwide and is ripe for replication in other countries. The model has been perfected over the years through regulations providing the right economic incentives and checks and balances. Replicating the model requires careful legal and institutional reform, stemming from a belief that decentralized, non-profit entrepreneurship can help solve housing affordability problems. This type of institution will not fare well in countries where politicians try to always be in control.

This analogy isn’t a perfect one, but the Dutch Housing Association model reminds me a little of how US banks work. The US federal and state governments don’t run the banks, just as Dutch governments don’t run the Housing Authorities. Instead, US banks have the legal ability to accept deposits and provide other banking services, and they have considerable autonomy to make financial choices in a decentralized way, but they are held accountable by a mixture of government regulators and financial markets. It is especially striking to me that the Dutch Housing Associations run 75% of the rental properties and about one-third of the total housing stock for the Netherlands as a whole.