Is renting unaffordable in the Netherlands?

Abstract

Tenants in the Netherlands not only pay relatively more for their housing consumption than owner-occupiers, but also appear to be subject to Schwabe's law on rent. This law states that households with a lower income are confronted with higher rent-to-income ratios than households with a higher income. In the Netherlands most rents are regulated, so these are expected to be at below-market levels. Tenants of these dwellings are eligible for housing allowances if their income is considered insufficient for paying the rent. The hypothesis is that a rental dwelling with a regulated rent and for which the tenant receives a housing allowance should be affordable to the tenant. However, as this paper shows, even a maximum degree of government intervention (rent regulation and housing allowances) plus the impact of affordable rent setting by landlords, leading to a maximum subsidisation of the tenant, cannot prevent a situation whereby tenants are paying an unaffordable rent. And an unaffordable rent suggests that these tenants may indeed feel impacted by housing affordability problems.

Keywords:

• affordability
• expenditure-to-income ratio
• rent-to-income ratio
• residual income
• the Netherlands

We would like to thank Gust Mariën for making the calculations and two referees and the editors for their helpful comments on this paper. An earlier version of this contribution was presented at the European Network for Housing Research (ENHR) conference in Tarragona in 2013.

Notes

1. According to Stone et al. (2011, p. 6) there would have been inconsistency in the use of income (gross or net) in the calculation of the rent ratio, which would not be the case in the calculation of the residual income.

2. Ratios higher than the conventional levels are presumably used because housing costs on average have risen more than household income.

3. A case could be made to include other housing expenditure, such as maintenance and energy costs, in the housing component instead of the residual component of income. In light of the research question of this contribution (policy impacts on affordability problems), we have chosen to only include those costs that can be influenced by the policy instruments.

4. Both measures are calculated on the basis of disposable household income purged of housing components (housing allowance and tax effect for homeownership), as net housing expenditure takes these components into consideration because they lower gross expenditure.