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Doubling of new built houses by relaxing program requirements

Increasing the overall housing stock guarantees affordability across the housing market

December 10, 2024 6 Minute Read

By Frank Verwoerd Frederieke Meijer

A building under construction, surrounded by an extensive scaffolding structure of metal tubes and rods.

Disappointing permit pipeline increases future construction challenge

Despite the ambitions of the national government to build 100,000 homes annually until 2030, the number of building permits issued has fallen far below this target in recent years. The most recent period of 2022-2024 showed an average annual permit level of only 63,000 homes. The number of homes that were ultimately completed is much lower. In addition to the fact that this number is insufficient to solve the current shortages, this also means that the assignment for the remaining years is cumulatively increasing.

In Amsterdam too, the number of building permits issued has fallen so drastically in the past two years that the target of 7,500 homes per year will not be achieved in the coming two years by a long shot. With the current permit pipeline, the number of homes completed will not exceed 4,200 per year in 2025-2026 – a gross undershooting of the ever-increasing demand for housing in the capital.

Major obstacle is the increased “ red tape” around construction projects

The declining permit and new construction figures in Amsterdam are largely caused by the same combination of factors that can be seen throughout the Netherlands. Rising construction costs and a shortage of civil servants and construction personnel are hampering the feasibility of projects throughout the country. But in addition to these reasons, strict construction and program requirements are increasingly becoming an obstacle. In particular, the strict program requirements regarding affordability in many municipalities, and in Amsterdam in particular, appear to be a major obstacle to making projects feasible.

Despite the acute housing shortage, Amsterdam has the strictest programming standard of 40-40-20 for new construction projects (in addition to various additional leasehold conditions). Although the intention is to increase the number of affordable homes, it has become apparent that the measures currently mainly hinder the much-needed addition of homes to the Amsterdam stock.

Results of Amsterdam Program requirements Survey

CBRE conducted a survey among residential developers active in Amsterdam. Developers were asked about the number of homes they have in the planning phase, what part of their portfolio is “on hold”, and whether relaxing program requirements would allow these projects to proceed – ceteris paribus. The final group of respondents together develop 57% of the total number of homes planned from 2025 to 2030 by commercial parties and together have 22,000 planned homes in the development portfolio.

Nearly 40% of planned homes are currently “on hold ” due to a combination of cost and capacity problems

Given the enormous construction effort that governments and market parties must realize in the coming years, it is essential to allow as many planned homes as possible to proceed. The municipal monitor of Amsterdam shows that 52,000 homes are still in the planning phase up to and including 2030; enough to achieve the municipal target of 7,500 homes per year in the coming years. Of this total number of homes, approximately 73% will be realized by commercial parties.

But, as a survey among project developers shows, roughly 40% of these planned homes are “on hold ”. A mix of obstacles play a role here, from high land prices, sustainability requirements to strict programming. Although the problems can be multiple, the project developers indicate in the survey that if the program requirements are removed, ceteris paribus, no less than 62% of all planned homes that are now “on hold ” could be completed. New construction production in Amsterdam could therefore increase significantly in the coming years by relaxing the construction and program requirements.

Letting go of program requirements triggers enormous (additional) housing construction

Program requirements play a crucial role in many projects in whether or not the business case of a housing development can be calculated. In many cases, ceteris paribus possible other obstacles, a large part of the pipeline that is now “on hold ” can be realized if only the program requirements are relaxed. For example, project developers indicate that if the program requirements were to go from 40-40-20 to 30-30-40, no less than 31% of the homes “on hold ” could be realized . Instead of 13,200, they could realize 15,700 homes.

If no program requirements were to be applied, this could lead to the realization of no less than 18,600 homes instead of the previously estimated 13,200, according to the project developers surveyed. In addition, the potential for additional homes in already planned projects was examined if no program requirements were to be imposed. If less revenue has to be used to cover losses on social and mid-segment housing, there is additional revenue to cover construction costs, which enables them to build the planned homes. This would result in an additional construction capacity of 4,100 homes, which is equal to the total number of social housing units that can currently be built. These figures emphasize the importance of policy change in the housing sector and the potential for a significant increase in housing supply in the short term.

Stimulating new construction ensures redistribution and more efficient use of the significantly larger existing stock

The current municipal policy, in the shape of the 40-40-20 program requirement, has not led to improved affordability in Amsterdam in recent years. After all, affordability on the entire housing market is not determined by the segmentation of the addition, but by the size of the entire housing stock. Limiting the growth of the stock has proven to be much more damaging to the affordability and accessibility of the Amsterdam housing market in recent years than steering on segmentation of this growth.

This problem is not unique to Amsterdam. In many municipalities in the Netherlands, partly prompted by the 2/3 affordability target from the government, these types of program requirements hinder the construction of homes. In the past, it has often proven impossible in the Netherlands to significantly scale up new construction production without substantial subsidies from the government. The multi-year government budget currently offers little hope for such a financial boost to make housing projects feasible and to realize the necessary housing.

Furthermore, the question is whether steering on affordability along the line of new construction is efficient at all. In this respect, a more efficient flow of households that might no longer belong to the target group of the social housing stock can be many times more effective. By building more new houses, we create affordable alternatives for these households in the long run. Affordability of the housing market is therefore often a distribution issue that can be largely resolved in the existing stock. Reducing “red tape” around new construction projects requires little investment, and therefore offers an effective way to get the required number of housing construction projects off the ground in times of stagnating construction production. In this way, we ensure affordability across the market in the long term, and thus a better functioning housing market for everyone.

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