Adding to the problem by trying to solve the problem; an analysis of the abolition of the

transfer tax for starter in the Netherlands

Wouter Langman - s2238748

02-02-2022

Public Policy and Values: Policy Memo retake

Valérie Pattyn & Amandine Lerusse

Word count: 2588

Introduction

In many countries, housing is becoming less affordable and therefore appears to be back on
the agenda, also in the Netherlands. Over the last twenty years, the Dutch housing market has
experienced turbulent times; housing prices more than doubled in the period of 2000-2021
and in some instances even tripled, depending on the region one intends to buy, mainly as a
result of decreasing interest rates and market liberalization (CBS, 2021a). Despite the fact that
household income has grown as well, there is a growing concern that these successive price
increases, which now seriously get out of hand (price increases of almost 20% compared to
the previous year), owner-occupied homes have become accessible to only a few (CBS,
2021b). A minimum of 90% of the vacant social housing dwellings has to be allocated to the
low-income households, who are characterized by an income of less than €36.165
(Boelhouwer, 2020). This has been problematic for households above that financial threshold
in a way that they can no longer access social housing. Furthermore, due to the prevalence of
the social housing and the fiscally favoring owner-occupied housing, a private rental housing
sector which is affordable is practically absent. Especially the middle-income households (i.e.
starters) are squeezed as they have few alternative affordable housing market options.

The Dutch government has recently abolished the tax transfer in the housing market for so
called starters; people between the age of 18 and 35 and entering the housing market. It has
opted to do so as a way to better the position of starters in the housing market; making it
easier for them to afford an owner-occupied home. The tax transfer is to be understood as a
tax one pays when transferring a home, and thereby becoming a new owner of a house
(Rijksoverheid, 2022). From a different perspective, one can look at it as a sort of moving
fine. The tax depends on how someone becomes a new home owner, and ranges between two
percent and eight percent of the price accordingly. However, abolishing the transfer tax for
starters bears a paradox which has led the public policy to be a failure. The starters, which had
to benefit of the public policy, are actually left not better if not worse off. In this memo, I will
more thoroughly elaborate on this policy paradox ultimately resulting in failure, and will do
so with insights of the policy paradox framework of Stone (2012) as a guide. I will first set
out the framing of the problem in the policy process in order to better understand how Dutch
political actors navigate conflicting priorities within the polis. I will then explain the
consequent outcome, why a paradox is borne and failure as a result. I will conclude by
making a recommendation to the Dutch government regarding the issue at hand.
Problem framing

Taking on the perspective of a citizen, housing is to be considered adequate if it is both

affordable and appropriate for their household. The adequacy of housing, including the
appropriateness and the affordability are thus to be seen as relative concepts merely
depending on the means and needs of the households (Jonkman & Janssen-Jansen, 2015). A
city should provide in the social needs of citizens, and hence provide access to housing for all.
In addition, the quality of the housing stock not only depends on its physical appearance, but
also on its accessibility. However, most political attention has gone to the availability of
housing to the low-income households (Hoekstra & Boelhouwer, 2014). Dutch housing policy
is aimed at improving access to rented housing that is affordable for low-income households
and in general about improving owner-occupied housing, which is largely promoted by fiscal
policy (Rijksoverheid, 2021). According to Schilder and Janssen & Jansen (2012), the starters
who are by definition excluded from social housing because of not meeting the income
eligibility limits, are forced to enter the expensive owner-occupied housing sector since
emphasis is placed on the low-income households (the least well-off) on the housing market.
Due to the current regulations, these middle-income households are to be seen as the main
losers because their financial position can in neither segment of the housing market afford
them adequate housing (Elsinga & Lind, 2013).

For prospective homeowners, inaccessibility of home-occupied housing not only causes direct
problems, but this trend is also very unhealthy for the housing market in total since its health
largely depends on the inflow of starters (first-time buyers); people who normally categorize
as middle-income. This is because they are the ones creating the necessary liquidity at the
bottom of the market, which, if it slows down due to financial limitations or policies in place,
will spill over to the upper segments of the market. The financialization of housing has further
knock-on effects because those who already own a home enjoy both increased wealth and an
increased ability to borrow against their assets which allows them to buy additional houses
and generate even greater capital returns. In this sense, housing does not provide a mere
physical shelter, but also a financial one (Smith, 2015).

Policy response

Abolishing the transfer tax for starters in the housing market is what the Dutch government
has opted to do as a response to the trap in which starters find themselves. Housing is both a
home and a productive class of financial asset of which accessibility is to an increasing extent
uneven. The discourses associated with the acceptance of the problem and the reasons of why
they exist are key in shaping the selection and effectiveness of the respondent public policy
(White & Nandedkar, 2021). As Stone (2011) said, governments engage in processes to
produce policy decisions. The social and cultural representation of the starters, the rental
housing market and the owner-occupied housing market are reflected in political discourse
which in turn shape and reform public housing policy (Kettunen & Ruonavaara, 2015).
Housing policy debates are regularly about boundaries between social entities within the state
in the distribution of economic and social resources. The dominant discourse within Dutch
policymaking has been a social one, one about protecting the weak, which explains great parts
of our housing policy towards social rental housing, where 90% of the dwellings has to be
allocated to low income households. Values attached are social protection of the weaker party
and equality; everyone has the right to adequate housing (Cox, 2001). Due to severe price
increases over the last couple of years, and a tax-favored status for owner occupied housing
(e.g. capital gains on houses that are not taxed and mortgage interests that can be deducted
from the income tax), a new weak party in housing society evolved, namely the starters (Van
Ewijk et al., 2007). The Dutch housing market has been portrayed as imbalanced because the
supply side is not able to match the demand side, yet state regulation was perceived as
necessary because of high values of social protection. What is interesting is that opposing
parties (the critics), mostly right-wing parties, did have an explanation for the imbalance,
which is excessive state intervention. Starters were not to be seen as a weaker party per se, but
as being disadvantaged, which has arisen due to their limited choice in housing because of the
housing policies in place. Starters do not apply for social rental housing, private rental
housing is considered to be on the expensive side, and most owner-occupied homes are as
well, where the affordable one are bought up by investors for private rental housing.

The success/failure tendency of abolishing the transfer tax for starters that seems to be
prevalent is one of successful politics but unsuccessful programs. This means that a particular
program, which in this case is the abolishment of the tax transfer for starters in the housing
market, tilts towards failure but produces successful political outcomes. According to
McConnell (2010), a program success would occur when the measure that the government
adopts, including the option of doing nothing, would result in an outcome desired by the
government (p. 353). Such an outcome can be captured in specific criteria. One of these
criteria that stands out in this case would be the targeting of a specific group (the starters) by
benefitting them over other competing groups in the housing market. By targeting only the
starters, the element of successful politics can be found as well. By abolishing the tax transfer
for the starters, the government demonstrated that it is trying to deal with the problem, and is
in fact responding to popular concerns which may translate itself into political success. It also
needs to be noted that in this case, the abolishment of the tax transfer took place at the start of
2021, less than three months prior to the elections which took place that year.

Paradox

Despite good efforts, the Dutch government published in their annual rapport of the housing
market that the abolishment of the transfer tax has had little to no effect; prices were pushed
to record highs which left starters with little to no advantage (Rijksoverheid, 2021, p. 50).
This were to make sense if we start looking at this policy like a policy paradox. According to
Stone (2012), the standard elements of a policy paradox are the problem framing and the
selection of facts. The framing is particularly important since it forces us to look at a
particular part of the problem, thereby neglecting all other aspects of it. In this case, the
political focus was mainly on the squeezed position in which starters found themselves, thus
improving their financial position seemed like a good solution, but the most crucial part of the
problem lies not in what starters can afford themselves on the housing market, but on the
number of the houses that are accessible in the first place.

The desired outcome which were to be achieved by the abolishment of the transfer tax for
starters, was to make the particular group comprised as starters financially better off in the
housing market, thereby increasing housing affordability and hence accessibility. The
program failure set out by McConnell (2016) states that failure occurs when some of the
intended outcomes of the public policy are achieved, but are overshadowed by failure to
produce results, and if the benefits are accompanied by damage to the very group that was
meant to benefit of the introduced policy (p. 673). For this public policy, by taking away the
transfer tax on owner-occupied houses for starters, the accessibility to the owner-occupied
housing sector should be eased since it makes owner-occupied housing more affordable for
them. However, it causes a shift in demand for housing, where the problem lies in the limited
supply of housing. There has been stagnation is house-building despite a growing number of
households, which mainly causes the explosion in house prices. In 2020, the shortfall of the
number of houses built in the last decade was approximated at 331.000 (Bouwinvest, 2020;
Rijksoverheid 2020). Moreover, because of nitrogen regulations, the construction of new
owner-occupied homes which was totaled at 71.500 in 2019, has been expected to decrease to
even 50.000 in 2021 (Rijksoverheid, 2020). The abolishment of the transfer tax enables
starters to spend more money on the houses they intend to buy because the credit limit is
improved. When people, and in this case a whole group of starters, have more to spend in the
housing market, this will drive up the demand, which in turn will translate itself into the price
being asked, which ends up making the starter rather worse off than better, and has an overall
negative effect on the housing market itself. According to Kadaster (2021), only 30% of the
owner-occupied houses were bought by starters in the latest quarter of 2019. This shortly
increased to 35% in 2020 after which it decreased to only 13% when the abolishment of the
transfer tax was introduced. This public policy made starters better off in the very short term,
yet those small benefits quickly became overshadowed by the stir drop in owner-occupied
houses that were bought up by starters as a result of driven up housing prices. Furthermore,
the starters that were intended to benefit from this policy find themselves in a more squeezed
position than they were before, making this public policy an ultimate failure.

To put it simple, the Dutch government has added to the problem by trying to solve the
problem. This therefore clearly demonstrates a paradox since the Dutch government adopted a
certain course of action, abolishing the transfer tax for starters, in order to achieve an
objective, allowing starters to more easily afford an owner-occupied home as to improve
accessibility to this marker, and as result wholly of its own mistakes has failed completely to
achieve this objective.

Recommendations

In this last section of the paper, I will make several recommendations for public housing
policies. As outlined, the problem rests in the fact that the supply side of homes currently
mismatches the demand side, which has caused an explosion in housing prices.

If the Dutch government actually wants to do something about the situation at hand, it should
start by acknowledging that, in a political manner, it can only do something about this
problem to a very limited extent. The shortage in supply of houses is to be considered the
actual problem, but this is also to be seen in a relative manner if the housing market were to
be disturbed. If the Dutch government would embrace that it can do little about it, it would
maybe start to see that any policy that stirs up the demand only makes the situation more
problematic. Furthermore, plans for newbuild are nice and sweet, but also remain a paper tiger
if there is not enough capacity to actually realize those ambitions, which has been
demonstrated the last couple of years as the shortage is on the rise. Moreover, the government
also want to accomplish its energy transition goals, which has also caused for a delay in
newbuild.

The Dutch government should thus do anything but stimulate the demand side. In order to add
to this, the government can slow down the demand by various policies. The starter has a
financially weak position on the housing market due to very high prices because of limited
supply. The government should therefore pursue policies which slow down the demand and
will therefore echo through in lower prices. The government could for example phase out the
deductibility of mortgage interests, which of course translates into more strict capital
requirements when one wants to buy a house, which is not particularly in favor of the starter,
but this would weigh out the alternative of having higher prices (De Nederlandse Bank,
2021). Demand would be slowed down because of this, which is favorable for the overall
price level. Another example of a policy measure that the government could implement, is to
only allow rental housing by recognized rental agencies, and for buyers to have a self-
occupancy obligation. This means that, unless you are a recognized rental agency, private
rental housing is no longer possible. If the Dutch government were to pursue this, it would
ensure that there would be no homes undesirably withdrawn from the owner-occupied
housing sector, the purchasing stock (Berger et al., 2020). This is important since the
dwellings that are bought up by investors usually concern the cheaper houses a starter can
afford to buy (Brounen & Neuteboom, 2011). Moreover, by doing this, the government would
gain control over the type of supply (whether it concerns rent or buy).
Bibliography

Berger, D., Turner, N., & Zwick, E. (2020). Stimulating Housing Markets. The Journal of

Finance (New York), 75(1), 277–321.

Boelhouwer, P. (2020). The housing market in The Netherlands as a driver for social

inequalities: proposals for reform. International Journal of Housing Policy, 20(3),

447–456.

Bouwinvest (2020). Dutch Real Estate Market Outlook 2020-2022. Retrieved from:

bouwinvest-dutch-real-estate-market-outlook-2020-2022.pdf

Brounen, D., & Neuteboom, P. (2011). Assessing the Accessibility of the Homeownership

Market. Urban Studies (Edinburgh, Scotland), 48(11), 2231–2248.

CBS (2021a). Bestaande koopwoningen; gemiddelde verkoopprijzen, regio. Retrieved from:

StatLine - Bestaande koopwoningen; gemiddelde verkoopprijzen, regio (cbs.nl)

CBS (2021b). Prijsstijging koopwoningen ruim 18 procent in oktober. Retrieved from:

Prijsstijging koopwoningen ruim 18 procent in oktober (cbs.nl)

Cox, R.H. (2001). The social construction of an imperative: Why welfare reform happened in

Denmark and the Netherlands but not in Germany. World Politics, 53(3), 463–498.

De Nederlandse Bank (2021). De woningmarkt. Retrieved from: De woningmarkt – De

Nederlandsche Bank (dnb.nl)

Hoekstra, J., & Boelhouwer, P. (2014). Falling between two stools? Middle-income groups in

the Dutch housing market. International Journal of Housing Policy, 14(3), 301–313.

Jonkman, A., & Janssen-Jansen, L. (2015). The "squeezed middle" on the Dutch housing

market: how and where is it to be found? Journal of Housing and the Built
Environment, 30(3), 509–528.

Kadaster (2021). Spanning tussen vraag en aanbod woningmarkt groeit. Retrieved from:

Spanning tussen vraag en aanbod woningmarkt groeit - Kadaster.nl zakelijk

Kettunen, H., & Ruonavaara, H. (2015). Discoursing deregulation: the case of the Finnish

rental housing market. International Journal of Housing Policy, 15(2), 187–204.

McConnell, A. (2010). Policy Success, Policy Failure and Grey Areas In-

Between. Journal of Public Policy, 30(3), 345–362.

McConnell, A. (2016). A public policy approach to understanding the nature and causes of

foreign policy failure. Journal of European Public Policy, 23(5), 667–684.

Rijksoverheid (2020). Staat van de woningmarkt 2020. Retrieved from: Staat van de
woningmarkt 2020 | Nieuwsbericht | Rijksoverheid.nl

Rijksoverheid (2021). Staat van de woningmarkt 2021. Retrieved from: Staat van de
Woningmarkt 2021 | Rapport | Rijksoverheid.nl

Rijksoverheid (2022). Wanneer betaal ik overdrachtsbelasting. Retrieved from: Wanneer

betaal ik overdrachtsbelasting? | Rijksoverheid.nl

Smith, S. (2015) Owner occupation: At home in a spatial, financial paradox, International

Journal of Housing Policy, 15, pp. 61–83.

Stone, D. (2011). Policy Paradox: The Art of Political Decision Making. Third edition. W. W.

Norton & Company.

Van Ewijk, C., Jacobs, B., & de Mooij, R. . (2007). Welfare effects of fiscal subsidies on

home ownership in the Netherlands. De Economist (Netherlands), 155(3), 323–336.

White, I., & Nandedkar, G. (2021). The housing crisis as an ideological artefact: Analysing

how political discourse defines, diagnoses, and responds. Housing Studies, 36(2), 213–
234.