Research: not that difficult for first-time buyers to buy a home in forty years

It has not been this difficult for starters on the housing market to buy their first home in forty years. The gap between the amount they can pay and the average amount needed to purchase a home has grown significantly in recent years. Getting a home to buy has become increasingly out of sight for them.

Those who already own their own home are less affected by this. People who move on have more to spend because they can use the equity in their home to buy a more expensive home, and because they have already partly paid off their mortgage. Starters also structurally spend a larger part of their income on housing costs than those moving on.

This is evident from research by mortgage provider BLG Wonen, part of de Volksbank. The researchers used data from the three-yearly Housing Survey by Statistics Netherlands and the Ministry of the Interior, which was last conducted in 2021. They investigated what both groups – starters and those moving on – are willing to pay for an owner-occupied home.

Difference starter and continuous flower

In recent decades, apart from a dip between 2008 and 2013, house prices have continued to rise. This is partly due to a greater demand for owner-occupied homes, stimulated by government policy such as the purchasing subsidies of the 1980s and 1990s. Liberalizing the rental market made the Dutch housing market particularly attractive for investors in the years after 2013, who were able to significantly outbid private buyers. New construction production also declined. The low mortgage interest rate and ample financing options did the rest: house prices rose faster than incomes, and the difference between starters and those moving on grew along with it.

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In 1981, buyers and movers were still looking for homes in approximately the same price range: movers wanted to spend the equivalent of 21,000 euros more on a home. That difference has now increased to 120,000 euros. And what the transfer user is willing to pay is virtually equal to the realized price in 2021. In many cases, only dual-income households who already own their own home can still meet the requirements to purchase a new home, pushing first-time buyers out of the market.

This is also evident from the research. In 1981, 8 percent of those moving on indicated that they could not find a home due to (un)affordability, compared to 10 percent of starters. In 2021, that difference has increased to 21 and 33 percent respectively, which also indicates that affordability has never played such a major role before.

‘More supply needed’

Director Frank Soede of BLG Wonen speaks of a low point for first-time buyers. “You sometimes hear that it has always been difficult to buy a home as a starter. But this research shows that it is now more difficult for them than ever.” In order to offer first-time buyers more opportunities on the housing market, the supply on the housing market should be increased, according to Soede. “In addition to new construction, this can also be done by making it easier to divide homes, transform vacant offices or focus more on construction methods that emit less nitrogen.”

Damping the housing market on the demand side (via price) is more difficult, according to Soede. According to the researchers at BLG Wonen, it appears that both starters and those moving on are inclined to use the full financing space they have. “There are roughly three factors: the mortgage interest rate, the income and the purchase price. If one of the three gives room to finance more, people will take that room,” says Soede. “That is logical: a home is one of the basic needs and there is a chronic shortage. People want to do everything they can to have a good roof over their heads.”

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Role of providers

According to some, banks and mortgage providers are partly responsible for the rise in house prices due to the ample financing options that have been offered for years. For example, last week Rabobank received a fine of 12 million euros from the Netherlands Authority for the Financial Markets for providing “irresponsible mortgages”.

Soede acknowledges that it is up to the financial sector to prove that financing is not irresponsible. “It remains a difficult and often ethical decision: what is macroeconomically desirable and what do we do individually? We do not want to over-credit, but we do want to continue to think along with people who say: I want to take the next step in my life or move in together.”

De Soede does not believe that limiting borrowing capacity to dampen housing prices is a good solution. “If you use the financing weapon to manage the housing market, you will not reduce the current housing shortage. For many starters, that would mean that they would not be able to get a home at all. You would have a young couple who wanted to buy a house with two incomes. Then you have to say to them: ‘We think housing financing is responsible, but from a macroeconomic perspective we are not going to finance it.’ I think that’s unfair.”

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