Social Housing Finance in the Netherlands: the …

1 Housing Finance INTERNATIONALS ocial Housing Finance in the Netherlands: the road to independenceby Peter BoelhouwerOTB Research Institute for Housing , Urban and Mobility StudiesDelft University of Technology1. INTRODUCTIONThe Housing system of the netherlands hasacquired an international reputation,because of its special nature and the way inwhich it has evolved. Scholars from abroadare particularly intrigued by the strongposition of Dutch Social Housing : in 2003,this sector still accounted for 35% of thetotal Housing stock. In this respect theNetherlands clearly stands out; in mostother West European countries this sector sshare rarely reaches 20%. The strongposition of Dutch Social Housing has itsroots in the long period during which thenational government influenced Housing . Ofcourse, for decades public intervention hadbeen common practice throughout theregion. However, the netherlands eventuallysteered a course of its own.

2 Whereas mostother West European countries turned toprivatization in the early 1970s, theNetherlands did not move in that directionuntil the 1990s (Boelhouwer & Van derHeijden, 1992).Partly through this development, the socialrented sector in the netherlands can be saidto have undergone a strong to some important policyadaptations in the 1990s, the Social rentedsector has also become much moreindependent. Housing associations areregulated by legislation much less thanused to be the case. They do, however,remain retrospectively accountable to thegovernment through the performances theydeliver. In section 2, we consider thedirection in which Dutch Housing policy hasdeveloped and the role the Social rentedsector has played in general policy. We thenconsider in section 3 the unique manner inwhich the financial independence of thesocial rented sector has come about inEuropean terms. Section 4 describes theopportunities for lenders outside theNetherlands.

3 We end this contribution withsome summary DEVELOPMENTS IN DUTCHSOCIAL Housing POLICYThe constant tension between governmentintervention and market influencesbecomes apparent when we study thedevelopment of the Social rented sector inthe netherlands . Immediately after WorldWar II the netherlands had to deal with aserious Housing shortage, in common withmost Western European countries. Thesituation soon deteriorated, because of therapid growth in the number of householdsand low production levels in residentialconstruction in the early post-war shortages that became apparent soonafter 1945 made an exceptionally high levelof government intervention in homebuildingprograms broadly acceptable. Policymakerswere faced with escalating costs, rangingfrom the cost of living to construction costsand interest rates. Thus, substantial objectsubsidies were needed to contend with themassive Housing shortage. A high level ofgovernment intervention was called for; thiswas entirely fitting in a period when thewelfare state was gaining comparison with the rest of Europe, Housing production in the netherlands roseafter the 1960s to an unprecedented rapid rate of construction wasnecessary; during this period, as thenumber of households in the Netherlandsincreased much more rapidly than in therest of Europe.

4 The decline in the birth ratecame to the netherlands very late; therewas also a postponed, but neverthelessintense decline in average household contrast with the period before 1940, theneed to build cheaply and quickly led to anemphasis on the Social rented sector. Thesedriving forces helped the sector to sector s share grew from 12% in 1945to 41% in 1975 and to no less than 44% ofthe total stock by the early 1990s. No otherWestern European country attained such ahigh eventual turning point in Dutch housingpolicy was reached in 1989. The remainderof the new policy is strongly geared to thepromotion of the market (Heerma, 1989).The Memorandum on Housing for the 1990s[Nota Volkshuisvesting in de jaren negentig]puts particular emphasis on deregulation,decentralization, and self-sufficiency. Thisnew policy line includes the decentralizationof authority. The transfer of responsibilitiesand risks from the State to the localauthorities and provinces and theindependence of Housing associations and(organizations of) Housing consumers arefeatured.

5 For the Housing associations, thisshift meant that the existing regulationsoperating in advance were replaced byretrospective accountability (Heerma, 1989). Social Housing Finance IN THE NETHERLANDS17 Housing Finance INTERNATIONALF inancial freedom was also markedlyincreased in addition to freedom in terms ofpolicy. The government decided to phaseout the object subsidies for newconstruction as rapidly as possible. Rents inthe period 1990-1994 were raised annuallyby , a far greater margin than thegeneral level of inflation, and this increase inrevenue strengthened the financial positionof the Grossing and Balancing Operationconstituted a second important episodemarking the move towards financialindependence. The State wanted at one andthe same time to redeem the long-standingsubsidy commitments ( billion euro) andsimultaneously call in early the loans thatthe associations still had outstanding (18,6billion euro).

6 In this way, the continuouspumping of money round the Social housingcircuit could be brought to an end. Afterintensive consultations with the sector,agreement was reached that the Grossingand Balancing Act would take effect in1995. The advantages for the State wereevident: savings were made on the objectsubsidies, the administrative bureaucracycould be substantially reduced, and thehousing budget could be subjected to astringent cleanout operation. Moreover, theState could take an independent positionwith respect to the Housing associationsector in the discussions concerning theannual rent increase. The Act also broughtcertain advantages for the traded in supposed savings at one andthe same time, became capable throughtheir greater independence of carrying out amore flexible and thus market orientedrental policy, and assumed newresponsibilities in the management of theirproperty. The increased rents and theGrossing and Balancing Operation haveensured that the associations havesufficient financial resources at theirdisposal to be able to carry out the housingtask quite independently.

7 In the Netherlandsthis is referred to by the termrevolving fund(Ekkers, 2002).The government considers the Social rentedsector in its entirety as a revolving fund thatshould be capable of functioning withoutgovernment subsidies. The idea of arevolving fund implies that current andfuture reserves generated in the socialrented sector are put to use within thatsector; in this manner, the housingassociations subsidize themselves. Therevolving fund applies both to the sector asa whole and to the individual of them has to use the yields of theiroperations in the current stock to pay for(non cost-effective) new instruments in thequality of the stock, new construction, andimprovements in liveability. For the sector asa whole, the yields of the prosperous andthe poor associations can be associations could, forinstance, support their poor relations bylending them the funds they need at below-market interest rates.

8 There may also be arole for the Central Housing Fund[CentraalFonds Volkshuisvesting](CFV) (see below).The annual contributions of the associationsto this fund have created a situation thatenables the CFV to manage a substantialpart of the sector s assets. These could beused to set up a revolving fund in the principle is already being appliedwhenever the CFV provides financialsupport to an association in financial the sector succeeds in operating as arevolving fund, it will create the uniquesituation of a Social Housing system that isno longer dependent on extensive publicsubsidies (Gruis, 1997, ).3. FINANCING OF THE SOCIALRENTAL SECTORU ntil the beginning of the 1980s, thefinancing needs of the Dutch housingassociations were covered via loansgranted by the State. These loans exerted adirect pressure on the national budget. Inthe 1980s, the government came intoserious financial problems, saw the nationaldebt rising rapidly, and so decided in 1984to abolish the provision of loans toassociations and also the counter-guarantees provided by the State for loansborrowed on the capital market.

9 In 1983,the Social House-building GuaranteeFund (WSW)[WaarborgfondsSocialeWoningbouw](WS W) was set up as aprivate law institute to enable the financingneeds of associations to be covered. Atfirst, only guarantees for housingimprovement were concerned. Five yearslater, it also became possible to obtainguarantees for the financing of theconstruction of new dwellings. The WSWendeavours to provide the participatingassociations with access to the capitalmarket at the lowest costs. Since that time,the WSW has granted guarantees tomoneylenders for loans for newconstruction, Housing improvement, theacquisition of dwellings and nursing andretirement homes. The WSW is not,however, the only institute that makesguarantees available. Local authorities alsogrant guarantees for Housing associations loans, albeit on a limited Housing associations borrow with loanguarantees provided by the WSW, there is atriple guarantee.

10 The primary security isformed by the financial resilience of theassociation itself and of the entire sectorthrough the participation of the CentralFund (see below). The secondary securityconsists of the capital assets of the WSW,which are created by a single capitalcontribution from the State and the fees theassociations pay to obtain guarantees. Thetertiary security is formed by the ultimateresponsibility of the State and the localauthorities that share this task equally (Vander Schaar, 1991, ). The attractiveinterest rates on loans secured by the WSWdemonstrate the great confidence thatlenders have in the fund. Their confidence islargely due to the ultimate security providedby the State (Priemus, 1995).In the last few years there has been somediscussion concerning the legal force in aEuropean perspective of this safety netfunction of the State and suggestions havebeen put forward to impose a levy on theinterest advantage acquired.