Real estate, real issue

At some point in your life, you have to decide whether to rent a home, or to buy a house.
For 54% of us Dutchmen the choice has been to buy a house, as CBS shows us, about 43% of the estimated 6.9 million houses is rented.

For me, the choice is not that hard: I like the idea of utilizing my own house as a bank-account, and while my girlfriend and I both have jobs (now and in the future ;)) it is financially possible to do either of both.
The bigger problem is finding a home which is to our liking, and affordable. Unfortunately, NVM recently reported a 4.3% increase in price for the houses sold in the third quarter of 2007 compared to the same quarter of 2006. The average price paid nears €250.000, which is a very steep price, in any respect. On the shorter term: the Kadaster, the Dutch cadastre, reported a 2.04% decrease in price, to an average of €252.649 over the month september. In comparison with the previous year though, there has been a 4.8% increase over the same period.

Also recently, money suppliers have reached an agreement on what the ethical limit is to lend money to people with an income. It is set to about 4.5 to 5 times the gross annual income, depending on the circumstances. To achieve the average price, the annual gross income of anyone trying to buy their first house has to be at least €50.000, which drills down to a gross monthly income of €3850. (€50.000 / 1.08 / 12) That is not what is considered to be average.
The guideline stated above leaves room for the lending parties to up the multiplication-factor to 6, which leads to an income of €3215, which is better, but still a bit high.
Since I’m currently exploring my possibilities to buy a house, I’ve come to the following conclusion: You have to live together, and earn two incomes to buy a house these days. You could settle for less room, and thus a lower price, but since appartments go for around €140.000 in the urban area in Holland (de Randstad), the monthly income should be €2160, which is about €200 higher than the modal income. It is far more reachable for most of us, yet it still places a big burden on your expenditures, monthly fees of around €650 don’t leave much room for anything else.

You would all be expecting me to come up with a (slightly liberal) solution to the above posed problem of high prices, but I have to disappoint you.
There is no easy solution.

One could lower or abolish the "hypotheekrenteaftrek", where the interest you paid can be deducted from your annual income to lower the net taxes you have to pay. This seems a strange method, but the tax-deduction is one of many reasons the houses are and stay this expensive. It has significant downsides though: it completely takes away any possibilities for "starters" on the housemarket: while prices will decrease gradually instead of instantly. Which kind of defeats the purpose on the short term.

A second method could be the introduction of a system called "flat taxes" but we are far from being ready to even consider this. With flat taxes, there are no compensation rules, everyone pays the same percentage of tax, for instance 35%. Which is lower than currently for many of us, and would increase the net income, and thus increases the amount of money to be spent on housing. It too has serious side effects: quite a few people will not benefit as they pay less than 35% on taxes and leaves them in a worse position.
Also, flat taxes do not fit our ideology of income leveling (nivelleren) where "the toughest shoulders bear the most weight".

All in all, it kind of sucks. And I can’t do anything about it.

2 thoughts on “Real estate, real issue”

  1. Why are you looking at family homes anyway? 250K buys you some very decent homes – more than you and your signifother really need now.

    The whole idea about buying houses is, indeed, making a bankaccount that allows you to move up progressively. In addition, you just don’t have any decent income yet as an intern (or did you get an offer for full-time yet?). I could easily fund that 650/month for an apartment by myself, without counting my girl’s income or future income, and you know my work situation isn’t any different from what yours is going to be.

    Have patience and start small. Quite frankly, I don’t think any short-term solution is really required here. People should learn to strive to ideals and not expect them to be achieved instantly. I know that’s not what you want, but still.

    Oh, and to give some comparisons: my brother, who’s making just a tad more than I do, owns his own house (about 170k mortgage including a hefty sum that was reserved for redecorating and construction work) – an actual, decent, family house, 2 stories, and a somewhat decent garden (5 by 10 on a wild guess, although that’s shed included). Granted, as sole earner he’s stretching his budget, but it’s doable. It’s in Capelle by the way, in a halfway decent ‘volksbuurt’.

    My and my signifother decided against buying our house straight away because of the insecurity involved in both of us just starting our jobs, but once she’s settled we’ll definitively be on the lookout and I don’t think it’s unrealistic for us to aim for a nice house. So don’t give up hope yet 🙂

  2. Maarten Tijhof – Localhost – A long time tinkerer, I'm now seasoned in the art of integration where most of my work has been completed with Oracle middleware. Also, I'm an avid photographer and badminton player and very much like to travel the world!
    Maarten says:

    The big issue here is, apart from my personal circumstances, that has become nearly impossible for starters to buy.
    They are forced to rent, or buy a small apartment. I think this lack of choice is the issue.

    In the region we are trying to get housing, 3-room apartments go for 140K+, and houses 160K+.
    Some go cheaper, 150K+ but they usually are not to my liking, or tend to need a lot of TLC. I would go as far as stating the newer house (built in 1985 or more recent) will do 190K+, without going too fancy.

    Luckily for me, Ordina has indicated several times already they intend to hire me after I finished my thesis.
    For the easy calculations, Kirsten and I assumed I would earn as much as she does. Our combined incomes would suffice to finance a medium prices home, up to 200K without placing too big of a burden on our balance.
    I know I’m privileged, but it only shows the problems others are facing. (including you yourself 😉 )

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