An article published in the economists’ journal ESB presents the findings of a study by professors from Amsterdam, Rotterdam, and Maastricht: homes in Amsterdam are expensive and will remain structurally expensive. The idea that buying a home in Amsterdam will become affordable again turns out to be an illusion. Many believed the sharp rise in prices was mainly due to overvaluation. In that case, a market correction would eventually follow, bringing prices down and making homes affordable again. Reality proves otherwise.
Amsterdam property holds its value
This is good news for homeowners in Amsterdam: the value of their property is based on fundamentals and not likely to drop suddenly. However, for people with average incomes, this conclusion dashes hopes of ever being able to buy an affordable home in the city.
High rental prices in Amsterdam
The study shows that high prices stem from a combination of extremely low interest rates and severe housing shortages. This situation applies not just to owner-occupied homes, rental prices in Amsterdam have also surged. Both housing markets show the same upward price trend. In Amsterdam, the number of available jobs has grown faster than the number of homes, which has put additional pressure on the rental market.
More new construction in Amsterdam
Amsterdam housing prices have been structurally high for the past 400 years, not just in recent decades. The researchers examined both rental and owner-occupied homes across history. Since 1985, the price of an owner-occupied home has risen nearly sixfold (after adjusting for inflation), but rental prices have also increased substantially over the past four centuries.
A home’s fundamental value can be estimated by combining rent levels with interest rates. When this value is compared to the housing price index, it appears that rental and purchase prices have always stayed close to one another, especially in recent years. According to the researchers, the only real solution is to build more homes in Amsterdam.
