Tackling the housing shortage

Report | 23-06-2022

The minister does not have reliable information on whether more affordable houses will be built more quickly. The new government intends to provide a further €1 billion through its House Building Incentive Scheme. The former Minister of the Interior and Kingdom Relations (BZK) claimed that nearly 140,000 houses had been built thanks to the scheme. In our report, Tackling the Housing Shortage, we write that there is little justification for her claim.

93 building projects awarded government grants

The House Building Incentive Scheme was the third Rutte government’s flagship measure to tackle the rising housing shortage. It was decided to launch the scheme in 2019. In the 2 years that followed, 93 building projects proposed by municipalities were approved for the government grant. Ultimately, municipalities were awarded €855 million.

Why did we audit this measure to tackle the housing shortage?

The current state of the housing market is seen by many as problematic, partly because of spiralling house prices and long waiting lists. After a period in which the government played a minor role in the housing market, the Minister of BZK in the third Rutte government (2017-2021) introduced a series of measures to address the housing shortage. One of them was the House Building Incentive Scheme, under which the government would award grants to municipalities to build houses. The Minister of Housing and Spatial Planning in the fourth Rutte government has stated that he intends to take more control of the housing market, in part by continuing the House Building Incentive Scheme. Our audit looked at both the results of the scheme’s first 3 tranches and the way in which the housing shortage is calculated. The lessons learned are important for the future implementation of government policy.

Houses would have been built without government grants

The results booked by the government’s €1 billion incentive scheme since 2021 are poorly substantiated. The information municipalities report to the minister is not reliable enough to calculate the scheme’s impact. The intended impact of building houses more quickly takes no account of crowding-out: housing projects that are not awarded a grant have to be carried out later or be cancelled, partly because of the shortage of skilled construction workers, materials and civil servants. According to the Court of Audit, there is a real risk that the government’s House Building Incentive Scheme financed projects that would have gone ahead without grant funding. There are no hard figures yet, as all the projects still have to be completed.

Shortage and grant funding per housing market region

Will subsidised housing remain affordable?

The House Building Incentive Scheme provides no hard guarantees that subsidised housing in the middle of the rental market and the owner-occupied market will remain affordable for a wide section of the population in the longer term. In its report, the Court writes that the minister overstates the scale of the housing shortage as an absolute figure. The scale of a municipality’s housing shortage was not a decisive criterion to qualify for the incentive scheme. Municipalities with relatively small housing shortages were also awarded grants (see map above). The grant per house is relatively small, less than €5,258 in about half of the cases. Such grants run the risk of being little more than a gift: nice for the municipality but otherwise of no discernible benefit. On some projects, however, the grant ranged from €12,000 to more than €15,000 per house. To be eligible for such a grant the houses had to be completed within 3 years. Most municipalities therefore proposed newbuild projects that were already at an advanced stage of preparation.

Recommendations

On the basis of our audit, we have serious doubts that the House Building Incentive Scheme will have the intended results. If it is decided to continue it, the Minister of Housing and Spatial Planning will have to fundamentally redesign it to ensure that public money is spent efficiently and effectively. To this end, we make the following recommendations: 

• Base the use of public money more clearly on a comprehensive analysis of the problems in the housing market in order to gain a better understanding of a) how the money and the scheme address the problems, and b) the relationship between the government incentive scheme and other instruments. 
• Consider making more targeted use of public funds by focusing the scheme on regions with the greatest quantitative and qualitative shortages and/or on housing plans at a less advanced stage of preparation. This will promote the efficient and effective use of the budget and increase the likelihood of additional housing that would not have been built without grant funding. 
• Anticipate the risk of crowding-out: an incentive for one housing project should not be at the expense of other projects, for instance by making firm agreements with municipalities that are awarded a grant. 
• Study how municipalities can guarantee affordability in the longer term, for instance by setting an affordability criterion as a condition for government funding. 

In his response to our audit report, the Minister of Housing and Spatial Planning wrote that it was impossible to conclude that the House Building Incentive Scheme as such had not contributed to house building. He said he would keep a close eye on the affordability of subsidised housing. 

What audit methods did we use?

We answered our audit questions by studying a range of documents. Besides public sources such as letters to the House of Representatives, reports, evaluations and budgets, we used internal documents at the Ministry of BZK that we could inspect thanks to our special audit powers. They included decision-making memoranda concerning estimates of the housing shortage, reasons for the policy and the acceptance or rejection of grant applications. We also interviewed many people concerned. In central government, we interviewed staff at the Ministry of BZK and the Ministry of Finance, and staff at the Council of State, the Netherlands Bureau for Economic Policy Analysis and the Netherlands Environmental Assessment Agency. To form an impression of how the scheme works in practice we spoke to representatives of Aedes, VNG, DNB, ABF Research, Fakton, Companen, IPO, EIB, Vereniging Eigen Huis, a listed construction company, academics at Delft University of Technology and NEPROM, the association of property developers. We also selected 4 municipalities to illustrate the implementation of government policy in practice.

What data did we use in our audit of this measure to tackle the housing shortage ?

To gain a deeper understanding of the operation of the House Building Incentive Scheme we drew up a quantitative statement of all approved and rejected projects based on the project applications and assessment documents. These quantitative data were applied to substantiate or illustrate our findings.

What is the current status?

The Minister of Housing and Spatial Planning responded in writing to our findings and conclusions. He will act on some of the recommendations. The audit report was presented to the House of Representatives and published on 23 June 2022