Dutch Social Housing-Changes Part II: Fallout

Dutch Social Housing Changes : Part II-Fallout for Social Housing Sector:

In part one of this series I discussed the history of Dutch social housing and the issues in the late 90’s going into the 2000’s. The end result is the social housing industry must now focus more on helping those with social disadvantages while being more heavily regulated and taxed. The industry needs to serve lower income residents with incomes under €34,000 a year. Housing developed with money guaranteed by the social housing fund will need to be for families in that price range. The change in law also affects what, how and when a social housing company can develop social housing. The housing associations need to develop as negotiated and agreed upon with the municipalities and tenant rights groups. I spoke with Erik Maassen from Woonboon the largest tenant association in the Netherlands and their organization is happy with the increased rights of tenants. The Ministry for Housing was also pleased with this new development.

The changes that come into affect July 1st 2015 mean that the social housing development will now focus mostly on low income social housing projects. The change in law does not preclude the social housing corporations from developing other sorts of housing. However; there are limitations:

• Social housing associations must now find funds in the private market for other types of development. That means this housing will not be backed by the social housing fund which will mean higher interest rates.
• Social housing associations can only do this development at request of municipality.
• Municipality can only make this request if not private developer wishes to take on the development.
• The only way a social housing company can develop a non -social housing project is if no other private developer shows interest.

The parliamentary inquiry in 2012 also brought stricter regulations back to the social housing industry. Up until then, the CFV could bark but lacked authority to bite. They relied on their ability to convince housing associations to make needed changes but lacked true power. CFV saw its authority broadened dramatically. The agency still looks at investment strategies and assets but controls more in the field of risk management. CFV looks at the quality of data, audits contracts, conducts interventions ranging from light to heavy and spends significantly more time on site during the year. The agency can now take actions against a housing agency that is out of line. With the increased regulatory power, CFV believes the industry is moving in the right direction. The agency will now act as a comprehensive regulator which they believe will add needed checks and balances to the sector.  CFV will examine morals and integrity at housing agencies which means they can be more proactive about governance, policy and integrity in operations. The power to push for culture change in an organization is now within their rights. One example is the ‘’Fit and Proper Test”. The CFV will now work with partners to administer this test to executives and boards of housing agencies across the country.

Perhaps the largest fallout for the industry is the billions of euros in taxes the sector is now facing. Austerity measures throughout the Netherlands brought about the opportunity to come after social housing assets. Embroiled in controversy and negative public opinion, the implementation of the tax by the legislators will mean up to 1.7 billion in taxes by 2017. I spoke with Gerrit Teunis, executive of Beter Wonen in Hardenberg, and he says “it amounts to a 15% tax on social housing companies’’.

Changes Around the Sector:

In short, a brief description of how various agencies will change with the social housing rules is below:

Centraal Fonds Volkshuisvesting (CFV)– The CFV will increase its role in regulating both the finances and risks of housing associations but will also examine boards and executive leadership for competency, knowledge and behavior.

Housing Ministry- Will work with housing associations, tenant organizations and municipalities in not only implementing the changes but will actively support various groups as needed.

Woonbond– Will need to play a larger role in both organizing, training and professionalizing tenant organizations around the Netherlands. This could lead to a quasi-union situation where professionals are hired to represent interests of tenants.

Aedes: The trade group will help housing associations prepare and implement the new rules while reporting back to legislators and the ministry on hot spots that are causing troubles for the housing industry.

Housing Associations: They will need to make changes both to the way they plan and develop real estate but they will need to split their portfolios based on the type of business. I spoke with Gerard Anderiesen executive from Stadgenoot a large provider in Amsterdam. He explained how housing associations now needed to split their social housing business from the commercial/higher income or home ownership business. There are complications because you might have one building with home owners, low income renters, higher income renters and commercial renters all in one.  This is all new for social housing companies so the changes are complicated and could take time.

Municipalities: Municipalities will now need to take more of a lead on determining the housing needs in the area. Technical expertise may not be available in house which means some changes may need to take place.

Gone to Far?

As I spoke to professionals in the industry from regulators, to lobbyist to those representing tenants, the common theme was something needed to change. The industry became too focused on developments outside of social housing for the poor and in many industry experts eyes had “lost its way”. Almost everyone I spoke to including staff at Aedes and housing associations agree it is a positive that housing associations will go back to their roots and help disadvantaged citizens. However; some questions arise if legislators went too far.

• Development Restrictions: There are now limitations on what social housing associations can develop. In the future, most developments will be for low income citizens only. The private market lobbied for this change and now they have it. The question is who will build for the middle income and working class? The private market in general is not know for charity and will usually focus on maximizing profit. It is hard to envision the private market taking the lead on workforce housing and conversations with regulators, the housing ministry and other people in the sector did little to convince me that this would be the case.
• Increased Taxing: While the sector in the Netherlands is huge compared to other countries, it is still tough to imagine the government levying such a large tax on the social housing industry. The government did not complain when the industry was helping the economy and bringing urban development dreams to realization. Taxing the industry that houses the poorest of the country is a recipe for rent increases and correlating tenancy problems. It seems odd that a legislative body so bent on protecting disadvantaged could think taxing those who provide housing would not lead to more hardships.
• Strange Rules: Implementing a hard cap on what makes up a socially disadvantaged family regardless of family size is hard to imagine in many countries. Social housing associations in the Netherlands must now rent 90% of all housing to households with an income below € 34,229. It is easy to see this policy as discriminatory towards larger families and the middle class. A large family of 7 making €42,000 is above the cap but would struggle more than a young couple earning €34,000 a year. The government should also look at the characteristics of larger families to ensure this policy is not discriminatory against minorities who might disproportionately have larger family sizes.

Finding the Truth:

With the back in forth between different interest groups, the government and the EU, the question becomes is one party correct and the other wrong? As in most situations, the truth lies somewhere in the middle. There is no doubt the social housing industry as a whole lost sight of its most important tasks which is helping disadvantaged clients. That is not a damning statement for every agency as it is clear many stayed focused on low income families. In fact, the cases of abuse, fraud and gross neglect can be chalked up to a small percentage of the overall social housing industry. Unfortunately for the sector, bad news makes for bigger headlines and the results of this are in some ways heavy handed. Higher taxes and restrictions on real estate development could lead to unwanted consequences.

Many say that Aedes and the industry fought against higher regulations which led to the current situation. They say the sector should have realized earlier that more financial checks and balances could actually protect the sector. If that would have happened, scandals like Vestia and the SS Rotterdam could have been avoided. The media, regulators and the ministry can point a finger at the social housing sector and say the unwillingness to accept more regulation is what led to the current negative publicity and tightening of regulations and controls. Aedes will counter that they did not fight financial regulations but controls aimed at the social objectives side of the business. Aedes also came up with the idea of “Supervision with a Bite” to better regulate the industry. The disagreement on this subject will continue.

Another hot button topic is the increased role of the tenant groups. On face value, the increased role of both parties is a positive. This triangle of power should make for a stronger participatory process. The rule change gives tenants and tenant organizations more voice in the discussion. While this is a major win for the tenant’s right movement, I temper this enthusiasm with the reality that Woonbond’s focus on the past could be limiting. Protecting long standing tenant rights without regard for innovation or a changing society might hurt the tenants they advocate for. For example, an elderly person in a three bedroom social unit after the children moved out can stay as long as wanted. In many social housing programs around the world, the elderly person would be moved to a unit that fits the new family size. That frees up a unit for a family. Woonbond would not be for any type of rule changes that would make this mandatory. In its efforts to protect the old rules and rights, it may be doing a disservice by restricting healthy movement within the existing stock. The flip side to that argument is once you erode tenant rights it is a slippery slide to recover from. The protection of tenant rights is strong in the Netherlands and that can be hard for outsiders to fully comprehend.

The bottom line is changes needed to happen and now it will take time to see how it plays out. The social housing sector overstepped and now a combination of EU scrutiny, negative press, and increased regulation forced changes. Are the changes perfect or an overreaction to an industry that experienced mission creep? One thing that is clear is many questions are currently unanswered:

• Will the middle class be left out in the cold or will the private market step up?
• Will new taxes and building restrictions hurt the Dutch economy?
• Can tenant groups and municipalities step up and lead conversations in a meaningful way?
• Will the social housing industry embrace the new culture or fight it at every turn?
• In the end, how will these changes help or hurt disadvantaged Dutch families?

As with any new policy, only time will tell.

Special thanks to Gerard Anderiesen from Stadgenoot, Gerrit Teunis, of Beter Wonen, Aedes for agreeing to host me, staff from The Centraal Fonds Volkshuisvesting, The Ministry of the Interior and Kingdom Relations and staff from Woonbond for agreeing to meet with me. My personal opinions do not represent any from the agencies that I met with and are my own.

*Some of the information came from the Aedes document “Dutch Social Housing in a Nutshell”.