COMMISSION STAFF WORKING DOCUMENT In-depth review for the Netherlands in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2022 European Semester – Spring Package
Date: 2022-07-22
Institutions: European Commission, Secretariat-General
Subjects: European Semester, Netherlands, economic policy, economic recovery, energy policy, housing, indebtedness, macroeconomics, property market, savings

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 22.7.2022  SWD(2022) 636 final/2  CORRIGENDUM  This document corrects document SWD(2022) 636 final of 23.05.2022. Correction of figures in table 2.1.  The text shall read as follows:  COMMISSION STAFF WORKING DOCUMENT In-depth review for the Netherlands                 in accordance with Article 5 of Regulation (EU) No. 2011/1176 on the prevention and correction of macroeconomic imbalances                   Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2022 European Semester – Spring Package          {COM(2022) 600 final} - {SWD(2022) 628 final} - {SWD(2022) 629 final} - {SWD(2022) 630 final} - {SWD(2022) 631 final} - {SWD(2022) 632 final} - {SWD(2022) 633 final} - {SWD(2022) 634 final} - {SWD(2022) 635 final} - {SWD(2022) 637 final} - {SWD(2022) 638 final} - {SWD(2022) 639 final}  
 
 
 
On the basis of this in-depth review for the Netherlands undertaken under Regulation 
(EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances, the 
Commission has considered in its Communication “European Semester – 2022 Spring 
Package” (COM(2022)600 final) that: 

The  Netherlands  is  experiencing  imbalances.  Vulnerabilities  relate  to  high  private  debt 
and  a  large  current  account  surplus,  which  carry  cross-border  relevance.  From  a  sector 
perspective, high savings and low domestic investment of non-financial corporations are the 
main  structural  drivers  of  the  high  and  persistent  current  account  surplus,  which  is  well 
beyond  the  levels  suggested  by  the  country's  fundamentals  and  increased  further  in  2021. 
Part  of  the  external  surplus  and  its  recent  dynamics  are  linked  to  operations  of  some  large 
multinational  corporations.  Going  forward,  the  surplus  will  likely  remain  high  as  its  main 
drivers remain in place. Private sector debt remains high on account of both high household 
debt  and  corporate  debt,  the  latter  partly  on  account  of  intra-group  cross-border  debt  of 
multinationals. High household debt makes households more vulnerable to shocks, given that 
strong  house  price  increases  have  contributed  to  rising  debt  and  house  prices  appear  to  be 
overvalued. Household debt is expected to remain elevated in light of continued house price 
growth and of distortions in the housing market that favour debt-financed home ownership in 
combination  with  a  shortfall  in  housing  supply.  Limited  policy  steps  have  been  taken  but 
more needs to be done.  

 
 
 
 
 
CONTENTS 

1.  Introduction 

2.  Assessment of macroeconomic imbalances 

3.  Thematic chapter: Housing market 

LIST OF TABLES 

Table b.1.1:   Simulation results of public investment programme scenarios 

Table b.2.1:   Selected exposures 

Table 2.1: 

Selected economic and financial indicators (Part 1), the Netherlands 

Table 2.2: 

Selected economic and financial indicators (Part 2), The Netherlands 

Table 3.1: 

Selected housing market indicators 

Table 3.2: 

Selected household debt indicators 

LIST OF GRAPHS 

Graph b.2.1:  Sectoral distribution of energy use and of energy imported from Russia 

Graph b.2.2:  Netherlands goods and service trade balance – fossil trade contribution 

Graph 3.1:  Growth in house prices and number of transactions 

Graph 3.2: 

Realised supply of housing and official targets 

Graph 3.3: 

Selected housing market and household debt indicators 

4 

5 

15 

10 

12 

13 

14 

20 

20 

11 

12 

16 

18 

21 

3 

 
 
 
 
 
 
1.  INTRODUCTION 

In  2021,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic  Imbalances 
Procedure  (MIP),  the  Commission  identified  “macroeconomic  imbalances”  in  the Netherlands. (1) 
These imbalances were related to high private debt level and large current account surplus, which carry 
cross-border relevance. The 2022 Alert Mechanism Report published in November 2021 concluded that a 
new in-depth review (IDR) should be undertaken for the Netherlands with a view to assess the persistence 
or unwinding of imbalances. (2) 

The  Dutch  economy  rebounded  in  2021  with  an  annual  growth  rate  of  5%  but  substantial  new 
uncertainties are emerging. (3) After a fall in GDP of 3.8% in 2020, the improved health situation and 
the gradual opening-up of the economy led to robust growth in private consumption of 3.5%. Net trade 
also  contributed  significantly  to  economic  growth  in  2021,  with  exports  performing  strongly,  while 
imports  lagged  behind  somewhat.  The  effective  support  measures  put  in  place  by  the  government  kept 
corporate bankruptcies in check and protected employment. After an uptick in 2020, the unemployment 
rate  dropped  to  4.2%  in  2021,  below  its  pre-pandemic  level  and  the  number  of  vacancies  exceeded  the 
number  of  unemployed.  Investment  activity  weakened  during  the  year  due  to  global  supply  chain 
disruptions and increasing labour shortages. Real GDP is forecast to increase by 3.3% in 2022 and 1.6% 
in 2023. The nominal GDP level in 2023 is forecast to be 19.0% above its 2019 level. Russia’s invasion 
of Ukraine has placed a further drag on the economy. Surging energy prices in the later part of 2021 have 
resulted  in  a  strong  pick-up  in  inflation,  with  an  annual  inflation  rate  of  2.8%  in  2021.  Inflation  is 
expected  to  pick  up  further  in  2022  with  Russia’s  invasion  of  Ukraine  leading  to  further  increases  in 
energy prices and an overall inflation forecast of 7.4%  in 2022.  

This in-depth review presents the main findings of the assessment of imbalances. The assessment is 
backed by a thematic section on the housing market and linked household debt developments. Spillovers 
and systemic cross-border implications of imbalances are also taken into account, including the spillover 
effects  of  the  government’s  fiscal  spending  plans  on  other  Member  States.  In  addition,  assessments  of 
structural  issues  made  in  previous  IDRs  and  in  the  context  of  fiscal  assessments  are  also  considered  if 
relevant. The MIP assessment matrix is published in the 2022 Country Report for the Netherlands. (4) 

(1)  European Commission (2021), European Semester Spring Package 2021, COM(2021) 500 final. 
(2)  European Commission (2021), Alert Mechanism Report 2022, COM (2021) 741 final. 
(3)  Forecast data are from European Commission (2022), European Economic Forecast: Spring 2022, Institutional Paper 172. 
(4)  European Commission (2022), Country Report the Netherlands 2022, SWD(2022)621 final. 

4 

 
                                                           
2.  ASSESSMENT OF MACROECONOMIC IMBALANCES 

Assessment of gravity, evolution and prospects of macroeconomic imbalances 

The  current  account  surplus,  after  consecutive  declines  in  2019  and  2020,  rebounded  to  9.5%  of 
GDP in 2021. It continues to be among the highest in the  euro area as a  share of GDP and well above 
levels  justified  by  fundamentals  (‘current  account  norm’, (9)  estimated  at  3.2%  of  GDP  in  2021), 
exceeding  it  by  over  6  percentage  points  of  GDP  in  2021.  A  persistently  high  trade  surplus  in  goods 
remains  the  main  contributor  from  a  trade  perspective.  From  a  sectoral  and  savings  perspective,  all 
domestic sectors have been contributing to the net savings surplus over the past decade, but non-financial 
corporations  are  the  main  driver.  This  pattern  is  linked  to  the  strong  presence  of  multinationals  in  the 
Netherlands.  Due  to  deleveraging  pressures  after  the  global  financial  crisis,  households  have  also  been 
consistently contributing to the net lending position of the Dutch economy over the past decade. The high 
compulsory second pillar pension savings form another important driver of the overall household savings 
surplus. The government has also been in surplus for several years prior to the pandemic due to rising tax 
revenues and consolidation efforts but is a net borrower since 2020. 

The  pandemic  has  led  to  substantial  shifts  in  the  sectoral  composition  of  the  current  account 
surplus.  Net lending by non-financial corporations (NFC) increased to 4.4% in 2020, without offsetting 
the strong decline in net lending by financial corporations from 1.5 to 0.4% of GDP, leading to a decrease 
in the combined corporate sector’s net lending from 5% to 4.8% of GDP in 2020. Over 2021, financial 
corporations have entered net borrowing territory, contributing -0.3% of GDP to the total economy’s net 
lending, an effect driven by firm-specific developments and therefore, financial corporation’s net savings 
are  likely  to  revert  back  to  their  levels  in  past  years.  Owed  in  large  part  to  rising  oil  prices  and  the 
resulting increase in earnings of Shell, the combined corporate sector’s net savings have increased further 
in 2021 to 6.3% of GDP. The measures to mitigate the spread of the COVID-19 virus strongly curtailed 
household  consumption  and  in  combination  with  income  support  measures  led  to  a  strong  increase  in 
personal  savings  over  2020  and  2021,  with  household  net  lending  reaching  6.3%  and  5.8%  of  GDP 
respectively.  The government moved strongly into net borrowing territory in 2020 with net borrowing of 
3.7% in 2020 and 2.5% in 2021. The drop in net borrowing by the government together with the surge in 
net lending by the combined private sector led to a rebound of the current account surplus in 2021. 

The current account surplus is forecast to decrease to 8.8% of GDP in 2022 and to 8.7% 2023. The 
structural  drivers  underpinning  high  household  and  corporate  savings  are  expected  to  continue  to 
contribute to current account surpluses. The end of pandemic-related restrictions curtailing consumption 
during early 2022 and increased inflation are expected to lead to a smaller household savings surplus. The 
corporate  sector’s  net  savings  are  expected  to  increase  slightly,  despite  the  relocation  of  Shell,  which 
contributed roughly 1.4% of GDP to the economy’s net savings in 2021.  As of 1 January 2022, Shell is 
no longer a Netherlands-based firm. The government deficit is expected to increase somewhat in 2022, in 
part  due  to  additional  measures  taken  to  cushion  the  impact  of  energy  price  increases.  From  a  trade 
perspective,  the  forecast  decline  in  the  current  account  surplus  is  mainly  caused  by  a  worsening  of  the 
terms  of  trade,  caused  by  surging  energy,  food  and  raw  material  prices,  also  associated  to  Russia’s 
military aggression against Ukraine (see Box  2.2). For the coming  years, recent tax reforms addressing 
incentives  to  retain  earnings  within  small  and  medium-sized  enterprises  (SMEs)  and  the  expansionary 
fiscal spending plans of the new government could have a dampening effect on the surplus (see Box 2.1). 
On the other hand, a normalisation of the terms of trade could be expected to improve the trade balance,  
leading to a current account surplus that is expected to stay roughly stable in 2023. 

(9)  The ‘current account norm’ is the current account balance that can be explained by fundamentals. It is based on an empirical 
setup similar to IMF’s EBA (Phillips, S., Catão, L., Ricci, L., Bems, R., Das, M., Di Giovanni, J., Unsal, D.F., Castillo, M., 
Lee, J., Rodriguez, J., and Vargas, M. (2013), "The external balance assessment (EBA) methodology", International Monetary 
Fund  Working  Paper  13/272).  Fundamentals  are  slow-moving  variables  including,  e.g.  natural  resources,  demographics,  or 
relative  income.  For  details  see  Coutinho,  L.,  Turrini,  A.,  Zeugner,  S.  (2018),  "Methodologies  for  the  assessment  of  current 
account benchmarks", European Economy, Discussion Paper 86/2018. 

5 

 
                                                           
2. Assessment of macroeconomic imbalances 

House  prices  have  been  growing  continuously  in  the  Netherlands  since  2014,  reaching  a  record 
growth  rate  of  15%  on  average  over  2021  and  house  price  overvaluation  have  emerged  as  an 
additional risk over the past years. Between 2017 and 2020, prices grew by almost 8% on average in 
nominal  terms  and  by  about  6%  in  real  terms.  House  prices  in  December  2021  were  about  20%  above 
their values one year earlier. Valuation gaps are growing continuously with price to income and price to 
rent  ratios  about  10%  above  their  historical  averages  in  2020  and  more  than  20%  above  in  2021.  The 
overall  valuation  gap  reached  about  9.7%  in  2020  and  more  than  20.1%  in  2021.  Multiple  factors 
contributed  to  surging  prices  and  to  the  high  level  of  household  mortgage  debt.  These  include  tax 
incentives in favour of (debt-financed) homeownership, relatively lenient macroprudential regulation and 
an underdeveloped private rental market. Additionally, the structurally insufficient and inelastic supply of 
housing  due  to  factors  such  as  lacking  buildable  land  and  insufficient  administrative  capacity  at  the 
municipal  level  puts  further  upward  pressure  on  prices  (see  section  3  for  a  detailed  discussion  of  the 
Dutch housing market). 

A  number  of  one-off  factors  in  combination  with  long  standing  distortions  in  the  Dutch  housing 
market can explain the surge in prices over 2021. Demand for housing in 2021 was boosted by pent-up 
household  savings  from  2020  and  a  reduction  of  the  transfer  tax  for  young  homebuyers.  These  factors 
come on top of the long-standing structural factors favouring home ownership and low interest rates. In 
combination with structurally inelastic supply of housing, increased demand passed through to prices. 

House prices are expected to keep increasing over the next years, albeit at lower rates than in 2021. 
Generous tax subsidies to incentivise home ownership remain in place, despite the  gradual reduction of 
mortgage  interest  deductibility.  Importantly,  despite  an  increased  yearly  construction  target  of  100  000 
dwellings,  the  supply-side  bottlenecks  are  also  likely  to  persist.  The  overvalued  housing  market  could 
deter prospective homeowners somewhat while one-off factors driving price growth are expected to fade, 
moderating growth to some degree. 

Private debt in the Netherlands stood at 229% of GDP. Household debt amounted to 100% of GDP in 
2021, exceeding the fundamental and prudential benchmarks by wide margins. (10) Despite the high debt 
level, which largely consists of mortgage debt, the household sector has a high positive net asset position 
due  to  housing  and  pension  wealth.  Nonetheless,  the  household  sector  remains  vulnerable  to  financial 
shocks  since  those  assets  are  often  illiquid  and  their  prices  subject  to  market  risk.  Moreover,  there  are 
intergenerational  distributional  challenges.  Due  to  the  housing  market’s  homeownership  bias  described 
above, younger households in the Netherlands typically have relatively high levels of mortgage debt and 
low net assets, while older households have relatively high net assets due to accumulated pension wealth 
under  the  second  pillar  pension  system. (11)  Household  debt  to  gross  disposable  income  is  one  of  the 
highest  in  the  EU  at  195%  in  2020.  The  high  mortgage  debt  reinforces  pro-cyclicality  of  household 
finances  since  house  price  corrections  can  lead  to  an  erosion  of  net  assets  and  result  in  reduced 
consumption by households. NFC indebtedness decreased to 129% of GDP in 2021 but also substantially 
exceeds the fundamental and prudential benchmarks. Its high level is, however, largely driven by intra-
group  cross-border  debt  of  multinationals  and  hence  represents  a  lower  risk  than  the  headline  number 
would suggest. 

Private  debt  peaked  at  268%  of  GDP  in  2014  and  has  gradually  declined  thereafter,  though  this 
trend  was  briefly  interrupted  in  2020.  The  household  debt  as  a  share  of  GDP  started  to  decline 
following the introduction of stricter macro-prudential rules after the global financial crisis (including for 
example a lowering of the maximum loan-to-value ratio to 100% and reduced incentives for interest-only 
mortgages). While rising house prices in 2021 resulted in a pick-up of mortgage credit growth, the overall 
household  debt  to  GDP  ratio  declined  somewhat  thanks  to  strong  nominal  GDP  growth.  NFC  debt  as 
share of GDP has been gradually declining since 2014. 

Private debt as a percentage of GDP can be expected to remain roughly stable in the next few years. 
Mortgage  credit  growth  is  likely  to  continue  as  house  price  growth  is  expected  to  remain  strong. 
However, denominator effects are expected to keep the debt to GDP ratio stable, with the Commission's 
forecast  showing  a  strong  GDP  growth  rate  for  2022  (largely  thanks  to  a  strong  carry-over),  though 

(10)  Household debt in 2021 exceeded both the fundamental benchmark (by 26 pp of GDP) and the prudential benchmark (by 36 pp 

of GDP) and exceeded the euro area average by some 50 percentage points (see Table 3.2). 

(11)  CPB, 2020. Are the savings of Dutch households optimal? 

6 

                                                           
2. Assessment of macroeconomic imbalances 

somewhat slower growth is forecast thereafter as further expansion is subdued by the impact of Russia’s 
invasion  of  Ukraine.  Overall,  household  indebtedness  is  likely  to  remain  elevated  as  borrowing  limits 
(notably  the  maximum  loan-to-value  ratio)  remain  high  compared  to  EU  peers  and  substantial  fiscal 
incentives for mortgage-financed homeownership remain. 

Assessment of MIP relevant policies 

The impact of recent policy steps on the structural drivers of the savings surplus is likely to remain 
limited. Social partners and the government have agreed on a major reform of the second-pillar pension 
system  that  will  likely  be  phased  in  from  January  2023,  with  full  implementation  envisaged  by  2027. 
While  this  addresses  some  key  challenges  of  the  existing  system  and  lays  the  groundwork  for  more 
individual flexibility, its impact on the large mandatory savings imposed by the second pillar is likely to 
remain  limited.  With  regard  to  the  corporate  sector,  a  tax  reform  by  which  debt  owned  by  controlling 
shareholders to their companies would be partially taxed, will be delayed and may be softened according 
to  the  coalition  agreement.  While  the  reform  would  help  to  limit  the  incentives  for  small  and  medium 
businesses  to  retain  earnings  within  their  own  company  and  increase  incentives  for  investments,  in 
practice  it  may  only  lead  to  a  statistical  effect,  shifting  part  of  small  companies’  savings  surplus  to  the 
household  sector.  The  impact  on  the  overall  savings  surplus  therefore  remains  uncertain.  In  contrast, 
according to the government’s coalition agreement, the government is likely to remain in net borrowing 
territory for the years to come, putting downward pressure on the overall savings surplus of the economy. 

The  authorities  have  taken  limited  steps  in  the  past  years  to  address  distortions  in  the  housing 
market. Mortgage interest deductibility is gradually being reduced, cutting the maximum applicable rate 
to  37%  by  2023.  Nonetheless,  a  substantial  subsidy  on  debt-financed  homeownership  remains.  The 
authorities have also implemented changes to the transfer tax on house purchases. The tax (which stood at 
2%)  has  been  abolished  for  first-time  house  buyers  and  raised  to  8%  for  buy-to-let  investors.  This 
increases  the  owner-occupied  bias  and  risks  undermining  the  development  of  the  private  rental  market 
further. The authorities have also announced their intention to take measures to increase housing supply 
by raising their construction target from  75 000 to 100 000 dwellings per  year. Substantial obstacles to 
this  goal,  such  as  labour  shortages  in  the  construction  sector  or  limited  administrative  capacity  at  the 
municipal level, remain and the specific plans to address these are not known yet.  

Conclusion 

The  Netherlands  is  facing  vulnerabilities  relating  to  high  private  debt  level  and  large  current 
account  surplus,  which  carry  cross-border  relevance.  The  Netherlands  has  persistently  recorded 
current account surpluses and private debt levels that are large both by international standards and above 
the  fundamentals  of  the  Dutch  economy.  The  current  account  surplus  largely  stems  from  a  surplus  in 
goods  trade.  From  a  sectoral  perspective,  high  savings  and  low  domestic  investment  of  non-financial 
corporations  are  the  main  structural  drivers  of  the  continued  high  current  account  surplus.  After  the 
introduction of pandemic-related restrictions  in 2020, household sector savings jumped  and, along  with 
the increase in the corporate sector’s surplus in 2021, more than offset the government’s net borrowing in 
2021. Private debt levels remain high due to both high NFC debt and high household debt, with the latter 
being  especially  problematic  as  it  makes  households  vulnerable  to  economic  shocks,  given  that  house 
prices  seem  to  be  overvalued  and  strong  house  price  increases  over  the  past  years  have  contributed  to 
rising nominal mortgage debt. Going forward, the current account surplus and private debt are expected to 
remain high. Household debt is expected to remain elevated on the basis of strong house price growth and 
the  various  distortions  in  the  housing  market  that  favour  debt-financed  home  ownership.  Expansionary 
spending plans by the government could dampen the current account surplus to some degree towards the 
end  of  the  government’s  mandate.  A  worsening  of  the  terms  of  trade  is  expected  to  lower  the  current 
account  surplus  somewhat  in  2022  and  2023.  However,  as  the  main  drivers  underpinning  the  surplus 
remain  in  place,  the  overall  level  is  expected  to  remain  above  the  prudential  threshold.  Exposures  to 
energy  prices  are  a  particularly  pressing  concern  due  to  the  strong  reliance  of  the  Dutch  economy  on 
fossil fuels, along with foreign direct investment exposures to Russia that are non-negligible, which are 
likely to affect the current account balance in the short run (see Box 2.2). 

Policy  progress  has  been  limited.  Notably,  despite  a  gradual  reduction  in  the  mortgage  interest 
deductibility rate until 2023, a generous tax subsidy on owner-occupied housing will remain. In addition, 

7 

2. Assessment of macroeconomic imbalances 

there  is  a  shortfall  in  housing  supply,  the  private  rental  market  remains  underdeveloped  and 
macroprudential  regulation  continues  to  be  relatively  lenient.  Regarding  the  elevated  current  account 
surplus,  incentives  for  firms  to  retain  earnings  have  only  been  partially  addressed  and  high  mandatory 
household  savings  through  the  pension  system  will  remain  in  place  despite  the  second  pillar  pension 
reform that will enter into force in 2027. 

Based  on  the  findings  in  this  in-depth  review,  the  Communication  “European  Semester  –  2022 
Spring  Package” (12)  sets  out  the  Commission’s  assessment  as  to  the  existence  of  imbalances  or 
excessive imbalances in the Netherlands, in line with Regulation 1176/2011. 

(12)  European Commission (2022), European Semester Spring Package 2022, COM(2022)600 final. 

8 

 
 
                                                           
2. Assessment of macroeconomic imbalances 

Box 2.1: 

Spillover effects of public investment: The Netherlands. 

Germany and the Netherlands have announced large public investment packages. To support the post-
pandemic recovery, Germany and the Netherlands as the two Member States with the largest current account 
surpluses announced large investment plans. This box aims to quantify the impact of these packages on the 
Dutch  economy  and  the  rest  of  the  euro  area,  distinguishing  between  the  potential  impacts  of  domestic 
package  only  and  the  joint  stimulus  (Dutch  and  German  package)  under  different  assumptions  of  the 
productivity of public capital.    

The Commission’s QUEST model to quantify the potential impact of announced investment plans in 
the Netherlands. (1)  The plan could imply additional public investment of around €85bn until 2026, mainly 
geared towards addressing challenges such as climate  change, excessive nitrogen deposits and insufficient 
housing  supply.  The  simulations  also  consider  defence  spending  of  €14bn.  As  a  stylised  assumption  for 
modelling  purposes,  half  of  it  is  classified  as  investment,  following  the  assumptions  outlined  below.  The 
total stimulus under consideration reaches around 1.3% of Dutch GDP on average (2022-2026), a large part 
taking place after 2023. The analysis further assumes that the stimulus is sustained, i.e. the public investment 
rate only gradually returns to baseline. Finally, focussing on spillover to the  rest of the euro area, a second 
set  of  simulations  is  run  jointly  for  the  Dutch  and  German  investment  programmes  (the  latter  amounts  to 
around 0.8% of German GDP p.a. for 2022-2026).  (2)  

The  model  simulations  apply  the  following  technical  assumptions.  Public  capital  in  the  model 
increases  productivity.  The  model  explicitly  features  short-run  implementation  delays  for  public 
investment, e.g. related to contracting time and planning horizons. Moreover, due to time-to-build frictions, 
investment  takes  time  to  translate  into  productivity  gains.  The  output  elasticity  of  public  capital  is  set  to 
0.12,  as  suggested  by  meta-analysis  (Bom  and  Ligthart,  2014).  A  low-productivity  scenario  highlights  the 
importance  of  this  assumption. (3)    The  simulation  assumes  that  no  neutralising  fiscal  measures  are 
implemented for the first ten years. Monetary policy is assumed to retain its accommodative stance for 2022 
and gradually normalise afterwards.  

Table XX shows that, if implemented fully, the public investment programme  can have considerable 
positive  domestic  GDP  effects  and  cross-border  spillovers.  In  line  with  earlier  QUEST  simulations, 
increasing  public  investment  boosts  output  and  enhances  employment  and  wage  growth  in  both  the 
Netherlands  and  the  rest  of  the  euro  area. (4)    Based  on  the  assumption  of  productive  public  capital,  the 
additional investment boosts demand and potential growth. There are positive trade spillovers to the rest-of-
the euro area from higher import demand in the Netherlands (and Germany) and a euro depreciation. Except 
for the first year, the current account (in % of GDP) declines relative to baseline. Importantly, the assumed 
accommodative  monetary  policy  limits  the  crowding  out  effects  of  private  demand  and  increases  positive 
spillover in the monetary union. 

There are substantial downside risks. The low productivity scenario highlights the importance of selecting 
high-quality  investment  projects.  While  sizable  effects  remain,  the  growth  impact  (especially  in  the  long 
run)  is  substantially  lower  when  public  investment  is  allocated  to  less  productive  uses.  Besides  the 
productivity effects, the simulated impact depends strongly on the assumption that the plans are carried out 
in full. If the actual investment fell short of the announced plans, the positive domestic and spillover effects 
would be considerably lower.   

9 

 
 
 
 
 
 
 
 
2. Assessment of macroeconomic imbalances 

Table b.1.1:  

Simulation results of public investment programme scenarios 

Only NL plan (high productivity) 

GDP Netherlands  

Current account NL (%GDP) 

GDP rest of the euro area 
Joint stimulus (NL&DE, high 
productivity) 

GDP Netherlands 

Current account NL (%GDP) 

GDP rest of the euro area 

Joint stimulus (NL&DE, low 
productivity) 

GDP Netherlands 

Current account NL (%GDP) 

GDP rest of the euro area 

2022  2023  2024  2025  2026  2027  2028  2029 

2030 

0.1 

0.0 

0.0 

0.2 

0.0 

0.2 

0.1 

0.0 

0.0 

0.4 

1.0 

1.4 

1.5 

1.3 

0.9 

0.8 

-0.2 

-0.3 

-0.4 

-0.5 

-0.4 

-0.3 

-0.2 

0.0 

0.0 

0.1 

0.1 

0.1 

0.1 

0.1 

0.6 

1.3 

1.7 

1.7 

1.5 

1.1 

0.9 

-0.1 

-0.2 

-0.4 

-0.4 

-0.4 

-0.3 

-0.2 

0.2 

0.2 

0.3 

0.3 

0.3 

0.3 

0.3 

0.5 

1.0 

1.3 

1.3 

1.0 

0.5 

0.2 

-0.1 

-0.3 

-0.4 

-0.5 

-0.4 

-0.3 

-0.3 

0.0 

0.1 

0.1 

0.1 

0.1 

0.1 

0.1 

0.8 

-0.1 

0.1 

0.9 

-0.2 

0.3 

0.2 

-0.2 

0.1 

Note: The table reports the GDP level and the current account balance in %-deviation and pp-deviation from 
baseline, respectively. The first three rows consider only the NL investment plan. The rest of the euro area excludes 
Germany and the Netherlands. Source: Commission services.  

(1)  For information on the QUEST model, see Burgert et. al  (2020)  A Global Economy Version of QUEST: Simulation 

Properties, ECFIN Discussion Paper 126 and  

https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/economic-

research/macroeconomic-models_en#quest-macroeconomic-model 

(2)  Box XX in the corresponding in-depth report on Germany provides further details. 

(3)  In  this  case,  the  output  elasticity  is  set  to  0.05,  in  line  with  the  lower  bound  considered  in  Leeper  et  al.  (2010). 

Government Investment and Fiscal Stimulus, Journal of Monetary Economics, 57, 1000–12. 

(4)  See, European Commission (2017) and European Commission (2020). 

10 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Assessment of macroeconomic imbalances 

Box 2.2: 

Exposures to the commodity price surge, and to Russia 

This  box  summarises  risks  and  exposures  regarding  the  commodity  price  surge,  and  the 
importance of direct links with the Russian economy. The surge of commodity prices since 2021 
has been aggravated by  the Russian  military aggression against Ukraine. This box reviews the risks 
for  the  macroeconomic vulnerabilities  in  the Netherlands. Available data suggest that exposures to 
energy  prices  are  a  particularly  pressing  concern,  along  with  exposures  to  Russia  that  are  non-
negligible. Both factors will affect the current account balance in the short run, yet do not seem likely 
to impact macroeconomic vulnerabilities over the medium term. 

 Graph b.2.1: 

Sectoral distribution of energy use and of energy imported from Russia 

Notes:  The  left  panel  displays  the  distribution  of  primary  energy  usage  in  the  Netherlands  according  to  Eurostat  energy  balances.  The  horizontal  axis 
displays the relative importance of energy-consuming sectors. The vertical axis displays the importance of energy importance from Russia in satisfying that 
need. Note that this dependence on Russia differs according to sectors’ use of natural gas vs oil and coal. For comparison, the right hand panels displays the 
same concept for the EU aggregate. Russian imports include oil and petroleum products, natural gas and solid fossil fuels. 
Sources: Eurostat and European Commission services calculations 
The Dutch distribution of energy usage by sector is roughly comparable to the EU average 
with  a  slightly  higher  energy  dependence  of  the  industry  sector  (Graph  b.2.1).  The  Dutch 
economy  uses  more  fossil  energy  sources  compared  to  its  GDP  than  most  EU  Member  States, 
whereas its share of renewable energy production remains among the lowest in the EU (Table b.2.1). 
Since  the  Dutch  economy  relies  considerably  more  on  natural  gas  than  the  EU  average,  it  is 
particularly  exposed  to  the  recent  commodity  price  surge.  This  concerns  in  particular  the  industry 
sector as well as energy transformation (notably electricity production), which both depend strongly 
on imported fuel (Table b.2.1). The household sector is likely less directly exposed to the commodity 
price  increase,  as  gas  prices  are  already  quite  high  for  Dutch  households  on  account  of  taxes  and 
fees. (1)  Carrying  over  the  wholesale  gas  price  to  consumer  prices  thus  results  into  a  smaller 
proportional  price  increase  for  consumers  vis-a-vis  industry.  Such  price  increases  do  not  suggest  a 
strong impact on the repayment capacity of indebted households.  

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Graph b.2.2: 

Netherlands goods and service trade balance – fossil trade contribution 

2. Assessment of macroeconomic imbalances 

Notes: The graph displays the trade balance as % of GDP, and highlights net trade of petroleum products, natural gas and solid fossil fuels (mainly coal), in 
2015 import prices. The ‘fossil price impact’ component details the impact of price changes on the (also changing) real trade balance. 2022 and 2023 figures 
reflect central assumptions of the Commission spring forecast, notably combining the forecasted fossil price evolution with broadly forecasted net import 
quantities of fossil energy sources. 
Beyond  GDP,  the  fuel  price  surge  is  likely  to  have  a  strong  direct  impact  on  the  trade 
balance  –  notably  if  indigenous  gas  production  continues  to  decline  as  planned.  The  commodity 
price effect is expected to depress the trade balance in 2022 by 2.5 pp. of GDP (see Graph b.2.2), 
which comes on top of the impact from the residence change of Royal Dutch/Shell (see Box X.X). 
This sizeable terms-of-trade effect is unlikely, however, to make a significant dent into the high level 
of the overall current account surplus. 

The  Netherlands’  reliance  on  natural  gas  also  implies  a  non-negligible  exposure  to  supply 
disruptions related to Russia’s war against Ukraine. Although Russian gas accounts for a lower 
share of total imports than in the rest of the EU, this is offset by the strong Dutch reliance on gas 
overall  (see  Table  b.2.1),  with  particular  vulnerabilities  for  household  residential  use  and  electricity 
production.  Moreover,  the  Netherlands  is  an  important  euro  area  financial  centre.  Consequently, 
financial exposures to Russia are higher than for other Member States in terms of GDP, but remain 
small  when  compared  to  the  size  of  overall  Dutch  external  assets.  Financial  sanctions  and  related 
effects  can  thus  be  surmised  to  have  a  minor  potential  effect  on  the  Dutch  economy.  Likewise, 
economic links with Russia beyond the commodity trade seem small.   

Table b.2.1:  

Selected exposures 

Notes: data source Eurostat for commodity exposures, European Commission Figaro for value-added exposures, BIS for consolidated banking exposures, 
European Commission FinFlows for other financial exposures. Energy gross inland consumption excludes net imports of electricity and derived heat. 

(1)  Taxes, including VAT, excises and levies make up more than half of the gas price in the Netherlands making the increase in the 

energy price faced by families proportionally quite limited compared to countries were taxes are very low. 

12 

Trade & financial exposuresunitNLEUEnergy mixunitNLEUDomestic value added embodied in exports to Russia% of GDP0.4%0.4%Solids fossil fuels (incl. peat)% of Gross inland consumption 20205.7%10.8%Non-energy Russian import content in final demand% of GDP0.3%0.4%Oil and petroleum products% of Gross inland consumption 202038.7%32.7%Russian tourist nights spent% of total 20190.9%2.7%Natural gas% of Gross inland consumption 202043.7%24.4%FDI assets held in Russia% of 2020 GDP10.4%2.5%Renewables and waste% of Gross inland consumption 202010.5%19.0%Portfolio & other inv. assets held in Russia% of 2020 GDP1.1%0.9%Nuclear% of Gross inland consumption 20201.3%13.1%FDI liabilities towards Russia% of 2020 GDP3.9%1.2%Commodity exposuresunitNLEUPortfolio & other inv. liabilities towards Russia% of 2020 GDP1.8%1.1%Net petroleum imports from all countries% of GDP 20213.1%1.2%Consolidated banking exposures towards Russia% of 2021 GDP0.7%0.5%Crude oil imports from Russia '20% of oil imports26.5%25.7%Net gas imports from all countries% of GDP 20210.5%0.6%Gas imports from Russia '20% of gas imports30.3%43.6%-10.0-5.00.05.010.015.020.0181920212223% of GDP 4q mov.av.NL trade balance as % of GDP, annualFossil trade bal in 2015 pricesFossil price impactNon-fossil G&S (until 21)Non-fossil G&S bal (forecast)G&S trade balance 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 2.1: 

Selected economic and financial indicators (Part 1), the Netherlands 

2. Assessment of macroeconomic imbalances 

(e) estimate based on ECB quarterly data 
(1) Potential output is the highest level of production that an economy can reach without generating inflationary pressures. 
The methodology to compute the potential output is based on K. Havik, K. Mc Morrow, F. Orlandi, C. Planas, R. Raciborski, W. 
Roeger, A. Rossi, A. Thum-Thysen, V. Vandermeulen, The Production Function Methodology for Calculating Potential Growth 
Rates & Output Gaps, COM, European Economy, Economic Papers 535, November 2014. 
(2) Deviation of actual output from potential output as % of potential GDP. 
(3) Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions 
capturing the main determinants of the saving-investment balance, including fundamental determinants, policy factors and 
global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account benchmarks", 
European Economy, Discussion Paper 86/2018, for details.  
(4) This benchmark is defined as the average current account required to reach and stabilise the NIIP at -35% of GDP over the 
next 20 years. Calculations make use of Commission’s T+10 projections. 
(5) NENDI is a subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment (FDI) 
equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP excluding instruments that 
cannot be subject to default. 
(6) Fundamentals-based benchmarks are derived from regressions capturing the main determinants of credit growth and 
taking into account a given initial stock of debt. Prudential thresholds represent the debt threshold beyond which the 
probability of a banking crisis is relatively high, minimising the probability of missed crisis and that of false alerts. Methodology 
to compute the fundamentals-based and the prudential benchmarks based on Bricongne, J. C., Coutinho, L., Turrini, A., 
Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

13 

all variables y-o-y % change, unless otherwise stated2003-072008-122013-17201820192020202120222023Real GDP 2.30.01.72.42.0-3.85.03.31.6Potential growth  (1)1.90.91.01.61.81.51.61.61.7Contribution to GDP growth:Domestic demand 1.9-0.71.22.12.3-3.53.73.01.9Inventories 0.00.00.10.10.3-0.3-0.30.00.0Net exports 0.30.80.20.2-0.70.01.70.3-0.4Contribution to potential GDP growth (1):Total Labour (hours) 0.40.20.61.01.00.80.80.70.7Capital accumulation 0.70.50.40.50.70.50.60.60.6Total factor productivity 0.80.30.10.10.20.20.30.30.3Output gap (2)-0.9-1.3-1.51.21.4-3.9-0.70.90.8Unemployment rate5.75.87.54.94.44.94.24.04.2Harmonised index of consumer prices (HICP)1.71.90.91.62.71.12.87.42.7GDP deflator 2.01.00.82.43.02.32.43.83.3External positionCurrent account balance (% of GDP), balance of payments7.77.28.710.89.47.09.58.88.7Trade balance (% of GDP), balance of payments8.58.49.910.59.810.411.0..Primary income balance (% of GDP)1.00.40.01.10.4-1.7-0.7..Secondary income balance (% of GDP)-1.8-1.6-1.3-0.8-0.9-1.7-0.9..Current account explained by fundamentals (CA norm, % of GDP) (3)3.24.03.53.53.53.43.23.23.1Required current account to stabilise NIIP above -35% of GDP over 20Y (% of GDP) (4)-0.10.31.82.52.93.44.83.53.2Capital account balance (% of GDP)-0.4-0.3-0.1-0.10.00.00.1..Net international investment position (% of GDP)-5.210.350.372.889.9113.993.8..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)-67.4-73.2-43.9-17.0-1.89.222.2..Net FDI flows (% of GDP)4.65.86.77.64.7-4.610.7..CompetitivenessUnit labour costs (ULC, whole economy)0.42.30.22.32.98.3-1.01.93.2Nominal compensation per employee 2.32.21.11.92.94.72.13.13.7Labour productivity (real, hours worked)1.60.20.6-0.3-0.2-1.12.50.50.1Real effective exchange rate (ULC)-0.30.3-0.41.5-0.2....Real effective exchange rate (HICP)-0.5-0.80.21.50.41.80.1..Export performance vs. advanced countries (% change over 5 years)6.1-0.1-5.0-0.7-1.87.9...Private sector debtPrivate sector debt, consolidated (% of GDP)229.6244.6259.6243.6232.3233.7229.0..Household debt, consolidated (% of GDP)106.6116.6111.2103.499.6103.099.5..Household  debt, fundamental benchmark (% of GDP) (6)68.774.177.374.172.676.073.4..Household  debt, prudential threshold (% of GDP) (6)51.148.455.462.965.663.963.5..Non-financial corporate debt, consolidated (% of GDP)123.0128.0148.4140.2132.7130.7129.5..Corporate debt, fundamental benchmark (% of GDP) (6)102.4107.9115.7113.3111.5116.9113.5..Corporate debt, prudential threshold (% of GDP) (6)77.874.881.692.495.494.494.1..Private credit flow, consolidated (% of GDP) 11.97.64.45.6-0.1-1.310.7..Corporations, net lending (+) or net borrowing (-) (% of GDP)9.49.06.47.25.04.86.37.36.8Households, net lending (+) or net borrowing (-) (% of GDP)-2.11.43.62.22.66.35.84.34.0Net savings rate of households (% of net disposable income)3.46.910.09.811.417.817.3..forecast 
 
   
 
Table 2.2: 

Selected economic and financial indicators (Part 2), The Netherlands 

2. Assessment of macroeconomic imbalances 

(7) Unweighted average of price-to-income, price-to-rent and model valuation gaps. The model valuation gap is estimated 
in a cointegration framework using a system of five fundamental variables; total population, real housing stock, real 
disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure, based on 
Philiponnet, N., Turrini, A. (2017), "Assessing House Price Developments in the EU," European Economy - Discussion Papers 2015 - 
048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission. Price-to-income and price-to-
rent gaps are measured as the deviation to the long term average (from 1995 to the latest available year). 
(8) Price-to-income overvaluation gap measured as the deviation to the long term average (from 1995 to the latest available 
year). 
(9) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 2022-05-02, where available; European Commission for forecast figures (Spring forecast 2022) 

14 

all variables y-o-y % change unless otherwise stated2003-072008-122013-17201820192020202120222023Housing marketHouse price index, nominal4.1-2.62.19.57.37.615.0..House price index, deflated2.0-3.71.17.14.66.011.6..Overvaluation gap (%) (7)13.98.6-9.80.73.99.720.1..Price-to-income overvaluation gap  (%) (8)12.86.2-8.32.76.211.321.7..Residential investment (% of GDP)5.94.83.64.95.15.35.4..Government debtGeneral government balance (% of GDP)-1.1-3.8-1.21.41.7-3.7-2.5-2.7-2.1General government gross debt (% of GDP)47.759.763.852.448.554.352.151.450.9Banking sectorReturn on equity (%).1.46.78.37.53.2...Common Equity Tier 1 ratio.11.516.018.818.919.3...Gross non-performing debt (% of total debt instruments and total loans and advances) (9).2.42.41.81.71.7...Gross non-performing loans (% of gross loans) (9)..2.61.91.81.91.5..Cost of borrowing for corporations (%)4.33.11.81.31.21.30.8..Cost of borrowing for households for house purchase (%)4.44.62.92.42.01.81.7..forecast 
 
 
   
 
3.  THEMATIC CHAPTER: HOUSING MARKET 

High demand for owner-occupied housing, structurally insufficient supply and a heavily subsidised 
social rental market have led to strong growth in house prices, overvalued houses and high levels of 
household  debt.  These  developments  raise  concerns  both  regarding  housing  affordability  and  financial 
stability in the Netherlands. While there are currently only minor concerns regarding the sustainability of 
household  debt,  the  illiquidity  of  households’  assets  makes  them  vulnerable  in  case  of  major  price 
corrections on the housing market.  

A number of policies are in place to improve housing affordability but supply side constraints limit 
their  effectiveness.  There  are  several  tax  subsidies  in  place  that  incentivise  home  ownership,  partially 
aimed  at  first-time  home  buyers.  However,  their  intended  effects  on  affordability  are  mostly  muted  as 
demand  stimulation  under  inelastic  housing  supply  leads  to  rising  prices.  A  large  number  of  affordable 
housing is offered through the social rental sector. However, access to social housing is only to a limited 
degree means-tested and there are strong incentives to stay in the social rent sector even if one’s income 
has  increased  substantially.  Coupled  with  limited  supply,  this  results  in  long  waiting  lists (18)  to  obtain 
housing in this sector and it is not guaranteed that those who need social housing the most receive it. At 
the same time, the private rental sector is underdeveloped and only offers a limited amount of housing at 
rather high rents, leaving households that are not eligible for social rent little alternative to purchasing a 
home. 

House price and household debt developments 

House  price  growth  has  accelerated  in  2021  compared  to  2020  and  there  are  clear  signs  of 
overvaluation. Nominal house prices have grown by 15% in 2021, up from below 8% in 2020 (see Graph 
3.1). This  was  one  of  the  strongest  increases  in  the  EU  in  2021. This  strong  house  price  growth  is  not 
limited to major cities but has spread to the entire country (even though differences in house price levels 
between  urban  and  rural  regions  persist).  House  prices  in  the  Netherlands  are  now  in  overvaluation 
territory and clearly beyond what fundamentals, such as income, interest rates or residential investment, 
would justify based on historical data. The overall valuation gap stands at +20.1%, while the model-based 
gap is at +18.1%. Both gaps have roughly doubled since the end of 2020 (19) (see Graph 3.3). The price-
to-rent  and  price-to-income  ratios,  expressed  as  a  percentage  deviation  from  their  long-term  average, 
climbed to 20.5% (6.7% in 2020) and 21.7% (11.3% in 2020) respectively for the Netherlands in 2021.  

(18)  The  Dutch  Public  Broadcasting  Organization  (NOS)  gather  data  from  housing  associations,  which  showed  that  the  waiting 
period  to  obtain a  social  rental  house  exceeds  7  years  in  more  than  90 municipalities  while  in  five  municipalities  (including 
Amsterdam) the average waiting time exceeds 17 years. 

(19)  The overall overvaluation gap is estimated as an average of the price/income, price/rent and fundamental model valuation gaps. 
Long-term values for the price/income and price/rent ratios are computed over 1995-2016. For the model-based valuation gaps, 
a  Vector  Error  Correction  Model  has  been  estimated  for  a  panel  of  21  EU  countries,  using  a  system  of  five  fundamental 
variables; the relative house price, total population,  real housing investment, real disposable income per capita and real long-
term interest rate. 

15 

 
 
                                                           
Graph 3.1:  Growth in house prices and number of transactions 

3. Thematic chapter: Housing market 

Source: Eurostat, CBS 

Household  debt,  primarily  made  up  of  mortgages,  stood  at  99.5%  of  GDP  in  2021,  the  second 
highest rate in the EU and far above the prudential threshold. Growth in new residential mortgages to 
households has picked up strongly over 2021, reaching a year-on-year growth rate of 1.3% in November, 
the highest since December 2011 (DNB). Overall nominal mortgage growth reached 4.1% in 2021 (see 
Graph  3.3).  Compared  to  the  aftermath  of  the  financial  crisis  of  2008,  concerns  regarding  the 
sustainability  of  household  debt  are  now  more  limited.  The  share  of  mortgages  with  variable  rates  is 
relatively small standing at 15.1% in 2020 and decreasing further to 12.3% in 2021, while 60% of new 
mortgages  have  fixed  rates  for  at  least  10  years.  These  figures  suggest  that  households  are  rather  well 
protected against potential increases in interest rates on mortgages. Additionally, since 2008 measures (20) 
have been taken to reduce the uptake of interest-only mortgages. (21)  

Nonetheless,  the  European  Systemic  Risk  Board  (ESRB)  identified  high  vulnerabilities  related  to 
the Dutch residential real estate market in 2022. (22) The assessment is based on signs of overvaluation 
on  the  housing  market  and  insufficiently  tight  macroprudential  regulation  given  the  high  levels  of 
household debt.  According to the ESRB’s report,  the  macroprudential policy-mix is appropriate but the 
tightness of measures is only partially sufficient to address the build-up of systemic risks in the real estate 
sector. In particular, the recommendations by the ESRB from 2019 to tighten borrower-based measures, 
such  as  limits  to  the  loan-to-value  ratio  and  debt  service-to-income  ratios,  have  not  been  addressed 
sufficiently.  

Therefore,  housing-related  financial  stability  risks  remain  as  the  upper  limit  to  the  loan-to-value 
(LTV)  ratio  for  residential  mortgages  of  100%  is  exceptionally  high  by  EU  standards. (23)  The 
illiquidity of households’ assets (primarily homes and pensions) in combination with high household debt 
and house prices makes them furthermore vulnerable to economic shocks. Price corrections, which can be 
potentially  large  in  overvalued  markets,  could  result  in  an  evaporation  of  a  households’  net  assets  and 
thereby  affect  also  households’  consumption  patterns.  The  high  household  debt  and  high  house  prices 
therefore  reinforce  the  pro-cyclicality  of  households’  finances.  Further  financial  stability  concerns  stem 
from  the  growing  number  of  first-time  buyers  with  (partially)  interest-only  mortgages.  Due  to  the  high 
house prices and low interest rates, these buyers choose partial interest-only mortgages despite not being 
able to deduct interest payments from their taxable income anymore. 

(20)  As from 1 January 2013, mortgage interest deductibility is no longer possible for interest only mortgages.  
(21)  In general, these mortgages have to be repaid after 30 years – though an extension is possible if the lender agrees and based on 

an assessment of the borrower's financial situation.  

(22)  ESRB (2022), Vulnerabilities in the residential real estate sectors of  EEA countries 
(23)  Note that not all households borrow up to this maximum limit. The latest DNB estimates (Q2 2021) show an average LTV ratio 

for first-time house-buyers of around 86%.  

16 

-20-10010203040-10-505101520201320142015201620172018201920202021House prices (% year-on-year growth, lhs)Real house prices (% year-on-year growth, lhs)Number of transactions (% year-on-year growth, rhs)  
 
                                                           
3. Thematic chapter: Housing market 

To increase banks’ resilience to house price corrections, Dutch authorities have taken some macro-
prudential measures. In autumn 2019, an average minimum risk weight for IRB banks (24) (Article 458 
measure)  was  announced  and  it  entered  into  force  in  March  2020.  In  light  of  the  outbreak  of  the 
pandemic, the measure was delayed and entered into force only in January 2022. It therefore remains to 
be  seen  to  what  degree  it  will  affect  banks’  willingness  to  extend  mortgages.  Contrary  to  ESRB 
recommendations, borrower-based measures have not been tightened. 

Drivers of housing demand 

Both  cyclical  and  structural  factors  underpin  the  recent  surge  in  house  prices.  Excess  savings 
accumulated  by  households  during  2020  due  to  the  pandemic  were  spent  in  2021  to  some  degree  on 
housing. The savings rate (as a share of gross disposable income) grew by more than 6 percentage points 
over  2020  to  24%  and  subsequently  fell  to  23.4%  in  2021  (see  Table  3.2).  It  is  forecast  to  further 
normalise in 2022 to around 19%. In addition, the Dutch authorities announced in 2020 that the transfer 
tax on transactions for home buyers below the age of 35 would be abolished  in 2021 in an effort to ease 
the burden of high house prices on this group. This led prospective buyers to delay home purchases until 
the beginning of 2021 and may have slightly improved their relative position on the housing market but 
fuelled  overall  demand.  Behavioural  effects  pushed  up  prices  further  with  the  tight  market  prompting 
existing homeowners looking to move to a new house to adopt a ‘buy first, sell later’ strategy, effectively 
bringing the  market to a stand-still.  The limited supply available on the  market in turn  prompted house 
buyers to use pent-up savings to overbid out of ‘fear of missing out’. 

The Dutch tax system is a structural driver of housing demand as well as household debt. Notably, 
home ownership has been incentivized through substantial tax benefits, which include mortgage interest 
deductibility  (MID)  paired  with  the  so-called  ‘Hillen  Act’  as  well  as  tax-exempt  donations  for  the 
purchase  of  homes.  When  a  home  is  financed  with  a  mortgage,  the  MID  allows  households  to  deduct 
interest payments from their taxable income. Mortgage interest will be deductible from taxable income at 
a maximum rate of 37.05% by 2023. A further phasing out is not planned at this point. Even though the 
deductibility  rate  being  gradually  reduced,  substantial  benefits  for  homeowners  remain.  Furthermore, 
under the ‘Hillen Act’, homeowners with little or no mortgage are fully exempt from any tax payments on 
their  home. (25)  Lastly,  limited  donations  for  the  purpose  of  purchasing  a  home  are  tax-exempt.  The 
government has announced that this possibility will be abolished by 2024. The CPB Netherlands Bureau 
of Economic Policy Analysis estimates that house prices would fall by about 9% relative to the status quo 
if all tax measures incentivizing homeownership were abolished. (26) Taxing houses in a similar way as 
other assets (i.e. subject to a wealth tax) would reduce prices by up to 13%.  

Demand  side  pressures  are  aggravated  by  the  relatively  inelastic  housing  supply  in  the 
Netherlands. (27) There is empirical evidence that house prices respond more strongly to changes in local 
earnings  in  places  with  tight  supply  constraints. (28)  Measures  aimed  at  increasing  affordability  by 
supporting the spending capacity of house buyers are thus likely to result in sharp house price  increases, 
thereby aggravating distortions in the housing market and affordability issues rather than alleviating them. 
Both  low  interest  rates  as  well  as  recent  policy  changes  affecting  demand  (i.e.  the  abolishment  of  the 
transfer tax for first-time house buyers) therefore likely have a larger effect on prices in the Netherlands 
due to the inelastic supply.  

(24)  Under the Basel II framework and the Internal Ratings Based (IRB) approach, banks are allowed to use their own risk models in 

the calculation of necessary regulatory capital 

(25)  This tax benefit for non-mortgage homeowners is smaller than the tax benefit enjoyed by mortgage holders through the MID. 
For the latter group, the mortgage-related tax deduction is generally larger than the tax due on the imputed (rental) income from 
their home. 

(26)  Kansrijk Woonbeleid – update 2020, CPB 
(27)  See section 3 for a summary of the reasons why housing supply is inelastic in the Netherlands 
(28)  Christian  A.  L.  Hilber,  Wouter  Vermeulen,  The  Impact  of  Supply  Constraints  on  House  Prices  in  England,  The  Economic 

Journal, Volume 126, Issue 591, 1 March 2016, Pages 358–405, https://doi.org/10.1111/ecoj.12213 

17 

 
 
                                                           
3. Thematic chapter: Housing market 

Supply side factors  

Housing  construction  in  the  Netherlands  picked  up  in  recent  years  but  a  substantial  shortage  in 
housing  stock  remains.  The  Dutch  authorities  estimate  that  an  additional  279 000  homes  would  have 
been needed to satisfy demand in 2021, equivalent to 3.5% of the  total housing  stock. (29) Shortages in 
large  metropolitan  areas  are  especially  severe,  amounting  to  5-7%  of  the  local  housing  stock. (30) 
Shortages  sharply  increased  after  the  global  financial  crisis  resulted  in  a  marked  decline  in  residential 
construction. (31)  The  construction  of  new  houses  recovered  gradually  in  recent  years  and  the  net 
production  of  new  houses  hovered  around  the  target  set  by  the  authorities  in  2018  (see  Graph  3.2). To 
catch-up on shortages resulting from the dip in construction before 2018, the authorities have announced 
that  the  target  for  the  production  of  new  houses  will  be  raised  to  100  000  units  per  year,  which  would 
require a significant ramping up of housing construction. 

Graph 3.2: 

Realised supply of housing and official targets 

Source: CBS 

Increasing  labour  shortages  in  the  Dutch  economy  as  a  whole  and  the  construction  sector 
specifically hamper the capacity of construction firms to scale up their activities in the short term. 
Global supply chain disruptions emerging during the  COVID-19 pandemic  furthermore drove up prices 
and  delivery  times  of  input  materials,  leading  to  delays  while  also  adversely  affecting  profitability  of 
construction  firms.  According to Statistics Netherlands, the share of Dutch construction  firms reporting 
shortages  of  input  factors,  such  as  labour,  material  or  land,  increased  sharply  towards  the  end  of  2021. 
Uncertainty  about  environmental  protection  measures  and  nitrogen  emissions (32)  furthermore  lead  to  a 
decrease in building permits in 2019. Temporary measures have been put in place to allow the issuance of 
permits to pick up again though a more permanent solution is yet to be found.       

A  lack  of  planning  capacity  in  municipalities  and  limited  buildable  land  represent  additional 
factors that make Dutch housing supply structurally inelastic. (33) First, residential planning is done at 
a regional level with municipalities deciding on zoning plans and estimating how much housing supply is 
needed. This is not necessarily conducive to addressing overall housing needs. (34) Second, processes for 
changing  zoning  plans,  obtaining  building  permits  and  meeting  all  regulatory  requirements  are 
cumbersome  and  time-consuming.  The  difficulties  in  changing  zoning  plans  are  aggravated  by 
considerable vested interests (35) from existing homeowners who may try to delay or prevent the approval 

(29)  Staat van de Woningmarkt 2021, BZK 
(30)  Rapportage Primos 2019, ABF Research, 2019 
(31)  Country Report Netherlands, 2019, European Commission. 
(32)  The Dutch framework for reducing nitrogen deposition was in May 2019 ruled to be insufficient as a basis to grant permits for 

new construction projects.  

(33)  The  responsiveness  of  housing  supply  to  house  price  rises  in  the  Netherlands  is  one  of  the  lowest  among  OECD  countries 

(Caldera et al., 2013). 

(34)  Michielsen et al., 2019, Het bouwproces van nieuwe woningen, CPB. 
(35)  While there is a general support in the Netherlands to increase housing supply, existing home-owners may have incentives to try 
and object the new housing projects in their neighbourhood (‘not in my backyard’) due to concerns about for example increased 
traffic, loss of recreational areas and/or loss the value of existing housing stock.   

18 

-200000200004000060000800001000001200002012201320142015201620172018201920202021*New constructionConversions minus demolitionsPermits issuedNet productionOld targetNew target  
                                                           
3. Thematic chapter: Housing market 

of new building projects. Third, there is a lack of buildable land and numerous competing land uses (i.e. 
housing, recreational, nature, agriculture). Fourth, the drop in residential construction after the financial 
crisis prompted municipalities to scale down relevant real estate and planning expertise in municipalities 
which resulted in a loss of planning capacity, making it difficult for local administrations to cope with the 
growing demand for housing of the past years.   

Existing supply side constraints, both structural and cyclical,  pose downside risks to reaching the 
new  target  of  100  000  newly  built  houses  per  year.  Complementary  policy  measures  aimed  at 
alleviating constraints in the short term as well as structurally increasing the elasticity of housing supply 
are needed. The authorities announced the intention to remove institutional barriers that have hampered 
the supply of housing and to take a leading role in spatial planning. These plans are at an early stage and 
further details are not yet available. 

Rental market and housing affordability 

A  heavily  regulated  and  subsidized  social  rental  sector  adds  to  housing  market  distortions  in  the 
Netherlands. Policies in the social rental sector increase the overall level of subsidization and stimulation 
of  demand  in  the  housing  sector  (as  social  housing  companies  act  as  buyers  in  the  market)  and  thus 
contribute to housing overvaluation. The subsidization of the social rental sector furthermore crowds out 
the private rental sector which results in a relatively small sector that forms only 13% of the total housing 
stock.  The  resulting  expensive  and  limited  private  rental  options  contribute  to  the  bias  towards  owner-
occupancy,  as  there  is  a  lack  of  viable  alternatives  to  buying  a  house.  Especially  middle-income 
households  –  whose  earnings  are  above  the  social-housing  ceiling  yet  often  insufficient  to  comfortably 
afford private-sector rents – can be pushed into (largely mortgage financed) home ownership. 

In 2020, the social rental sector in the Netherlands accounted for around 29% of the total housing 
stock, far exceeding the EU-average. Houses in this sector are intended to provide lower income groups 
with  affordable  housing,  but  incentives  exist  for  tenants  to  stay  put  in  the  same  rental  house  as  rent 
increases  for  existing  tenants  are  limited  and  only  to  a  limited  degree  tied  to  increases  in  income. 
Households  below  a  certain  income  threshold  renting  in  the  social  sector  furthermore  receive  an 
allowance  that  increases  with  the  value  of  rent.  There  are  a  number  of  other  measures  subsidizing  and 
stimulating  the  social  rent  sector,  including  discounts  on  the  sale  of  building  land,  state  guarantees  on 
loans  extended  to  social  housing  corporations  and  requirements  for  the  construction  sector  to  build  a 
minimum  percentage  of  rental  houses  (at  project  level).  In  total,  the  subsidy  for  social  rental  houses  is 
estimated to be around 25% of the gross market rental rate. (36) 

Housing allowances are mostly rent rather than income-dependent and rents are heavily regulated. 
This  provides  an  incentive  to  overconsume,  i.e.  living  in  a  larger  house  than  necessary  or  optimal. 
Policies  in  the  social  rental  sector  are  furthermore  relatively  untargeted  with  subsidies  per  household 
depending  only  on  income  to  a  limited  degree.  The  large  gap  between  social  rents  and  market  rents  in 
combination  with  an  underdeveloped  private  rental  market  results  in  long  waiting  lists  for  social  rental 
houses, with some households on the lower income scale not being able to find affordable housing while 
households with potentially more options are also incentivized to remain in the social rental sector. 

Recently adopted policy measures discourage buy-to-let investments and risk further undermining 
the  private  rental  market.  The  transfer  tax  on  house  purchases  for  buy-to-let  investors  was  increased 
from 2% to 8%, with a further increase to 9% planned. In addition, possibilities for municipalities to ban 
buy-to-let purchases altogether have been increased. The authorities intend to abolish the tax levied on the 
housing stock in the social rental sector – which would increase the overall level of subsidization in the 
social  rental  sector.  At  the  same  time,  the  authorities  have  announced  measures  to  make  rents  more 
income-dependent  and  rent  allowance  dependent  on  income  instead  of  rent,  which  could  reduce 
distortions and improve effectiveness of social rental policies, although the authorities are yet to develop 
these plans further. 

(36)  Kansrijk Woonbeleid, CPB, 2020 

19 

 
                                                           
3. Thematic chapter: Housing market 

Table 3.1: 

Selected housing market indicators 

(') Forecast. The forecast of house prices is computed on the basis a housing valuation model shared with Member States in 
the context of the EPC LIME working group. The forecasts represent real house price percentage changes expected based 
on economic fundamentals (population, disposable income forecast, housing stock, long-term interest rate, and the price 
deflator of private final consumption expenditure), as well as the error correction term summarising the adjustment of prices 
towards their long-run relation with fundamentals. The source for the forecast of other variables is Ameco. 
(1) Price to income in level is the number of years of income necessary to buy an assumed 100m2 dwelling. See Bricongne, J-
C, A Turrini, and P Pontuch, 2019, “Assessing House Prices: Insights from HouseLev, a Dataset of Price Level Estimates”, 
Discussion Paper 101, European Commission, available in "https://ec.europa.eu/info/publications/assessing-house-prices-
insights-houselev-dataset-price-level-estimates_en".  
(2) Price to income and price to rent gaps are measured in deviation to the long term average (from 1995 to the latest 
available year).  
(3) The model valuation gap is estimated in a cointegration framework with nominal house prices as the dependent variable 
and five fundamental explanatory variables:  total population, real housing stock, real disposable income per capita, real 
long-term interest rate and price deflator of final consumption expenditure. See Philiponnet and Turrini, Assessing House Price 
Developments in the EU (2017) available in "https://ec.europa.eu/info/publications/economy-finance/assessing-house-price-
developments-eu_en" and revision notes presented to LIME in October 2019 and June 2020.  
(4) The average house price gap is the simple average of the price-to-inome, price-to-rent and model valuation gaps. 

Sources: Sources: Eurostat, OECD, ECB, BIS, Ameco, national sources, European Commission calculations. 

Table 3.2: 

Selected household debt indicators 

 (f) European Commission forecast, . (1) Gross non-performing bank loans and advances to Households and non profit 
institutions serving households (% of total gross bank loans and advances to Households and non profit institutions serving 
households). (2)  Quarterly data is annualized. 
Source: (a) Eurostat, (b) Ameco, (c) European Commission calculations, (d) ECB. 

20 

2003-072008-122013-17201820192020202121Q121Q221Q321Q4House price developmentsUnitSourceReal house price, yoy growth%(a)2.0-3.61.27.14.66.011.68.89.913.513.9Nominal house price, yoy growth%(a)4.1-2.52.29.57.37.615.011.213.016.818.7Price to income in level (1)years(b)10.710.18.79.710.110.511.5Valuation gapsPrice to income gap (2)%(c)12.86.2-8.32.76.211.321.716.619.524.425.7Price to rent gap (2)%(c)15.08.2-14.2-2.71.96.720.514.218.123.725.3Model valuation gap (3)%(c)13.911.4-6.92.23.511.118.114.216.020.421.4Average house price gap (4)%(c)13.98.6-9.80.73.99.720.115.017.922.824.1Housing creditBank mortgages (% GDP)%(d)62.058.061.561.860.261.959.9Bank mortgages, yoy growth%(d)5.80.54.6-0.52.31.24.0Housing supplyResidential construction - dwellings  (% GDP)%(e)5.94.93.64.95.15.35.4Residential construction - dwellings, yoy growth%(e)6.4-9.39.69.33.4-2.63.3Non-residential construction (% GDP)%(e)5.65.95.35.35.65.85.7Value added in the construction sector, yoy growth%(e)5.4-3.94.14.85.6-0.82.5Building permits, yoy growth%(a)5.8-15.016.62.7-19.012.613.1Number of transactions, yoy change%(f)3.7-9.617.5Other housing market indicatorsShare of owner-occupiers, with mortgage or loan%(a)56.459.660.260.560.460.72003-072008-122013-19202020212022f|21Q121Q221Q321Q4SourceStocksDebt, consolidated (% of GDP)(a,d)107117108103100|104102101101Debt, consolidated (% of potential GDP)(a,b,d)1061151089999|999999100Prudential threshold (% of GDP)(c)514858646463|Fundamental benchmark (% of GDP)(c)687476767372|Debt (% of gross disposable income)(a,b,d)209232216198195|197196196197Interest paid (% of gross disposable income) (2)(a,b)6.65.52.01.2|1.01.31.1Debt (% of gross financial assets)(a,d)43.143.333.126.727.9|27.727.627.828.0Share of variable rate loans for house purchase (%)(d)27.221.117.315.112.3|Domestic  loans in forex (% of dom. loans)(d)0.10.20.20.10.1|FlowsCredit flows (transactions, % of GDP) (2)(a)7.32.90.71.83.83.2|3.04.45.13.4Benchmark for flows (% of GDP)(c)3.62.61.72.22.12.1|Savings rate (% gross disposable income)(b)10.314.116.624.023.419.3|Investment rate (% gross disposable income)(b)14.411.710.612.713.212.9|p.m. Bank HH NPLs (% of HH loans)(1)(d)1.41.3| 
 
    
 
 
 
 
 
    
 
 
Graph 3.3: 

Selected housing market and household debt indicators 

3. Thematic chapter: Housing market 

Source: Eurostat, ECB, Commission services calculations.  

21 

-15-10-5051015202503Q404Q405Q406Q407Q408Q409Q410Q411Q412Q413Q414Q415Q416Q417Q418Q419Q420Q421Q4Rate of change y-o-y (%)MFI loans for house purchase (y-o-y growth rate)House Price Index (y-o-y growth rate)-20002004006000506070809101112131415161718192021% of GDPL, fin. deriv. & empl. stock op. (F7)A, fin. deriv. & empl. stock op. (F7)A, currency and deposits (F2)L, other accounts (F8)A, other accounts (F8)L, insurance, pensions & s.g. (F6)A, insurance, pensions & s.g. (F6)L, equity and inv. fund shares (F5)A, equity and inv. fund shares (F5)L, loans (F4)A, loans (F4)L, debt securities (F3)A, debt securities (F3)Net financial assets-20-15-10-50510152025300103050709111315171921% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap02040608010012014016Q417Q418Q419Q420Q421Q4index (2020Q4 =100)Value of housing transactionsNumber of housing transactionsTransaction price