Number of building permits still too low to address housing shortage
27 augustus 2020
Recent figures from Statistics Netherlands show that municipalities are doing everything they can to maintain the level of building permits being granted. In June, 5,270 permits for new homes were issued, which could create the possibility of approx. 60,000 permits being granted over the entire year of 2020. This appears to be good news. Still, this number is vastly insufficient to combat the housing shortage. If the government and market parties can intensify the granting of permits, unnecessary bankruptcies in the construction sector will be avoided and the housing shortage can be reduced. Investors and increasingly more housing associations have more than sufficient capital available to realise more rental homes.
Possibly 60,000 building permits in 2020
The number of building permits for new-build homes totalled more than 14,700 in the second quarter of 2020. This total came about due to a strong final month of the quarter, during which 5,270 building permits were issued. The figures show that the granting of building permits during the corona crisis has not come to a standstill as was feared at the beginning of the crisis. If this trend and the numbers from the first and second quarter continue, then it is still possible that 60,000 permits will be reached. This number is approx. 12,000 higher than the estimates from the EIB in April of this year, and is even a few thousand more than the number of permits issued in 2019, when 57,000 permits were granted. Still, the number remains highly insufficient to reduce the housing shortage.
Housing shortage on the increase
The housing shortage rose further to 331,000 homes in the first half of 2020 (ABF Research) and is expected to rise even further to 415,000 homes in 2024. To maintain the housing shortage at its current level, and in order to prevent it from increasing even more, a minimum of 75,000 – 100,000 new homes are needed annually over the next five years. The number of building permits granted is a good predictor of new-build output in 1 to 2 years. With only 60,000 permits granted annually, the housing shortage will increase considerably in the future.
Risk of bankruptcies undermines residential new-build output
The insufficient number of building permits that are issued also has an effect on order portfolios and the survival of construction companies. The number of bankruptcies in the construction sector decreased slightly to around 117 companies (0.06% of the total number of construction companies) during the past two quarters, however, the expectation is that many more construction companies will go bankrupt between the period of October 2020 and October 2021. These potential bankruptcies are not yet visible because the construction sector will not be hit until later, once current projects have been completed and no more new work can be accepted.
According to data bureau Altares, Dun & Bradstreet, the number of bankruptcies in the construction sector could be as high as during the credit crisis, with approx. 1,760 bankruptcies over the period of a year, or an average of 440 per quarter. In April, the EIB also expressed its concerns regarding the potential loss of possibly 40,000 jobs in the construction sector.
Exploit record amount of available capital from investors and housing associations
The inadequate number of building permits that have been issued, and the consequential threat of bankruptcies among construction companies are bad news for the housing shortage in the Netherlands. That is not necessary, according to Marijn Snijders, director of Capital Value. Investors have 26 billion euros available for investments in (new-build) homes. This creates the opportunity to keep the construction sector working and prevent bankruptcies, as well as reducing the housing shortage. In the first half of 2020 alone, investors and housing associations invested 2.3 billion euros in new-build projects, from which 8,800 new homes can be built in the coming years. If the government and market parties intensify the permit procedures for new-build output, then Dutch and international pension funds and housing associations can continue to invest, and we can prevent a further rise in the housing shortage in the near future.