Record 75,000 building permits not enough to reduce housing shortage
26 oktober 2021
More than 47,000 building permits for new homes were issued from January to August 2021, approximately 15% more than in the same period of the previous year. Following a strong start in the first few months of the year, the number of issued permits remained sufficiently high during the summer to put a record 75,000 permits within reach by the end of the year. This is good news, says Capital Value, a specialist in the residential investment market. Should the number of building permits continue to grow and approach the milestone of 100,000, this may even create the needed leeway to build enough homes in the coming years and prevent the housing shortage from swelling any further. However, the enormous increase in construction costs and long-running objection procedures are serious concerns that may jeopardise the realisation of affordable rental housing.
Strong August leads to confidence in issuance of building permits
The number of construction permits issued is traditionally lower during the summer months and the construction industry holiday than in spring and summer. Over the past nine years, the average number of permits issued in August amounted to approximately 3,300. With 3,981 permits, August 2021 has exceeded that trend by a significant margin. More than 6,100 permits have been issued per month in 2021 so far, the highest number achieved in the past decade.
Objection procedures inhibiting building output
Now that the number of permits issued is on the right track, the question is whether it will be possible to put all those permits into action and actually build the homes in question. Due to the increased scope for stakeholder participation, it is becoming increasingly common for construction projects to be delayed. Since early 2021, stakeholders can submit objections not only during the application phase of integrated environmental permits, but even after the permit has been granted. As a result, even lone objecting individuals can delay plans by months, despite the leeway that the Crisis and Recovery Act has provided for housing construction. The new Environment and Planning Act aims to simplify both the procedures and the public participation process, further increasing the risk of delays.
Marijn Snijders, director of Capital Value: "The law needs to be shored up in this area to prevent abuse of this tool. Municipalities and the legal system currently do not have sufficient capacity to enable procedures and permits to progress adequately when such objections are raised, and the new government policy will have to reserve sufficient funds for this purpose. It is increasingly common to see construction projects for new rental homes being delayed by individual objections. The planned stock will also need to be increased to address these delay risks."
Rising construction costs a major threat to realisation of affordable rental housing
Another important factor are the construction costs, which have been strongly on the rise for many years. According to the figures of Statistics Netherlands, the average construction costs for new-build homes increased by 5.8% compared to August of the previous year, and by 4.4% compared to January 2021.
Since autumn 2020, that rise has primarily been caused by the costs of materials, which are currently increasing faster than the labour costs for housing construction. The increase in material costs amounted to 7.5% relative to January of this year, while labour costs rose by an average of 1.2%. The spiralling material costs are due to the demand for construction materials and the backlog of construction projects caused by the Covid-19 pandemic. The last time that labour cost growth was outpaced by material costs was during the boom preceding the credit crunch. Previous research by Capital Value in 2020 showed that 46% of developers consider the rising construction costs to be a significant hindrance in the construction of new housing.
Marijn Snijders: "Due to the extreme increase in construction costs and the uncertainty regarding further price increases, the construction of affordable rental housing in the regulated and mid-priced sectors may be at risk in the near future, especially where long-running projects are concerned. Furthermore, regulation of the rental market may have additional negative effects on project feasibility. We are calling on market parties and the government to do everything they can to encourage the progression of planned new-build projects for affordable rental homes, and to collaborate as effectively as possible to prevent the housing shortage from growing even further."