Synergy effects of collaboration by housing corporations and institutional investors on the Dutch housing market

Abstract

The Dutch rental market is strongly dominated by corporations. They own around one third of the total stock in the Netherlands and about 95% of the total rental stock. Consequently, the private rental market represents only a very small segment. A substantial part of what is called housing actually only belongs to that segment because of rent control: on the private rental market these houses would be let for higher rents. For several reasons, the national government considers this now as an 'unhealthy' situation. The private sector is reluctant to invest in new, more expensive rental (as distinguished from housing), despite an increasing demand for this segment by medium and high-income groups, due to the dominant position of the corporations. At the same time, most of the corporations have difficulties with investing in new social housing, because they lack the investment capacity to do so. A potential solution to this catch 22 situation is to create a fund with both one or more corporations and one or more institutional investors as shareholders. The corporations' input consists of a part of their stock, while the institutional investors bring in funding. This fund then consists of high-end former social housing, but now transformed into private sector housing. The anticipated result would be that associations will have money to invest in the renewal of their remaining stock, that institutional investors would have an additional real estate segment to invest in, and that medium and high-income groups will find more opportunities to rent medium and high-quality housing._With help of game simulation, with the participation of both representatives from corporations and institutional investors, we have tested under what conditions these actors would be willing to create such a fund. The game simulation shows that, in principal, both groups believe in synergy effects, but that both cultural differences between associations and investors (e.g. with respect to risk assessment; required returns on investment; acceptable operational costs), discussions about the present value of the stock brought in by the corporations (including taxation issues) and present regulation still act as a barrier to such a mixed fund. To improve the chances of creating a fund, it is crucial to agree on terms and conditions.