The Relationship Between Supply Constraints and House Price Dynamics in the Netherlands

Bahar Öztürk,Frank Van Hoenselaar,Sander Burgers,Dorinth Van Dijk

doi:10.1007/978-3-030-11674-3_12

Abstract

AbstractWe analyze the effect of supply constraints on the dynamics of house prices in the Netherlands. In particular, we look at whether income shocks lead to stronger house price increases in regions characterized with higher supply constraints. We use a panel dataset that contains 316 municipalities over the years 1987–2016. Municipalities are divided in three equally sized groups according to the extent of supply constraints present in each municipality. Our results suggest that income shocks lead to significantly larger increases in house prices in municipalities that are relatively more supply constrained. This holds both in the short- and the long-term. The degree of mean reversion and persistence, however, do not seem to significantly differ between the three groups of municipalities.

Highlights

After having sharply declined during the Great Financial Crisis (GFC), house prices in the Netherlands have been increasing strongly since 2014
Our results suggest that income shocks are associated with significantly larger increases in house prices in municipalities that face relatively strong supply constraints
We have shown that house price dynamics in the Netherlands differ significantly between the least and most supply constrained municipalities

Summary

Introduction

After having sharply declined during the Great Financial Crisis (GFC), house prices in the Netherlands have been increasing strongly since 2014. A typical feature of the Dutch housing market is that the price elasticity of housing supply is low, which is partly related to the relatively high population density (Caldera and Johansson 2013). A low supply elasticity is often linked to physical supply constraints related to geography (Saiz 2010) or a rigid planning system (Hilber and Vermeulen 2016). For the Netherlands, both sources of supply restrictions are relevant. New construction is restricted by physical constraints, This chapter is based on Öztürk, B., Van Dijk, D., Van Hoenselaar, F. The relationship between supply constraints and house price dynamics in the Netherlands.

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