Home investors call new tax measures ‘disastrous’. Do they have a point?

In recent years, anyone who wanted to earn something from their savings was invariably told the same thing: put it in bricks. Buy a property, tenants in it, count your profit. But the tide has turned. Major disaster is looming for the country’s property owners – at least, that is what the sector itself says.

Advocate Vastgoed Belang read last week the emergency bell. “There is great unrest among our supporters,” said Jack de Vries, former secretary of state (Defence, CDA) and now chairman of these investors in houses. So little will be left of their income, they say, that they’d better put their real estate up for sale. Are they right? And is that bad?

It has been established that renting out homes as of 1 January 2023 will yield much less money than before. And that is not because of Hugo de Jonge (CDA), the minister who prefers not to talk about a housing market but about public housing. It is Marnix van Rij, fellow party member of De Jonge and State Secretary for Taxation, who implemented a series of measures in this year’s Tax Plan almost in the shadows, which have major consequences for landlords.

“Some investors may have even more to fear from Van Rij than from De Jonge,” says tax specialist Luc van Dijk, who counts many investors who own homes among his clients. He senses “a lot of concern and also anger” among investors, he says. “Small investors I speak to in particular say: how am I going to pay for that, how am I going to do my shopping?”

‘disastrous plans’

What does he think of Van Rij’s plans? “Disastrous,” says Wim Hemker, owner of a series of buildings on Amsterdam’s Elandsgracht. His brother and business partner Kick is equally distraught: “I think our only option is to start selling properties.”

For the Hemker brothers, owning and renting out homes, unlike many other investors, is not a new source of extra income. Their great-grandfather built a number of houses on the edge of the canal belt at the end of the nineteenth century and his descendants still own these buildings more than a century later.

Read also: The ‘party’ on the housing market is now really over

The vast majority of homes they own fall under the social rental limit of EUR 808, while a small proportion fall in the private sector. The brothers saw the income from their real estate, 39 apartments in total, as an addition to their regular income, and now their pension. They both worked alongside: Kick at the university, Wim at the Ministry of Defence. “It fell into our lap, this situation,” says Wim. “We deal with it as best we can.”

It wasn’t that hard to deal with for a long time. Those who rented out a home had to pay relatively little tax. It was therefore a logical consequence of economic laws and political regulations that investors en masse began to do the same as the Hemker brothers in the past decade: renting out houses. Especially because the tight rental market pushed prices up, while the low interest rates made it even more attractive to invest. Saving did not give you anything extra, but becoming a landlord did.

Scarcity and rising prices

This made the rental market fun for no one, except for investors. Because those who wanted to rent had to deal with scarcity and rising prices, while the queue for social housing became longer and longer. Of the 8 million homes in the Netherlands, more than one million are owned by commercial and private landlords. Half a million is in the free sector. In recent years, many investors have dived into this in particular. And that was wrong.

“If ordinary people can no longer afford a home, we have really done something wrong,” said Hugo de Jonge shortly after taking office as Minister of Housing in January 2022. In December, he presented his main plan to achieve more affordable rent: he wants to tackle the points system that determines whether a home falls under the social rental rules and thus how high the rent may be.

De Jonge wants to raise the rent limit for social housing to 1,000 euros. In this way, many more rental properties will qualify as social rental, with all the protection that goes with it. Hundreds of thousands of tenants will then receive a considerably lower rent, if it is up to De Jonge. But that new limit will not be a fact until next year: Van Rij’s tax code will already apply this year.

No more favors

First of all, there is box 3: in the words of tax specialist Luc van Dijk ‘the train disaster that is about to happen’. Box 3, the part of the tax system in which capital is taxed, has been shattered since the Supreme Court a year ago crossed a line.

Ultimately, the government wants to tax everyone fairly on the basis of the increase in the value of their assets. But that is difficult to implement and will take years. So now there is an intermediate solution. The Tax and Customs Administration assumes that people book a predetermined return on their investments and assets.

And that’s where investors feel duped. In recent years, they had the wind in two respects: their returns were higher than usual and because the government assumed a low return, they also had to pay little tax. Now the government taxes them according to a higher yield – 6.17 percent – ​​while home investors assume that they will earn considerably less in the current market, with the lower incomes that De Jonge allows.

Read also: Renting a second home will soon become very expensive. Then just sell?

In addition, Van Rij has cut two schemes that were convenient for landlords with their tax returns. One scheme allowed some landlords to use a considerably lower home value until this year, because a property with tenants in it is often worth less on the market than an unoccupied owner-occupied home. The advantage of this ’empty value ratio’ is now virtually gone.

“Restitution of rights box 3, they call it,” says Wim Hemker. “Well, on my behalf you may say that it is rape of justice.”

The other scheme made it possible to deduct the value of a mortgage from the value of the house and pay tax only on the remainder. That worked out well for the small investors who bought a property with borrowed money to rent out. That favor also disappears.

In other words: De Jonge limits the income of the landlords, Van Rij ensures that they have to pay more tax to the treasury.

Unfair, says Van Dijk. “With Hugo’s plans you can still say: let me see if I can refurbish or make something more sustainable to get more points, then I can ask for more rent. You can’t do much with Van Rij’s plans. Besides investing your money in real estate abroad.”

Overkill

For example, after years of inadequate intervention, the transformation of the rental market is suddenly going fast. Economist Nic Vrieselaar, who analyzes the housing market for Rabobank, has often been critical of the way in which the rental market has been taken over by investors. But, he says now: “This seems a bit overkill.”

Vrieselaar points to the blanket of new rules that has been drawn over the housing market in a short time: regulation of rents by De Jonge, the reform of box 3 by Van Rij, the purchase ban for investors and the increased transfer tax – from 2 to 10 percent – that should discourage investors.

What does the cabinet want? The housing section of Rutte IV’s coalition agreement is limping on two legs. De Jonge’s rental plans, it says, must ensure “that housing for middle incomes becomes affordable and that it remains profitable for institutional investors to invest in these homes”. Small, private investors are not mentioned. But renting must also remain profitable for them, said Van Rij in december bee BNR.

You can take the position that renting out a home is simply an activity that should not be earned, says Nic Vrieselaar. Something for corporations. But if the current cabinet does believe that there is room for people who earn money by renting out houses, as stated in the coalition agreement, the question is whether this is not too much of a good thing. “If your goal is to have more rental properties, you can still introduce rules. But everything at the same time, like now… then you will probably create fewer rental properties.”

Regardless of all the vicissitudes in the private rental sector, it does play a role

Is that bad? Vrieselaar: “Regardless of all the vicissitudes in the private rental sector, it does play a role. Part of the population is unwilling or unable to buy a house and cannot go into social housing either, because access to it is limited. Commercial rent is then a solution. Then less supply is annoying.”

If the consequences of the changes can be seen anywhere, it is with the Hemker brothers. Unlike most landlords, almost all their homes already fall below the social rent limit, with some tenants paying a few hundred euros per month. They notice little of De Jonge’s proposals, but much of Van Rij’s. Like now: the back of their buildings needs to be painted. Costs: 10,000 euros per building, says Kick. “How are we going to pay for that? Normally I do that from the rental income, but now that is no longer possible.”

Wim: “Renting is important, isn’t it? There are fast real estate guys, but this is a different genre. We meet a need. Students, people with a limited income, who rent from us. What will they need later?”