Almost every millennial knows someone who is forced to live with his or her parents. Due to the housing shortage, a house has become unaffordable. More ‘build, build, build’ is not the solution, however. The problems in the Dutch housing market go deeper. It is a symptom of the systematic rot in the Eurosystem.
‘Why is the ECB relentlessly pursuing this policy?’
The root of the housing problem lies with the European Central Bank. For more than eight years now, the ECB has tried unsuccessfully to achieve its inflation target by means of large-scale purchases of government bonds in combination with keeping key interest rates low for a long time. CBS chief economist Peter Hein van Mulligen showed recently pointed out that the main cause of high house prices in the Netherlands is not so much a housing shortage, but the persistently low interest rates. Ultimately, this leads to more demand for housing. We also see this in Germany, where house prices are the highest increase know since 2007.
In the European Parliament early I ECB President Christine Lagarde on her policy choices. Lagarde reluctantly admitted that housing bubbles are inflating in some countries and cities, but her policies are necessary to avert an economic crisis. A fallacy. Unemployment is falling and inflation continues to grow. If Lagarde cannot rule out the possibility that its loose money policy could lead to persistently high inflation, then that calls for restraint. Why is the ECB relentlessly pursuing this policy?
The answer to that question is easy to guess: in debt-laden Southern Europe, government bond yields should not rise too much, otherwise the financing of government debt will be jeopardized. If Italy has to pay five percent more on the capital markets for ten-year bonds instead of the current 0.667 percent, then the budget will collapse. Then the country is bankrupt.
‘The fact that my contemporaries can no longer buy a house is secondary’
And this is precisely the problem: the policy pursued by the ECB is not monetary independent, but aimed at keeping the eurozone together. At any cost. The fact that Dutch savers and pensioners are deprived of their wealth is of secondary importance. The fact that my contemporaries can no longer buy a house is secondary. It is the rigid one-size-fits-all structure of the eurozone that forces the ECB to conduct unorthodox monetary policy.
It is therefore better to choose a policy that excludes this risk. But the ECB does not want to accept such systemic criticism. That would mean that the fundamentals under the Eurosystem are called into question.
Dornbusch’s law says that what is unsustainable eventually stops. It may take a while, but if the markets do correct, it could be faster than people think. The ECB will then have to raise interest rates too late, and too hard. The economic consequences will be incalculable.
Of course, you also have to build. Due to the migration policy of the Rutte cabinets, the population is growing, there are more and more single-person households and too little was built during the credit crisis. But the solution to build the Netherlands ruthlessly full with prefab residential towers is shortsighted. The elephant in the room is the ECB’s monetary policy. It’s time for politicians to name it and come up with solutions. That starts with allowing weaker countries to exit the eurozone.
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