Major Factors
Strengths
Weaknesses
- Dutch social housing fulfills an important public policy role for the government in the Netherlands as providers of affordable homes.
- After the 2015 housing act, the sector operates under strict regulation and oversight, focusing on core activities.
- Dutch housing providers benefit from guaranteed loans for its social assets through the guarantee fund Waarborgfonds Sociale Woningbouw (WSW).
- Rent restrictions affect the sector's financial position and constrain long-term planning.
- The National Performance agreement to build 300,000 homes increases the sector's capital expenditure (capex) and will likely raise indebtedness.
Recent Events: Additional Capex Could Increase Dutch Social Housing Providers' Debt
The landlord levy (a property tax-like expense) was fully abolished in 2023 and freed up €1.7 billion. The levy was ended in return for accelerated construction of 300,000 units by 2030 (increasing the stock of units 13%) as outlined in the National Performance agreement (NPA), introduced in 2022. However, we understand the funds from the levy abolishment were spent on lowering rents for the most vulnerable tenants and improving the energy efficiency of existing homes.
We therefore think the sector's indebtedness will likely increase as providers finance the construction with new debt. Nevertheless, debt accumulation will be gradual. We understand that there could be delays in implementing the agreement because the providers face issues like high inflation, high interest rates, land scarcity, and delays in permit allocation.
The providers will also increase development in the submarket rent for mid-income tenant segment, which, although under supervision from the regulator Autoriteit woningcorporaties (AW), does not benefit from guaranteed loans from WSW. We understand there are discussions on extending guarantees to this segment via WSW or a new fund.
Social housing providers are also focusing on improving the energy efficiency of the existing homes. Currently, about 92% of the units in the sector is assessed for energy efficiency at 'D' or better (with 'A' being the highest). From 2028, the providers will have to improve the energy efficiency for the 8% of homes assessed at 'E', 'F', and 'G'. Since the required investments are not very significant, we expect this won't have a large impact on the sector's investments in the existing stock.
Public Policy Mandate And Regulatory Framework
In the Netherlands, social housing is provided primarily by housing associations (private and independent nonprofit organizations). About one-third of all housing units in the country, or 75% of the rental stock, is classified as social or affordable housing. These associations have a legal obligation to give priority to households with lower incomes.
Sector stakeholders include the government, which sets the rules; the regulator--AW, which is responsible for ensuring that the associations focus on their core task of providing affordable housing and oversees the governance; and WSW fund, which is concerned primarily with the associations' business models. The framework is structured to uphold uniform and transparent oversight of the associations to ensure satisfactory sector standards.
One of the government's main tasks in the sector is to establish maximum rent increases. In December 2022, the basis of this increase changed from CPI-linked to wage-linked (wage growth minus 0.5%) and will return to the CPI-linked basis from 2026. We think this constrains the associations and could put pressure on the sector's financial performance.
Under the 2015 housing act, AW is responsible for ensuring that the associations focus on their core task of providing affordable housing. Should an association fail to adhere to the regulatory framework or displays deficient internal risk controls, for instance, AW can impose sanctions or appoint a supervisor. The authority also ensures that associations comply with regulations regarding derivatives and investments.
About 98% of housing associations are members of WSW, and ultimately backed by the Dutch government through a backstop agreement. WSW conducts risk assessments for participating associations and categorizes members based on underlying risk metrics. Embedded in this comprehensive framework are frequent and comprehensive reporting requirements to ensure that financial issues are identified and addressed early. WSW's public policy mandate is to ensure cost-efficient funding for the sector by extending guarantees to the associations.
Support And Negative Intervention
The main form of systemic support stems from WSW's loan-guarantees, allowing the sector to access cost-efficient funding for its activities deemed as vital for the general economic interest (for instance, social activities). The sector receives no grants or subsidies from the government.
As seen in the Vestia case, the solidarity in the sector is high and the first line of defense is the sector itself. Vestia used to be one of the largest social housing providers in the Netherlands, but got into trouble because of its significant use of derivatives back in 2012. The provider was split into three entities, and its debt spread among the majority of Dutch social housing providers.
We think there is a track record of negative intervention from the government, which might continue. In 2021, the government imposed rent freeze in response to the pandemic. Also, we view the NPA as a form of negative intervention because it was introduced without adequate compensation from the government and will be likely financed with new debt.
Related Criteria
- Criteria | Governments | General: Methodology For Rating Public And Nonprofit Social Housing Providers, June 1, 2021
Related Research
- Waarborgfonds Sociale Woningbouw, July 9, 2024
- State of The Netherlands, April 22, 2024
This report does not constitute a rating action.
| Primary Credit Analyst: | Ekaterina Ermolenko, Stockholm 46 708 770 286; ekaterina.ermolenko@spglobal.com |
| Secondary Contacts: | Abril A Canizares, London + 44 20 7176 0161; abril.canizares@spglobal.com |
| Felix Ejgel, London + 44 20 7176 6780; felix.ejgel@spglobal.com | |
| Research Assistant: | Garance Bossard, Paris |
| Additional Contact: | Sovereign and IPF EMEA; SOVIPF@spglobal.com |
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