A little history
Can you imagine a country where the well off and the less fortunate live in the same neighbourhoods, send their children to the same schools and buy groceries from the same shops? A place where families with a low income can feel confident that their house is well maintained and that the landlord charges them a rent that covers the costs, but no more than that? This may sound like a socialist utopia (and maybe it is) but it’s a pretty accurate description of the way the Dutch organise social housing. The groundworks of this system were laid roughly 100 years ago. And, surprising as it may seem, there are actually some similarities between the early 20th century Netherlands and some other countries today. Such as a fast changing society, farmers leaving their villages to look for work in the cities, slums notorious for overcrowding, unsanitary and squalid living conditions and poor families living crammed in single-room accommodations without sanitation. The more privileged members of Dutch society found these miserable housing conditions hard to ignore in those years.
Several initiatives were taken around the year 1900 to address the housing situations of the poor; not only by the government but also by diverse factions of Dutch civic society. The churches started some initiatives, others originated from the labour movement and yet others from wealthy citizens and rich industrialists. But all these initiatives came down to one thing: using local funds to develop simple but decent housing for the working class. These social housing organisations were neither controlled by the state nor profit-driven. They aimed to provide decent housing at affordable prices.
Dutch social housing today
Fast forward to 2015.
The Dutch social housing corporations have stood the test of time. Together they own 2.4 million houses, which is roughly one third of the total Dutch housing stock.
Some social housing corporations are small entities with less than 100 houses. However, the largest of them all provides housing to well over 75,000 households. Typically they have their focus on a specific city or region and local monopolies are not common. The city of Amsterdam, for instance, has nine active social housing corporations within its territory.
Most social housing corporations are foundations. The statutory objective of these foundations may have changed over time but the essence is still the same: to provide decent and affordable housing for those in need. They are non-profit entities and are managed by an executive board with an independent non-executive board. The social housing corporations don’t receive any direct subsidy from the government. They themselves are responsible to keep their finances in check. As with any (profit driven) real estate company, that means collecting enough rent to cover all costs like maintenance, salaries, taxes and financing.
Business Model
How do they manage without subsidies? What’s the business model? Three factors provide the answers. First of all, the social housing corporations set up a scheme that functions like a non-profit mutual credit insurance company, ultimately backed-up by the Dutch national government. Loans that social housing corporations close with the bank are typically guaranteed by this scheme. If one social housing corporation goes bust, the others are responsible for repaying the loans. Since this scheme is considered very credit-worthy (current rating with Moody’s: AAA), banks charge low risk premiums. This results in low interest rates on the loans of social housing corporations, currently as little as 1.5% for a 10-year loan. Because of the low financing costs, social housing corporations can keep the rents low. The gains add up to roughly € 22 (US$ 25) per household, per month.
The second factor is less a matter of sophisticated design and more of lucky chance. Dutch housing prices have risen considerably in the last couple of decades. During the period 1995-2015, residential real estate prices rose 4.5% per year, easily outpacing inflation at 2.3%. As the happy owners of one-third of the Dutch housing stock, social housing corporations thus made a very decent indirect return on their assets. The third factor involves the price of building plots. Local governments charge social housing corporations less for building plots than they charge commercial real estate developers.
Good housing, mixed neighbourhoods
The way in which the Dutch organise social housing has some obvious advantages, especially for the tenants.
They get a decently-maintained house at an affordable price. It is also nice to have a landlord who, if and when required, works together with the municipal social workers. And there’s more. Social housing corporations are an important factor to keep spatial segregation at bay. To give an example, Amsterdam-South is one of the most popular residential areas in the Netherlands but it still has 30% social housing. Rich and poor live in the same neighbourhood. And as social housing is quite common it doesn’t come with a social stigma as in some Anglo-Saxon countries. Sometimes it’s hard to tell the difference between social and ‘normal’ housing. Just look at the picture above; can you tell which is which?
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Another advantage becomes apparent when a neighbourhood is in danger of impoverishment. If every single property is owned by individual investors, it’s difficult to break the negative spiral until it hits rock bottom. Some owners might be prepared to invest in their property, but only if they know that other owners will follow suit. Otherwise the investment will probably not deliver enough returns. In the Netherlands, social housing corporations are an effective bulwark against this mechanism. They typically own a large share of the properties in such neighbourhoods, have a long-term commitment, the necessary funds and the organisation to turn things around. Or at least make a very serious effort.
Social housing corporations are thus an important reason that less popular neighbourhoods in the Netherlands are not nearly as bad as the ones you might find in the US or UK.
Perfect system
Sounds like a perfect system, right? But there are drawbacks. Drawbacks serious enough for the Dutch government to bring about some changes in the social housing sector. An important disadvantage is that the dynamics of the housing market get disrupted. Tenants have a decently maintained house at a low rent and thus have little financial incentive to move, especially if they happen to live in a popular neighbourhood. Earlier in this article the posh neighbourhood Amsterdam-South has already been mentioned. In such areas, the difference between free market rents and the prices of social housing are significant. Households that managed to find themselves a social house in that area are hesitant to move. They might stay put even though the house becomes too small as the family grows or after old age has made it difficult to climb the stairs. Another drawback though less tangible is very real still. Together the Dutch social housing corporations have more than € 140 billion (US$ 156 billion) worth of real estate. Economists would say that this capital doesn’t give as much financial return as it would with some proper old-fashioned market discipline. And they are probably right. The big question however is how the social returns measure up to the lower financial returns. It’s a question easier asked than answered, but also a crucial question in the current debate in the Netherlands about the future of the Dutch social housing sector.
Inspiration to social entrepreneurs
Social housing corporations started off in the Netherlands in the early 20th century when the country was characterised by rapid urbanization and squalid living conditions for the masses. The Dutch social housing corporations initiated bottom-up, formed by religious groups, wealthy citizens and industrialists. That’s more than 100 years ago but it has proved to be a durable system. And it might give some inspiration to social entrepreneurs in other countries.
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