The economy took center stage in the Dutch election campaign, as the euro zone's fifth-largest economy is set to slide back into recession in the second half of the year. Unemployment stands at a seven-year high of 6.5 percent but the biggest problem may not have even fully unfolded yet: the shaky grounds of the housing market.
According to ING, one in four Dutch homeowners will be in negative equity by the end of 2013, meaning the outstanding debt on their homes will be greater than their value.
This leaves mortgage banks with potentially big losses, but Elco Brinkman, President of the Dutch builders association, Bouwend Nederland dismisses claims that the Dutch housing market could face a “Spanish-style” fate.
The boom in housing has been spurred by easy credit and favourable tax breaks for homeowners, but the crisis has taken its toll on the sector.
Lower disposable income, changes in tax deductibility and uncertainty about jobs has led to a steep decline in prices.
Since 2008, house prices have fallen some 15 percent and according to Rabobank, the Dutch housing market hasn’t reached a bottom yet.
Rabobank analysts expect Dutch house prices to drop by some 5 percent in 2012, with a further 4 percent decline seen for 2014.
By 2013, the price decline from 2008 will have reached 18 percent.
Elco Brinkman of the Dutch builders association told CNBC that the election outcome should be good for the ailing housing market: ”Homeowners lost billions and billions already. They are worried about purchasing power and what they need is new trust and new activity. The may give them some hope."
More specifically, homebuyers are waiting to get more clarity on how the new coalition government will deal with the deductibility on mortgage interest.
Both centrist parties have indicated that they will cap the amount on which interest payments are deductible, but there is high uncertainty what the coalition government will actually agree on and what impact that may have on prices.
Rabobank analysts believe though that “more clarity on the housing market reform may ultimately have a positive effect on prices."
CORRECTION: An earlier version of this story identified Elco Brinkman as the President of the Dutch homeowners association. In fact, Brinkman is the president of the Dutch builders association.