The obscure housing market made lucid. The influence of demographic and economic factors on the differences in housing price development by region and house type in the Netherlands
Oosten, T. van
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In the first decade of the 21st century, house prices in the Netherlands rose sharply. In the period 2000-2008, the total average price of houses in the Netherlands increased by more than 59%. However, after the collapse of Lehman Brothers, which marked the beginning of the recent economic crisis, house prices declined in real terms for the first time since the end of 2007 after a decade of a continuous price increase. At the national level, the housing market started its recovery in 2014 and this growth continued throughout 2015. The number of home sales as well as house prices have risen significantly. Explanations for these recent developments are the low interest rate, economic growth and increased consumer confidence. Nevertheless, the price development of housing varies greatly by region. The growth is faster in, for example, Amsterdam compared to Parkstad Limburg, as a result of demographic and economic developments. This raises questions about the extent to which the trend in house prices between regions can be explained in relation to demographic and economic factors, and how these will develop in the near future. This study focuses on an analysis of the house price development in the Netherlands for the period 2000-2015. The aim of this study is to explain the development of house prices by house type and between regions in the Netherlands on the basis of demographic and economic factors. It also aims forecast the development of house prices. House price development refers to the fluctuation of the average purchase price by house type. In this study, we distinguish five types of houses: detached houses, 2-under-1-detached houses, corner houses, terraced houses and apartments. A region refers to a COROP-area, also referred as a region on NUTS 3 level. COROP-areas have been defined in 1970 by the Coordination Commission for Regional Research Program such that each COROP-area consists of a central point (e.g., a city) and the surrounding economic and social region. The Netherlands is divided in 40 COROP-areas. Demographic and economic factors considered in this study are population, income and employment. On the basis of single and multiple regression analyses, the influence of these factors is examined on the house price development by region and house type. This study shows multiple differences between regions and house types in regard to house price development. The increase in the average price in sixteen years varies greatly between regions: from 16.5% in Zuid-Limburg up to 98.9% in Zeeland. In addition, the higher segment of the housing market (mainly detached houses) responds more strongly to the economic cycle than the lower segment of the housing market. This study also found significant differences in the house price development between regions and house types. Each house type is significantly different in terms of the price development. In addition, 69.9% of all the regions differ significantly. This confirms the importance of segmentation according to different house types and regions in the analysis of house price development. Moreover, further analyses also reveal that an increase of the total population, the total average household income and the number of jobs and businesses has a positive impact on the house price development. The analysis also shows that demographic fluctuations have a bigger impact on the house price development in areas with a declining population. In addition, this study reveals that demographic growth affects the house price development more significantly than population decline. Furthermore, the income variable accounts for the house price development better than population and employment variables. Subsequently, the historical house price development and the explanatory factors demography, income and employment are used to make a forecast of the house price development. As demographic and economic factors explain the historical house price development, the anticipated development of these factors allow to predict future house prices. Particularly, demographic projections are to some extent useful in forecasting the house price development. This study concludes that differences in house price development per house type between regions in the Netherlands are largely explained on the basis of demographic and economic factors. There are differences in the degree of influence of these factors. In addition, the explained variance differs between COROP-regions and house types. Nevertheless it is possible to make a reliable forecast of the house price development. On the basis of the analyses of this study and using demographic projections, it is possible to forecast the house price development for each COROP-area and house type until 2020.