How housing associations lose their value: the value gap in the Netherlands Johan Conijn & Frans...
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![Page 1: How housing associations lose their value: the value gap in the Netherlands Johan Conijn & Frans Schilder Amsterdam School of Real Estate/ University of.](https://reader036.fdocuments.us/reader036/viewer/2022070323/56649dc35503460f94ab5240/html5/thumbnails/1.jpg)
How housing associations lose their value: the value gap in the Netherlands
Johan Conijn & Frans Schilder
Amsterdam School of Real Estate/ University of Amsterdam
![Page 2: How housing associations lose their value: the value gap in the Netherlands Johan Conijn & Frans Schilder Amsterdam School of Real Estate/ University of.](https://reader036.fdocuments.us/reader036/viewer/2022070323/56649dc35503460f94ab5240/html5/thumbnails/2.jpg)
The value gap
• Value gap: concept used in gentrification theory (Hamnett & Randolph, 1988)
• Value gap is the difference between ‘vacant possession value’ and ‘tenanted investment value’.
• Value gap may trigger gentrification by conversion rental houses into owner occupied houses
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Focus of the paper
• Value gap in the Netherlands in the social rented sector
• Decomposition of the gap into 6 components using a market equilibrium as a reference
• Analysing differences between housing associations
• Consequences for housing policy
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The gap: result of a dysfunctioning housing market (1)
• Owner-occupied sector
- fabourable tax treatment (deductability of interest payments)
- very low elasticity of supply (land use restrictions)- tax subsidy is capitalized in the value of the
houses (upward push of 15% - 30%)
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The gap: result of a dysfunctioning housing market (2)
• Rental sector- rent control for 95% all rental houses (profit and
non-profit)- rent level (far) below market equilibrium level
(entrance to the market is rationed by queueing)- rent control depresses the investment value of the
house- additional to rent control a system of housing
allowances exists
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The gap: result of a dysfunctioning housing market (3)
• Housing associations:
- 455 associations, 2,2 million houses- dominant postion on the housing market (1/3 of
total stock; ¾ of rental stock)- solid financial position (average 30% net equity
based on net present value assets and liabilities)- not-for-profit: limitied incentive to sell houses
(average yearly 0.6% of stock)
![Page 7: How housing associations lose their value: the value gap in the Netherlands Johan Conijn & Frans Schilder Amsterdam School of Real Estate/ University of.](https://reader036.fdocuments.us/reader036/viewer/2022070323/56649dc35503460f94ab5240/html5/thumbnails/7.jpg)
Used data
• Data provided by the national regulator (Central Fund for Social Housing)• Vacant possession value
- based on tax valuation (Valuation for Property Act), usable approximation of the vacant market value
• Tenanted investment value- net present value of the cash flows based on the own policy of the housing
associations (presuming ongoing rental situation)
- 455 associations, 2,2 million houses- dominant postion on the housing market (1/3 of total stock; ¾ of rental - solid financial position (average 30% net equity based on net present value assets
and liabilities)- limitied incentive to sell houses (average yearly 0.6% of stock)
![Page 8: How housing associations lose their value: the value gap in the Netherlands Johan Conijn & Frans Schilder Amsterdam School of Real Estate/ University of.](https://reader036.fdocuments.us/reader036/viewer/2022070323/56649dc35503460f94ab5240/html5/thumbnails/8.jpg)
Value gap per house
Value gap
Vacant possessio
n value
Tenanted investment value
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Some figures
Table 1: Vacant possession value, tenanted investment value and the value gap present in association-owned houses, in euros, 2007
N Minimum Maximum Mean Std. Deviation
vacant possession value 2,242,830 61,916 334,479 151,591 27,320
tenanted investment value 2,242,830 427 104,170 33,512 7,355
value gap 2,242,830 11,460 296,734 118,079 27,508
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Decompostion of the value gap: the model
• Reference: market equilibrium without interference of the government policy: there is in principle no value gap
• Value of the house is equal to net present value future cash flows (market equilibrium values)
• Market equilibrium rent level based on well known user costs formula
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Decompostion of the value gap: six components
• Six components are distinguished
- the favourable tax treatment in the owner-occupied sector- a difference in the remaining lifespan- a difference in rent level- a difference in maintenance costs- a difference in management costs- a difference in residual value at the end of the remaining
lifespan
Differences: equilibrium market versus housing association
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Average values taken by housing associations
Market equilibrium values
Remaining lifespan 23 years 23 + 25 years
Rent level 2007 € 4,383 endogenous, determined within the model
Maintenance costs 2007
€ 1.125 € 875
Management costs 2007
€ 1,089 € 730
Residual value (2007 prices)
€ 5,000 15% of the market equilibrium value of the
house
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Value of macro-economic parameters
• Inflation (CPI) 2%• Price increase construction maintenance and
management costs (plus 1%) 3%• Yearly rent increase 2.25%
(3% minus 0.75% annual obsolescence)• Desired total rate of return 6%
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Breakdown of the value gap, billion euros, 2007
Vacant possession value 340.0
Effect of tax policy - 68.0
Market equilibrium value 272.0
Effect of shorter lifespan - 25.2
Effect of lower rent level* - 127.8
Effect of higher maintenance costs* - 14.9
Effect of higher management costs* - 21.3
Effect of lower residual value* - 7.6
Tenanted investment value 75.2
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Differences in the relative rent gap per house
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Other results of the model
• Depreciation 1.3%
(varies between 0.91% and 1.77%)
• Market equilibrium rent level € 6,836– Actual rent level € 4,383– Implicit subsidy € 2,453
• Total implicit subsidy (yearly) € 5.5 billion
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Loss of direct return
N Minimum Maximum Average Std. Deviation Market direct rate of return 2,242,830 3.91 4.77 4.32 0.09 Actual direct rate of return 2,242,830 0.08 5.23 1.84 0.44 Loss in direct return 2,242,830 - 1.11 4.65 2.48 0.43
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Loss of direct return
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Results as a management tool
• Market equilibrium values as a reference point for benchmarking:- performance measures in relation to the market- performance measures in relation to the average
of the sector
• Identifying opportunities to generate cash flow instead of selling
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Policy implications
• Are housing associations a cost efficient instrument of housing policy?
• Is a below markt rent level an effective instrument to secure affordability?
• A change of the general implicit subsidy to a more specific extended system of housing allowances is required