1. Introduction
Dutch housing market has undergone significant legislative transformations, particularly with the introduction of the Affordable Rent Act, effective 1 July 2024. This sweeping reform aims to create a more regulated rental sector, particularly in the mid-market rental segment, and has been a subject of intense debate and scrutiny. It now provides clarity to the market in terms of applicable regulation.
1.1 The Affordable Rent Act
- The Affordable Rent Act (Wet Betaalbare Huur) has expanded the scope of rent regulation, previously confined to social housing (sociale huursector), to encompass the mid-rent segment (middenhuursector). This has introduced a new mid-market rental segment for residential units with an initial rent between the liberalization threshold and up to 186 Woningwaarderingsstelsel (WWS) points. The Act mandates the application of the WWS points system, which determines the maximum permissible rent based on various property attributes, to both the low and mid segments. This system has been modernized to place greater emphasis on energy efficiency and quality of amenities, potentially affecting over 300,000 residential units with an average rent reduction of EUR 190 for new tenants. Municipalities may be enforcing compliance with the Affordable Rent Act from 1 January 2025.
- Investors are urged to recalibrate their strategies in light of these changes. The Act's introduction has sparked concerns about a potential decrease in the availability of rental properties, as landlords may opt to sell to owner-occupiers instead and construction of new housing may continue to be low despite high demand. To mitigate investor apprehension, the government has allowed a 10% premium on new rental properties in the mid segment, valid for 20 years, if construction commenced up to 2028 and units are taken into use after 1 July 2024.
- Despite these concessions, the legislation has faced criticism for potentially deterring investment in affordable housing. It has been recognised, however, that there is a lack of coherence between fiscal policy on real estate investments and housing policy. Investors are currently subject to a high real estate transfer tax rate of 10.4%, which is believed to be hindering necessary investments in housing. Considering that investors need short-term certainty to make informed decisions, a motion has been adopted in the Dutch senate to request the government to explore ways to substantially reduce the real estate transfer tax for investors before the decision-making process in August. The aim is to give an extra boost to investments in housing.
1.2 Cap on annual housing rent increases
- The Dutch government has extended the cap on annual rent increases in the non-regulated housing segment (vrije huursector) for the next five years, until 1 May 2029, by extending the Limitation on Rent Increases Act (Wet maximering huurprijsverhogingen). Landlords are allowed to raise rents by a maximum of inflation plus 1% or the increase in collective labor agreement (CAO) wages plus 1%, whichever is lower. This percentage is announced annually. As a result, the annual rent increase in 2024 for approximately 640,000 households renting in the private sector is limited to 5.5%.
- The statute of limitations for missed rent increases has also been adjusted. Landlords can only implement missed annual rent increases if they have informed their tenants annually and only apply the missed rent increases from the last two years. If the tenant has not been informed annually, the landlord can only apply the missed increase from the past 12 months.
- The extension aims to protect tenants in the private sector from excessive rent hikes, providing them with greater certainty about their housing costs. The necessity of the cap will be re-evaluated in 2027.
1.3 Abolishment of fixed term housing leases
Fixed Lease Term Act (Wet vaste huurcontracten), effective 1 July 2024, has abolished fixed-term residential leases, certain exceptions excluded. Landlords as a consequence can no longer enter into temporary lease contracts that terminate solely due to the lapse of the applicable rent term. Termination of a lease agreement now requires explicit tenant agreement or court-granted termination based on statutory grounds.
1.4 Sustainability
Investors can enhance the sustainability of their portfolios and optimize their WWS-point tally by focusing on improving the energy efficiency of their properties. The system is designed to assign greater weight to energy labels, penalizing properties with lower ratings while rewarding those with higher ratings. This approach not only encourages landlords to upgrade the sustainability of their properties but also affects the classification of the rent sector rental units fall in. In addition, available outdoor space to a tenant can be taken into account, granting a higher amount of WWS-points to outdoor space.
1.5 Case law development
- In addition to the regulatory developments, recent case law developments raised significant concerns in the real estate sector regarding clauses in residential lease agreements that allow for annual rent increases based on the consumer price index (CPI) plus an additional percentage.
- The Amsterdam District Court was the first to deem such clauses unfair and has nullified them. This is based on the legal framework provided by the European Directive 93/13/EEC of April 5, 1993, which protects EU consumers from unfair terms in standard contracts for goods and services. The Directive includes a 'blue list' of examples of terms considered unfair. A term not individually negotiated is deemed 'unfair' if it significantly disturbs the balance of the parties' rights and obligations to the detriment of the consumer. The European Court of Justice has attached far-reaching consequences to the finding of an 'unfair' term, prohibiting reverting to national law as a fallback.
- Case law rulings suggest that entire clauses, not just the unfair parts, may be invalidated, and landlords cannot fall back on statutory law. The situation has created uncertainty, especially for properties rented out by investors with such clauses, potentially among other affecting ongoing disputes, allowing tenants to reclaim or offset overpaid rent, and impacting property values.
- This has significant implications. The Dutch Supreme Court has been asked for a preliminary ruling to clarify the scope of these issues. In the meantime, case law is developing, and tenants are considering class actions to avoid rent increases. The real estate sector awaits the Supreme Court's decision with great interest, as it will have far-reaching implications for landlords, tenants, appraisers, and financiers.
1.6 Road ahead
The legislative package introduced by the Dutch government represents a significant step towards addressing housing affordability and quality. With the Affordable Rent Act in effect, its long-term impact on the housing market and investment climate will be closely monitored. Upcoming changes to fiscal policy on real estate investments and housing policy will be crucial in shaping the future of the Dutch housing market.
