The impact of the Affordable Rent Act

The Affordable Rent Act has been in effect for over three months now. We have previously discussed the potential consequences of this law, and these predictions are becoming reality as the number of available rental properties continues to decline. In this blog, we aim to update you on the current state of the rental market, the laws currently in effect, and the opportunities still available for investors and landlords.

The shrinking rental market

We fully agree that rental housing should remain affordable for everyone, including middle-income earners. Everyone deserves shelter, and creating mid-range rental properties specifically for these groups is a noble goal. Especially since there is a significant housing shortage in the Netherlands, expected to persist at least until 2030. Therefore, it's crucial to stimulate the housing market. However, the Affordable Rent Act is not achieving this; rather, it is causing the rental market to shrink. How?

One consequence of regulating the rental market is a drop in rental prices. While this sounds beneficial for tenants, it ultimately isn’t. Due to this regulation, renting out properties is no longer profitable for many landlords, resulting in them selling their properties. This is not only due to the Affordable Rent Act but also the high tax burden and rising interest rates, making it unfeasible for many private landlords to continue renting. The result: the tightness of the rental market increases, as was predicted beforehand.

A 30% decline

In the first quarter of 2024, the supply of private sector rental properties shrank by almost 30%, a massive drop. It was expected that these former rental properties would enter the market for first-time buyers and middle-income earners. However, this has not happened, as these groups simply cannot borrow enough to purchase these properties in the current housing market. Landlords can no longer rent, tenants have far fewer options, and prospective buyers struggle to find affordable homes. In short, all three groups are negatively affected by the current regulations.

What laws are currently in force?

We understand that you may have lost track of all the new rules and regulations. To provide some clarity, we have listed the key laws currently in place below:

Affordable Rent Act

This law came into effect on July 1, 2024, and has had the most significant impact on the housing market so far. The goal is to create more affordable rental housing, as the points system (WWS) now determines a maximum rent for mid-range properties. Simply put, if your property has 186 points or fewer, you can no longer rent it out in the private sector, and a maximum rent applies. You can currently ask for a maximum of €1,100 per month, depending on the number of points. Due to this regulation, many properties that were previously in the private sector now fall into the mid-range category. For some landlords, this means a drop in rent of up to €600 per month, making it no longer profitable to rent, especially with the high tax burden. In many cases, it costs more to rent out the property than it generates, resulting in landlords selling these homes, removing them from the rental market—possibly for good.

Good Landlordship Act

The Good Landlordship Act came into effect in July 2023. This law helps prevent undesirable rental practices and has, among other things, established a complaints hotline in each municipality where tenants can report issues with their landlords. The rules under this law include a maximum security deposit (two months' rent), tenant rights and obligations, and anti-discrimination measures. Municipalities are responsible for enforcing this law.

Fixed Rental Contracts Act

In addition to the Affordable Rent Act, the Fixed Rental Contracts Act was introduced. Under this law, temporary rental contracts are no longer allowed, and contracts must be permanent from the start. This, combined with the changing rental regulations and tax burden, places extra pressure on landlords. Many are willing to rent long-term, but what if new regulations are introduced in a year that make renting even less profitable? Previously, landlords could offer two-year contracts and reassess after that period, but that’s no longer possible. Tenants now have rental protection from day one.

Home Purchase Protection Act

This law has been in place for a while and prevents properties from being easily bought up for rental purposes, especially in popular areas. The intention is for the buyer to live in the property for the first four years and not rent it out. This is meant to keep properties available for people who want to live in them rather than investors. Municipalities can decide if and how they want to apply this law, often setting a minimum property value (WOZ) above which a property can be rented out.

Limiting Rent Increases

Previously, it was possible to add an extra percentage to rent increases, beyond inflation + 1%, as stated in the rental agreement. Since May 1, 2021, however, this is no longer allowed. The Nijboer law has been in effect since that date and was extended for another five years on May 1, 2024. This means that rent can only be increased annually by wage growth or inflation (whichever is lower) + 1%, with a maximum of 5.5%. Even if your rental agreement states otherwise, every landlord must adhere to this limit. If a landlord increases rent by more than 5.5%, tenants can file a complaint with the Rental Committee, and landlords could face significant fines.

What opportunities are left in the market?

As a landlord, it’s essential to focus on the long term. Real estate values continue to rise. If you don't need to sell right now, we recommend holding onto your property. Is it possible to invest in your property by improving its energy label? If so, do it! The better the label, the more points your property receives, and the higher the rent you can charge. Renovations can be costly, but in the long run, they can pay off significantly, turning your property into a free-market rental and greatly increasing its value on the sales market.

For the government, it’s crucial to stimulate construction. The housing shortage can only be resolved by building more homes. This won't happen by introducing more regulations. The current barriers to building are high interest rates, long permit processes, and high construction costs. Stimulating construction should be the priority, not regulation. By building more and loosening affordability requirements, the pressure on the market will ease, and more affordable homes will become available.

Do you own a rental property and need advice on the best long-term option—whether to rent, sell, improve sustainability, or renovate? We’d be happy to assist you with no obligation. Feel free to contact us at 023-5329817 or haarlem@koopsmakelaardij.nl.