The unfortunate reality is that housing prices in most cities have become too expensive for many people to afford. There are numerous factors contributing to the increase in housing costs, but one of the main suspects is investors purchasing homes with the intention of renting them out. These rich villains are acquiring housing that could otherwise be available to young families seeking to purchase their first home, thereby driving up real estate prices. Initially, the negative impact of investors in the housing market was only a topic of online frustration. However, with the recent implementation of a ban on investment rentals in the Netherlands, economists now have the opportunity to examine its effects through empirical research.
The study, called Buy-to-Live vs. Buy-to-Let: The Impact of Real Estate Investors on Housing Costs and Neighborhoods, came out last week. To understand the impact of a 2022 rental ban researchers compared the property and rental prices with and without the ban. They focused mostly on the city of Rotterdam because the ban only applied to specific neighborhoods. This way they could study how similar neighborhoods compared to each other over time, not just compare with two different time periods.
The ban did indeed reduce the number of properties purchased by investors, by twenty-three percent to be exact. On top of that, the majority of the houses that did not sell to investors were bought by first-time homebuyers. So this should mean that the cities became more affordable, right? Well, turns out not really. The research found that there was no measurable impact on property value. The only change that they saw was that of rental prices, which actually went up in the areas that had the ban.
Researchers also noticed that there were some negative consequences of the ban, which is usually the case when it comes to regulations like it. Since renters are usually lower income than homeowners, limiting rentals meant that new residents were generally more affluent in areas with the ban in place. Translation: the neighborhoods became less attainable for lower income people to live in and therefore less equitable. This of course goes against what the law was intended to do.
We are all looking for someone or something to blame for the unaffordable state of housing. Unfortunately, it is not as easy of a problem to solve as many hoped. Bans on investment rentals were thought to be a way to lower competition for homes and therefore prices, but in fact they didn’t have that effect. Rather than restrictions, maybe the Dutch government should look into ways to increase the supply of housing like changing zoning laws and speeding up the permitting and construction process. It would be nice to have a villain in the fight for housing affordability but this is not a Disney movie and the reality is not so simple.
While the U.S. has not experimented with rental bans like the Netherlands, plenty of states have rent control laws. This map shows which laws each state has enacted to give a good picture of where affordable housing has become a political issue.
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